P2P vs R2R vs Q2C vs O2C:
What’s the Difference?

Taylor Pettis    September 8th, 2021    Leave a Comment

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Optimizing your organization’s procurement procedures can seem like a Herculean task, especially when so many of the processes that fall under the procurement umbrella—P2P, R2R, Q2C, O2C—seem like an alphabet soup. But understanding the key differences between these processes is a crucial step on the path to optimization. With that knowledge, your company can gain better operational insights, improve productivity, and make more informed business decisions.

Here, we’ll dive into the differences between P2P, R2R, Q2C, and O2C, what they’re used for, and why they’re critical to your organization.

At a Glance:
The Difference Between P2P, Q2C, R2R, and O2C

Before we get into the nitty-gritty details of each process, it can be helpful to understand the high-level differences between each process. Take a look at the table below as we compare and contrast P2P, Q2C, R2R, AND O2C. Find out what they are used for and which teams in an organization drive each of these processes.

PROCESS
TYPE

WHAT IS IT USED
FOR?

WHO DRIVES THE PROCESS?

PROCURE-TO-PAY (P2P)

Sourcing and paying for good and services

Teams making
purchases

QUOTE-TO-CASH
(Q2C)

Creating quotes for
customers

Sales
teams

RECORD-TO-REPORT
(R2R)

Verifying accounting compliance and making strategic financial decisions

Financial and
accounting
teams

ORDER-TO-CASH
(O2C)

Processing orders
from
customers

Customers
Fulfilment and shipping teams
Financial and accounting teams

The distinctions outlined in the chart above are just the crux of what makes each process unique. Below, we’ll take an in-depth look at all four processes to help you further understand how each functions.

What Is Procure-to-Pay (P2P)?

Procure-to-pay (P2P) is an essential process for organizations that utilize external vendors or suppliers and includes requisitioning, purchasing, receiving, invoicing, and paying for goods and services. Essentially, the P2P process covers every step needed for a company to obtain and pay for goods and services.

An Overview of the P2P Process

While the process can vary a bit from one organization to the next, the P2P process usually follows these overarching steps:

1. IDENTIFY NEEDS

Before an organization can procure and pay for goods and services, they must first determine what they actually need. This first step involves the applicable department (e.g. marketing, HR, sales, etc.) identifying what’s required, which potential vendor is the best fit, and how much the goods or services will cost.

2. CREATE PURCHASE REQUISITION

Next, the department must create a purchase requisition, an internal-facing request for purchase that accounting must review. If accounting approves the purchase requisition, the purchasing department will send a document called the purchase order (PO)—the official, external-facing purchase request—to the vendor.

3. RECEIVE PURCHASE ORDER (PO) APPROVAL

Approving purchase orders can be a time-consuming process—especially for organizations with a manual P2P process. That’s because both the buyer and vendor must approve the PO, which can take several rounds of internal and external modifications. But this back-and-forth is necessary for preventing errors. and ensuring all of the information is correct.

4. RECEIVE VENDOR’S INVOICE

Once the purchased goods or services have been obtained, the vendor will send an invoice to the buyer, whose accounts payable team will then begin the payment process.

5. PAY VENDORS THROUGH ACCOUNTS PAYABLE

Finally, the buyer’s accounts payable team will input the vendor invoice into the organization’s accounting system—a process that, when done manually, is time-consuming and can be riddled with costly errors. While modern organizations rely on software to help automate the process, some companies still use the manual approach of the past, which requires each vendor invoice to get keyed into the accounting system, pass through the appropriate people for approval, and then eventually get paid out.

steps of P2P process

What Is Quote-to-cash (Q2C)?

The quote-to-cash (Q2C) process includes all of the procedures related to sales activity that directly, actively leads to a sale, from working with a customer when they request a quote on a product to actually closing the deal and receiving payment. Because the line between some sales activities and marketing functions can blur, it’s important to note that some marketing activities that occur earlier in the buying funnel—like email marketing, cold-calling, and prospecting— aren’t truly part of the more measurable Q2C process.

steps of Q2C process

An Overview of the Q2C Process

Each of the following steps in the Q2C process works independently, but should be tied together by an overall cohesive, efficient process:

1. CONFIGURE THE PRODUCT OR SERVICE

The first step in the Q2C process is working with the potential client to determine the exact specifications and details they want in the product or service they’re interested in buying. The salesperson must take critical care in this step, as any manual errors can cause the lead to get frustrated and change their mind about buying the product.

2. UNDERSTAND THE PRICING STRUCTURE

Once the salesperson understands precisely what the customer needs, they’ll then determine how much the product will cost based on the pricing structure, including discounts and potential surcharges for specialized requests.

3. DEVELOP AND NEGOTIATE A QUOTE

Armed with the pricing information, the salesperson can next calculate the unit price, which they’ll present to the customer. Depending on the customer and their constraints and expectations, there may be some negotiation before both parties settle on a final price (if the customer still decides they want the product).

4. PROCESS THE CONTRACT AND GENERATE AN INVOICE

After the customer agrees to the quote, the sales team will develop a more formal contract, and accounting will generate an invoice. Again, special care must be taken during this step to avoid any potential contractual or billing errors that would put the relationship with the client at risk.

5. RECEIVE A PAYMENT RECEIPT

Once the customer has fulfilled payment on the product, the vendor’s accounts receivable team will send a formal receipt of payment, which must be accurately recorded in the accounting system of both parties.

6. MANAGE YOUR CONTRACT

Depending on what exactly a vendor is selling, they’ll most likely need to monitor the contract to ensure 1. That the customer gets what they’ve paid for and 2. To try and earn repeat business from the customer or upsell to them.

What Is Record-to-report (R2R)?

Record-to-report (R2R) is the process of collecting, processing, and delivering the information businesses use to make healthy financial and accounting decisions. It’s essential for strategic planning, accurate financial and operational feedback, and improving business functions for a better bottom line.

An Overview of the R2R Process

The R2R process, which also involves both preparing and reporting overall accounts, includes the following steps:

1. EXTRACT DATA

The first step to studying data, of course, is to pull the information you need. This data can come from a variety of sources and exist in multiple formats, so special extraction tools may be necessary. How often the data extraction occurs depends on the needs of the business, but quarterly and annual extractions are common.

2. COLLECT DATA

Once all the proper data has been extracted, it will then need to be collected in a single system for review. This allows you to more easily analyze the data, as it creates a bird’s eye view of information from different sources.

3. VALIDATE DATA

Next, the data that’s been extracted and collected must be validated to ensure accuracy and that it complies with accounting standards. Any overlooked mistakes could become costly errors down the road, both in terms of time and money.

4. TRANSFORM DATA INTO KPIs

After the data has been confirmed as accurate, it must be interpreted and translated into meaningful key performance indicators (KPIs). These KPIs will be used to measure efficiency, productivity, and room for improvement.

5. SHARE THE RESULTS

Finally, the finance and/or accounting team(s) determine the best way to present the resulting information and share the report with internal and external stakeholders. The report—which may differ depending on data complexity, information needs, and formatting requirements—is then used to make key business decisions moving forward.

steps of R2R process

What Is Order-to-cash (O2C)?

The order-to-cash (O2C) process is the organizations’ end-to-end procedure for order processing. Starting with a sales order and ending with customer payment, the O2C process is key for managing and improving customer relationships.

steps of O2C process

An Overview of the O2C Process

There are generally five steps that make up the O2C process:

1. CUSTOMER ORDERS

The O2C cycle begins once a customer places an order for goods or services through the organization’s order management system.

2. FULFILL THE ORDER

Once the order is placed, the organization prepares the product for shipment or schedules a service appointment with the customer.

3. SHIP THE ORDER

Next, the product is shipped to the customer or the service is fulfilled at the proper date and time.

4. INVOICE THE CUSTOMER

After the product has been received or the service has been completed, the organization generates and sends an invoice to the customer for payment.

5. RECORD PAYMENT

Finally, the organization’s accounts receivable team will record the customer’s completed payment in a detailed ledger.

Using Automation to Improve
P2P, Q2C, R2R, and O2C

The P2P, Q2C, R2R, and O2C processes provide critical functions to any business, so it’s essential to properly manage all four procedures.

However, this can be a daunting task, as each process is complex and time-consuming to handle—particularly for companies still using manual methods to do so. Outdated processes mean juggling the various documents involved (like requisitions, POs, invoices, and more), routing these documents to the appropriate parties, and handling all of the data associated with them. Disparate systems and human error can make these processes a costly, burdensome task for already overworked sales, accounting, and finance teams.

But modern organizations have lifted this burden from teams by automating these processes with robust software solutions. The result is optimized procedures that reduce inefficiencies and increase transparency across the organization. And because these solutions streamline each process through connecting disparate enterprise systems, eliminating manual data entry, and ensuring compliance, employees are freed up to focus on more important tasks.

MHC offers such flexible, automated solutions that meet the unique needs of your business. Learn how MHC can optimize your critical business functions, increase transparency, and reduce administrative spend, or request a personalized demo to see it in action.

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