Procure-to-pay: Everything you need to know
Imagine sprinting a 100m race with tied shoelaces. An outdated P2P process can slow you down just as much. While your team is busy with manual tasks like like invoicing and generating purchase orders for goods, your competitors are racing ahead with streamlined operations, leaving you in their dust.
The good news is that the P2P processes have evolved significantly over the past few years. AI, ML, and automated workflows are now being integrated to increase efficiency. These advancements reduce processing times, mitigate errors, and let your teams concentrate on important tasks rather than data entry and reconciliation.
This article offers a comprehensive guide to optimizing P2P process management. Learn how automation can streamline operations and position your business at the forefront of procurement innovation.
What is procure-to-pay?
Streamlining the path from procurement to payment is critical for business efficiency. Procure-to-pay (P2P) covers all the necessary stages — from identifying your business needs to ensuring suppliers are paid.
It is a subset of the larger source-to-pay cycle. It involves four key stakeholders: the department that initiates the request, suppliers, procurement, and accounts payable (or an external agency in case of outsourcing).
P2P should be as smooth as a relay race handoff. If you're fumbling the baton with manual, outdated systems, it's a race you won't win.
The procure-to-pay cycle
Efficient procurement performance, cost control, and strong supplier relationships depend heavily on a streamlined procure-to-pay (P2P) cycle.
Unfortunately, manual processes still hamper teams during critical stages such as invoice processing, payment, goods receipt verification, and utilization of supplier portals. Even in today's technological landscape, it's surprising that 31% of organizations rely on manual systems to manage these stages.
Let's explore each step of the P2P cycle and examine how automation can assist you in streamlining the process.
|1||Identify the Need||Departments send purchase requests to procurement including quantity, quality, and timeline.||Nanonets streamlines requisition processing within a unified system.|
|2||Generate Requisitions||Finalize order details and create a purchase requisition form.||Nanonets' AI-powered OCR extracts data from request forms, enhancing data accuracy.|
|3||Evaluate the Requisition||Procurement analyzes the form for any issues and budgetary constraints.||Automated approval workflows and real-time budget checks can be integrated with ERP systems using Nanonets.|
|4||Issue the Purchase Order||Approved requisitions result in order creation and electronic approval routing.||Nanonets converts requisitions to POs and routes them for electronic approval.|
|5||Collect Receipt of Goods||Crosscheck goods receipt with the PO for verification and flag discrepancies.||Nanonets automates data extraction from goods receipts and matches it with PO details.|
|6||Verify the Invoice||Match invoices with POs and goods receipts, approving consistent invoices.||Nanonets automates invoice matching, approving invoices that are consistent and flagging any discrepancies.|
|7||Pay the Vendor||Release payment to the supplier once invoices are approved and integrate with payment systems.||Nanonets integrates with payment processing systems, facilitating electronic payments and financial transparency.|
1. Identify the need
When a department requires raw materials or services, they will send a purchase request to the procurement department. The request will include the quantity, quality, and timeline required.
Traditionally, this process involved emails and paperwork. However, with Nanonets AP automation, the request can trigger a requisition process within a unified system, which improves speed and accuracy.
2. Generate requisitions
Once all the necessary details have been discussed and finalized, the next step is to input the order information into your procure-to-pay processing software and create a purchase requisition form. This form will then be sent to the procurement department for further processing.
Nanonets' AI-powered OCR capabilities can extract data from request forms automatically. The data can then be validated against predefined parameters to ensure all requirements are met before proceeding. This helps prevent potential procurement errors.
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.
Modern P2P automation systems like Nanonets offer a range of benefits that streamline the approval process and improve procurement decision-making. With automated approval workflows, reminders, and status updates, stakeholders are always in the loop, and approvals are significantly faster.
This is further complemented by integrating real-time financial data from existing ERP systems, which supports account integration and ensures procurement activities are aligned with the company's overall financial strategy. The result is reduced risk of overspending and improved budget management.
4. Issue the purchase order
Approved requisitions result in the creation of purchase orders (POs) by the procurement or purchase department. Using their P2P software, the department selects a suitable vendor and generates the PO. It is then shared with all relevant stakeholders for final approval before being dispatched to the supplier.
Nanonets can convert requisitions to POs and route them for electronic approval, significantly reducing time.
5. Collect the receipt of the goods
When goods or services are delivered, it is necessary to crosscheck the goods receipt, the quantity and quality of goods, with the PO to verify their accuracy. After the verification process, the receipt of goods is either approved or rejected based on the outcome.
Nanonets can assist in this process by automatically extracting data from the goods receipt and matching it with the corresponding PO. Any discrepancies found during this matching process are flagged for review, allowing for prompt resolution.
6. Verify the invoice
The supplier sends an invoice to accounts payable after the goods are approved. It goes through a three-way matching with the PO and the receipt of the goods. It will be approved if the items and corresponding values remain consistent across the board. If not, it is rejected and returned to the supplier with a note on the inaccuracies.
Nanonets can automate invoice matching, extracting data from invoices and comparing it with PO and goods receipts. It can automatically approve consistent invoices and flag those with discrepancies for manual review, leading to faster processing times and reducing the risk of payment errors.
7. Pay the vendor
Finally, the accounts payable team will release the payment to the supplier when the invoice is approved. The terms of the contract usually dictate the mode of payment.
Nanonets offers seamless integration with Stripe and other payment processing systems, making electronic payments quick and easy. This helps to speed up the settlement process, ensuring that payments are made on time.
Additionally, it provides a clear audit trail for all transactions, improving financial transparency and compliance with internal policies and regulatory standards. You can even schedule payments beforehand — allowing you to get early-payment discounts and manage cash flow more effectively.
This 7-step process must be followed every time a new purchase request is placed by any department in an organization.
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, labor 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. To ensure smooth collaboration and efficient spend management, procurement and accounts payable teams must mitigate disagreements, improve visibility, reduce inaccuracies, and prevent unexpected delays.
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.
Work with a procurement cloud provider that supports robust P2P automation and offers seamless data flow with integrations and predefined and custom workflows. Learn more about this in the next section.
What is procure-to-pay software?
Procure-to-pay software automates the full spectrum of purchasing activities, streamlining the journey from order to payment. Procurement automation replaces outdated, manual methods with a cohesive and efficient digital workflow, providing unmatched visibility and speed.
Clunky spreadsheets, file cabinets, and paper piles often lead to more manual work, slow processing times, and poor visibility. For all their merits, ERP systems don’t offer enough integrations and automation options to deal with the complexities posed by modern-day procurement flows.
The benefits of procure-to-pay software
Switching to a robust procure-to-pay system isn't just about adopting new software; it's about achieving measurable improvements across key performance areas:
- Improved visibility: An effective procure-to-payment process solution enables timely status updates, reminders, and notifications, giving all stakeholders real-time visibility of their orders. This assists every department in planning activities, making informed decisions, and ensuring crucial business operations are not disrupted.
- 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 jobs quickly. More importantly, as the trails are automated, the chances of being slapped with fines and penalties will be much lower.
- Automate routine tasks: Processing purchase requisitions, entering invoice data, and cross-checking purchase orders, goods receipts, and invoices can be time-consuming, expensive, and error-prone. Not only does it slow down your team, but it also adds to operational costs. With robust P2P solutions, you can automate invoice capture, approval workflows, report generation, and electronic routing/archiving.
- Cash flow clarity: Get a clear picture of your spend management with detailed analytics, positively impacting your cash flow control and working capital optimization.
- Speed up processes: Automate and accelerate the entire P2P cycle, from requisitions to payment release, reducing the cycle time. This sharpens your process efficiency, directly improving procurement KPIs like cost-per-invoice and order-to-cash.
- Expense reduction: The cost of manually processing invoices can climb from $15 to $40 per invoice. You can slash these costs by digitizing and automating workflows, which can reduce manual processing costs and translate to direct savings. Also, 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.
- Seamless data flow: Connect with existing ERP, accounting, and financial systems, minimizing integration headaches and ensuring all your data flows to the right place at the right time to support informed decision-making.
- Better supplier relations: Strengthen supplier relationships with consistent and prompt payments, which can lead to negotiated discounts and improved terms, thanks to reliable transaction histories.
Challenges in the procure-to-pay process
Even the most finely tuned procurement processes can face hurdles. Let's examine these challenges and how procurement software can help you overcome them.
- Manual workload: The repetitive data entry task wastes valuable time and is prone to errors. Automation significantly reduces manual touchpoints, streamlines processes, and sharpens accuracy.
- Regulatory compliance: Keeping up with the ever-changing landscape of regulatory requirements can be daunting. Procure-to-pay software ensures compliance through automatic updates and embedding controls into the procurement process.
- Data discrepancies: Inconsistent or incomplete data can lead to incorrect decision-making. Procure-to-pay platforms offer centralized data management, aligning information across departments for unified, reliable reporting.
- Cost attribution: Tracking and correctly attributing costs can become complex and often opaque. The right software provides clear visibility into spending, helping to allocate costs accurately and maintain budget discipline.
By addressing these challenges head-on with advanced procure-to-pay solutions, businesses can avoid common pitfalls and elevate their procurement operations to new levels of excellence.
Procure-to-pay best practices
In today's procurement landscape, where manual data entry and inefficient processes are still common, adopting best practices in procure-to-pay operations is essential for organizations to optimize their spend management.
Let's explore the strategies that are setting industry leaders apart.
|Centralized Procurement||Centralize procurement to improve efficiency and reduce unauthorized spend.||A unified department negotiates bulk discounts and aligns purchases with strategic objectives.|
|Automate the P2P Process||Use automation to streamline tasks like requisitions and invoice processing.||Tools like Nanonets provide features such as automatic data capture and real-time reporting.|
|Strict Controls & Approvals||Implement approval processes to ensure necessary and budgeted purchases.||Establish approval hierarchies; require high-level sign-off for large expenditures.|
|Data Analytics||Leverage analytics for insights into spending patterns and decision-making.||Utilize analytics tools to track key metrics, revealing supplier value and departmental efficiencies.|
|Supplier Relationship Management||Manage vendor interactions effectively for better terms and collaboration.||Engage in regular communication, feedback, and collaboration to strengthen supplier partnerships.|
|Standardize Procurement Process||Create a consistent process across the organization to increase efficiency.||Implement standard PO forms and clear guidelines for receiving goods and processing payments.|
1. Adopt centralized procurement
Leveraging centralized data management in the cloud can enhance the speed of your procurement process, significantly improving cost efficiency and reducing maverick spending. This means having a single department responsible for all purchasing decisions, thus ensuring consistency in procurement policies across the organization.
For example, a centralized procurement department can negotiate bulk purchase discounts from suppliers, resulting in significant cost savings. This department can also ensure that all purchases are made based on the organization's strategic objectives and not just immediate departmental needs.
2. Automate the P2P process
Automation can significantly reduce the time and effort involved in the procure-to-pay process. This includes automating tasks such as purchase requisitions, invoice processing, vendor onboarding, and payment processing.
For instance, automation can help in capturing and extracting invoice details, dispatching documents for approvals, generating automatic reports, and electronic routing/archiving. These automated processes can significantly reduce errors and enhance productivity.
Tools like Nanonets and ProcureDesk are great for automating the P2P process. They offer features like automatic data capture, workflow automation, and real-time reporting, which can greatly improve the efficiency of your procure-to-pay process.
3. Implement strict controls and approvals
Implementing strict controls and approval processes can ensure that all purchases are necessary and within budget. This can involve setting up approval hierarchies, where larger purchases require sign-off from higher-level managers.
An example of this could be implementing a rule where any purchase above a certain amount must be approved by a department head or even the CEO. This not only helps maintain budgetary control but also provides a clear audit trail for every transaction.
Questions to consider:
- Do we have a clear approval process in place for different levels of expenditure?
- Are there checks and balances to prevent unauthorized purchases?
4. Leverage data analytics
Utilizing data analytics can provide valuable insights into your procurement process. It can help identify trends, patterns, and potential issues, allowing for more strategic decision-making.
For instance, data analytics can reveal which suppliers provide the best value for money, which departments are overspending, and where inefficiencies are occurring in the P2P process.
Expert tip: Begin by identifying key metrics that are important for your procurement process. These could include things like total spend, savings achieved, supplier performance, and procurement cycle time. Use tools like Tableau, Microsoft Power BI, or Oracle Procurement Cloud to analyze and visualize your procurement data.
5. Invest in supplier relationship management
SRM involves strategies to effectively manage interactions with vendors that supply goods and services to the organization.
For example, maintaining a good relationship with suppliers can lead to more favorable terms, such as bulk discounts or extended payment terms. It can also allow you to collaborate with suppliers to identify and rectify inefficiencies in the procurement process.
Tips for effective SRM:
- Regularly communicate with suppliers to build a strong relationship.
- Provide clear and concise feedback to suppliers.
- Collaborate with suppliers to improve procurement process.
- Regularly evaluate supplier performance and provide constructive feedback.
- Consider using SRM tools like SAP SRM, Oracle SRM, or Zycus for better supplier management.
6. Standardize your procurement process
Standardizing your procurement process can reduce confusion and increase efficiency. This means having a uniform process across all departments for tasks like raising purchase orders, receiving goods, and making payments.
For instance, you could create a standard purchase order form that all departments must use. This ensures that all necessary information is included, reducing the chance of errors and miscommunication.
Checklist for standardization:
- Do we have a standardized purchase order form?
- Are there clear guidelines for receiving and checking goods?
- Is there a standard process for making payments to suppliers?
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
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.
What are the steps in P2P?
The steps in P2P are: 1) Identify need and create purchase requisition, 2) Process purchase order, 3) Receive goods or services, 4) Match and receive invoice, 5) Approve and pay invoice, and 6) Keep records and audit.
What are the 12 steps of the P2P cycle?
The 12 steps of the P2P cycle are: 1) Identify requirement, 2) Authorize purchase request, 3) Approve purchase request, 4) Procure, 5) Identify suppliers, 6) Inquire and get quotations, 7) Select supplier, 8) Acknowledge purchase order, 9) Deliver and expedite, 10) Receive and inspect deliveries, 11) Approve and pay invoice, and 12) Maintain records.
What is the procure-to-pay standard process?
The standard P2P process involves:
- Identifying product or service needs
- Creating and approving purchase orders
- Receiving goods or services
- Matching and receiving invoices
- Approving and making payment
- Record transactions for auditing
How to procure-to-pay efficiently?
To procure-to-pay efficiently, you should:
- Identify procurement needs.
- Use procure-to-pay software to automate tasks.
- Leverage data analytics for strategic decisions.
- Invest in supplier relationship management.
- Standardize the procurement process for efficiency.
- Regularly review and optimize the process.
What is procure-to-pay in accounts payable?
Procure-to-pay in accounts payable is a streamlined process that involves requisitioning, purchasing, receiving, paying for, and accounting for goods and services. It is supported by software that automates tasks, reduces errors, and provides valuable insights into procurement activities.
How does procure-to-pay work?
Procure-to-pay streamlines the procurement and payment process. It starts with identifying a need and ends with making a payment. It involves creating and approving a purchase order, receiving goods or services, matching invoices with orders, approving payment, and recording transactions for auditing. The process is often automated with software solutions.
How to improve the procure-to-pay cycle?
To improve the procure-to-pay cycle, you should:
- Standardize the procurement process.
- Automate the process using software.
- Maintain good supplier relationships.
- Leverage data analytics.
- Regularly review and optimize the process.
- Train staff to adopt new processes and systems.
What is the first step in the procure-to-pay process in SAP?
The first step in the procure-to-pay process in SAP is creating a purchase requisition. This document identifies the need for goods or services and initiates the procurement process.
What is P2P?
P2P covers the entire cycle from identifying and requisitioning goods or services to paying the invoice. It includes creating a purchase order, receiving goods or services, matching invoices to orders, approving payment, and maintaining records for auditing. P2P is often supported by software that automates tasks and provides data analytics.
What is the difference between P2P and procurement?
P2P includes the entire process, from identifying a need for goods or services to paying the invoice, while procurement is just one part of this process.
What is the difference between Procure to Pay (P2P) and Accounts Payable (AP)?
The difference between P2P (Procure-to-Pay) and procurement is that P2P includes the entire process, from identifying a need for goods or services to paying the invoice, while procurement is just one part of this process. Procurement involves the process of selecting suppliers, establishing payment terms, strategic vetting, selection, the negotiation of contracts, and the actual purchasing of goods. P2P, on the other hand, also includes steps like invoice processing, approval, and payment, which are typically accounted for in the accounts payable department.
What is an example of Procure to Pay?
An example of P2P would be a business needing to purchase office chairs. First, a purchase requisition is created and approved. The company would then choose a supplier and place an order. When the chairs are delivered, the delivery is checked against the order. The invoice from the supplier is then received, checked against the order, approved, and paid. This entire process, from identifying the need to making the payment, is the P2P process.
Why is P2P used?
P2P streamlines and standardizes procurement and payment processes, reducing errors, saving time, and improving efficiency by automating tasks. Additionally, it provides an auditable trail of procurement activities and payments, aids in compliance and auditing, facilitates better supplier relationship management, and identifies opportunities for cost savings.
What is 3-way matching in P2P?
3-way matching in P2P is a process used to verify that purchase orders, goods received, and invoices are consistent before payment. If these three documents match in terms of quantity, price, and terms, the invoice is approved for payment.
How can automation enhance the P2P process?
Automation can significantly enhance the P2P process by reducing manual tasks and paperwork, providing real-time visibility into the process, improving control and accountability, enabling timely and accurate payments, and identifying cost-saving opportunities or areas for process optimization.