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How synergies between order-to-cash and procure-to-pay processes drive better business efficiencies

Spenda
7 August - 4 min read

The order-to-cash (O2C) and procure-to-pay (P2P) processes are two essential frameworks that help businesses effectively manage their sales, procurement, and payment activities. In fact, both are closely connected in the supply chain, where the O2C process focuses on selling products or services to customers, and the P2P process involves buying goods or services from suppliers.

Keep reading to delve deeper into the O2C and P2P processes within a business, and learn that when these processes are effectively managed, the valuable advantages they offer, such as better operational efficiency and enhanced financial outcomes.

You can also download our Business Survival Guide: How to manage cash flow in uncertain times, which outlines everything that businesses need to do to optimise their cash flow and grow.

Order to Cash: Sales orders and cash inflows

The O2C process encompasses all the activities involved in receiving and fulfilling customer orders and collecting payment. The key stages involved in this cycle include:

  1. Order entry and fulfilment – All activities associated with collecting the order and customer information data, and the fulfilment, such as picking, packing, and shipping
  1. Invoicing and payment collection – An invoice is typically issued once the goods are shipped or services are provided and is then sent to the customer outlining the payment details (such as payment terms and the various payment methods your business offers).  
  1. Payment collection and reconciliation – This stage involves receiving, processing, and reconciling the payment by the accounts receivable team. Here, following up on any overdue or incorrect payments will also take place.

Procure to Pay: Purchase orders and cash outflows

The P2P process focuses on the procurement activities within a business, covering tasks such as identifying and ordering stock from suppliers, and performing prompt and accurate payments for these orders.  

  1. Order demand and supplier selection – The first step involves identifying what goods or services your business needs, how much you need, and where you can buy it from. At this point you will receive pricing from the supplier and can negotiate accordingly. 
  1. Purchase order (PO) creation and receipt of goods – A PO is then generated detailing the items to be purchased, agreed pricing, quantities, delivery dates and any applicable terms and conditions. 
  1. Invoice processing and payment – Once the goods are received and verified, the supplier invoice is compared against the purchase order and goods receipt. If everything matches, the invoice is then sent for processing and payment by the accounts payable team. 

The financial impact of effective O2C and P2P integration

From a financial perspective, the O2C process drives revenue through sales, while the P2P process incurs costs related to procurement. These interconnected processes involve crucial financial transactions, including invoicing, payment collection, accounts receivable, invoice processing, and accounts payable.  

Implementing smart systems with automation can greatly enhance the efficiency by eliminating repetitive and manual tasks and reducing the reliance on paper-based processes. Automation also improves the overall information flow, enhances data accuracy, and expedites the cash flow cycle. 

For example, by implementing an automated invoicing system, businesses can generate and send invoices to customers promptly, reducing the time between sales and payment collection. Similarly, automated invoice processing in the P2P process eliminates manual data entry, reduces errors, and speeds up the payment cycle, leading to improved supplier relationships.

Achieve better business efficiency and financial strength with Spenda

Spenda offers solutions that seamlessly bring the O2C and P2P processes into one connected framework. This helps bridge the gap between the buying and selling side and improves the way data is captured and shared across a business. 

Spenda’s O2C and P2P process framework.

By using Spenda, businesses can benefit from less manual administration work and improved cash flow. They can accelerate team productivity and use real-time data to accurately predict future cash flows and better plan strategic initiatives. 

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