Procure to Pay: Everything You Need to Know
Imagine running a 100m sprint with your legs tied. That’s what it is like when your procure to pay process is riddled with inefficiencies and waste. While you are fiddling around and manually generating your purchase orders for critical goods, your competitors would have already procured what they need and moved on.
Too many businesses around the world are still using outdated techniques to manage their procure to pay cycle and processes. Not only could it lead to operational disruptions, but it puts your long-term growth at risk. The good news is that the P2P processes have evolved significantly over the past few years, removing complexities and streamlining the procurement cycle end-to-end.
This post covers everything you need to know to get a fundamental understanding of procure to pay process management.
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What is Procure to Pay?
Every organization needs some raw materials and essential services to run its business effectively. The procure to pay process covers all the steps involved in successfully procuring these materials and services, from need identification to vendor payment.
Typically, the procure to pay process involves four key stakeholders: the department that raised the request, the procurement department, suppliers, and the accounts payable department (or an external agency in case of accounts payable outsourcing).
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The Procure to Pay Cycle
Now that you have an overview of the procure to the payment process, let’s break it down further and explore each step of the procure-to-pay cycle.
1. Identify the need
The departments needing raw materials or services will reach out to the procurement department with their purchase request. This request will contain specifications such as quantity, quality, and timeline, among others.
2. Generate requisitions
After the specifics are ironed out, the next step is to capture all the order details in your procure-to-pay processing software and generate a purchase requisition form. It will then be dispatched to the procurement department.
3. Evaluate the requisition
The procurement department will analyze the form, and look for inaccuracies, incomplete information, budgetary limits, and logistical constraints. Then they will take a call on whether to approve or reject the request.
4. Issue the purchase order
Once the requisition is approved, the procurement or purchase department will select an appropriate vendor and create a purchase order in their P2P processing software. This order is then shared with all relevant stakeholders for final approval and dispatched to the supplier/vendor.
5. Collect the receipt of the goods
After the vendor delivers the shipment, the procurement team will verify its contents and input the receipt of the goods to the P2P processing software. Once the verification process is complete, they will decide whether to approve or reject the receipt of the goods.
6. Verify the invoice
If the receipt of the goods is approved, the supplier will send an invoice to your accounts payable department. This invoice goes through a three-way matching with the purchase order and the receipt of the goods. It will be approved if the items and corresponding values remain consistent across the board. If not, it will be rejected and sent back to the supplier with a note on the inaccuracies.
7. Pay the vendor
Finally, the payment will be released to the supplier by the accounts payable team when the invoice is approved. The terms of the contract usually dictate the mode of payment. This 7-step process must be followed every time a new purchase request is placed by any department in an organization.
Benefits of using procure-to-pay
Following the automation of the procure-to-pay procedures, procurement and accounts payable are streamlined and improved. The following are some of the primary areas where progress may be seen.
Helps in saving time
Peer-to-peer (P2P) and procurement automating solutions can help the procurement team save time while also improving budget monitoring and supply chain logistics.
Better connection throughout the organization
Procurement software connects the entire organization, allowing new requirements to be authorized faster, suitable suppliers to be chosen based on available information, and purchase orders to be created and then consigned to suppliers, all digitally and conveniently traceable.
Minimize invoice processing expenses.
Automating saves time and money, allowing businesses to dedicate workers to more strategic efforts rather than recurring operations that could be automated.
Obtain complete visibility.
A peer-to-peer (P2P) technology enables transparency across the supply network, allowing buyers and suppliers to see the progress of invoices conveniently.
Improve the handling of abnormalities
Outliers can get the recognition they merit and be addressed sooner because most invoices are processed smoothly through.
Enhance your supplier partnership
Suppliers may find out when they'll be paid by using the supplier platform, which provides them with the data needed to make smarter decisions. Faster settlement of invoice deviations and complaints generates confidence and gives buyers more transparency.
Upper hand during negotiations
When suppliers are confident in their payment details, they may be prepared to offer conditions that are more attractive to customers while still guaranteeing that suppliers receive the income they require to expand their business.
Gather information for enhanced decision-making
P2P systems with strong on-demand reporting features are ideal. Companies can have more command over revenue and working capital by utilizing the current and past data available.
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Tips for Efficient Procure-to-Pay Management
The procure-to-pay process flow may seem complicated since it involves multiple stakeholders, dependencies, compliance regulations, and a lot of document management workflows. But there are ways you can make your P2P processes more cost-effective and streamlined.
The following tips will help you eliminate or minimize some of the biggest challenges associated with your procure to payment process:
1. Create a systematic framework
The P2P process is not as simple as buying a laptop from an e-commerce website. The best way forward is to break down the procure-to-pay process flow and standardize each step along the way. Then, make sure everyone involved knows their responsibilities, duties, and how and when to communicate.
2. Measure your effectiveness
Be sure to select and track key metrics that measure the efficiency of your P2P processes. You could look at metrics such as inventory level, working capital level, number of errors and inaccuracies, processing time, labour hours, operational disruptions, and additional expenditure, among other things.
3. Strive to build better supplier relationships
Slow turnaround times for approvals and delayed payments often make it hard to have a smooth relationship with your suppliers. It leads to disagreements, limited visibility, inaccuracies, and unexpected delays. Ultimately, it will slow down your P2P cycle.
4. Deploy a powerful procure-to-pay solution
As multiple stakeholders are involved in the procure-to-pay cycle, you often see each one using different tools and techniques to complete their tasks. This makes it hard to capture, compile, analyze and audit the data and monitor the status of critical tasks.
You can eliminate these challenges and make your procure-to-pay process seamless with a powerful P2P processing solution loaded with integrations and automation features. Learn more about this in the next section.
Procure-to-Pay Software
Let’s be honest, using spreadsheets or paper-based methods to manage the P2P cycle is a pain. It often leads to more manual work, slow processing times, and poor visibility. Using an ERP solution is not the answer either; it just doesn’t offer enough integrations and automation options to deal with the complexities posed by modern-day procurement flows.
Instead, get a dedicated Procure-to-pay solution that can operate as a paperless system. One that does everything from allowing departments to raise purchase requests and capturing data for three-way matching to releasing payments to suppliers on time. The benefits these applications offer are multifold.
Benefits of Procure to Pay Software
Companies that deploy procure-to-pay software enjoy benefits such as:
1. Improved visibility and transparency
A capable procure to payment process solution enables every stakeholder to have real-time visibility of what’s happening with their order. This will help each department plan their activities, make better decisions and ensure that critical business operations are not hindered.
2. Easier to maintain compliance
As all the data is accessible from a central location, audit trails will be easier to follow and verify. The finance team and auditors will be able to complete their job quickly. More importantly, as the trails are clear, the chances of being slapped with fines and penalties will be much lower.
3. Automate the boring stuff
Nobody wants to spend their time manually processing purchase requisitions, entering invoice data, or cross-checking the purchase order, goods receipt, and invoice. Not only does it slow down your team, but it is expensive and error-prone too. Robust P2P solutions come with automation and integrations that significantly reduce the time spent on each stage: auto-capture invoice details, automatically dispatch documents for approvals, generate automatic reports, electronic routing/archiving, and much more.
4. Reduces cost and spending
For starters, P2P software eliminates many repetitive and cumbersome tasks that form part of the procure to payment process: from manually entering invoice data to generating reports on vendor performance. This means fewer processing errors, improved productivity, and more time to spend on high-value tasks.
Secondly, robust P2P solutions ensure that every decision taken by your procurement department is consistent with your purchase policy and is strictly based on available inventory and operational data. Thus, minimizing the chances of maverick spending.
Challenges in the Procure-to-Pay Process
1. Time-consuming manual work
Multiple parts of a business usually have their methods, making data consolidation difficult. Two separate departments handle the functions of accounts payable and procurement, each with its own set of policies, methods, and goals. This lack of consistency might result in inefficiencies and blunders.
2. Governance and Compliance
Procurement processes are rigid due to a lack of data governance and quality to enable decision-making. The core premise of expenditure pre-approval is sometimes regarded as unnecessary bureaucracy, resulting in non-contracted spending and extemporary purchases.
3. Opaqueness in purchase commitments till they've been invoiced.
Organizations that use different systems frequently find themselves without access to information throughout the P2P process, but even if it is available, it may be erroneous. As a result, there is a lack of reporting across suppliers and spending, which influences the ability to execute strategic decision-making.
4. Incorrectly attributed costs
Procurement divisions are in charge of bargaining rates and concessions with suppliers, while accounts payable are in charge of following through on these agreements. Regulation non-compliance can result in considerable, unexpected spending in a paper-based workplace without automation that covers both procedures.
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Leading P2P Solutions
Now, if you are thinking about getting a procure-to-pay solution for your organization, here are a few top ones for you to consider:
- Nanonets AP automation
- SAP Ariba
- SAP Fieldglass
- Coupa BSM Platform
- Jaggaer One
- Basware Purchase to Pay solution
Conclusion
Running a successful business is like managing pit stops for a Formula 1 team. You have to constantly optimize your processes so that you can eke out every last bit of performance. Your P2P cycle is certainly one area that you shouldn’t overlook. Seamless procurement is the way forward. Those who embrace P2P technologies will have an advantage in expenditure incurred, user experience, and avoiding business disruptions.