What is Procure to Pay - A Guide to Procure-to-Pay (P2P) Process [2024] (2024)

What is Procure to Pay – A Guide to Procure-to-Pay (P2P) Process [2024]

Procure to Pay or P2P in procurement is defined as an automated system that streamlines the process of requisitioning, purchasing, receiving, and paying for goods and services. It involves end-to-end integration with accounts payable, invoice management, and vendor payment systems to ensure compliance, accuracy, and efficiency. The Procure-to-Pay process is carried out to centralize procurement and control the entire life-cycle of a transaction to gain financial visibility across the organization.

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If you operate any kind of business, whether it’s traditional, digital, or hybrid, you need to know about the procure-to-pay process and the automated solutions that can help you manage it.

Your procurement and accounts payable teams should be able to examine the progress of a transaction at any moment, from the time a product or service is purchased through the time an invoice is paid.

We’re going to speak a lot about the procure-to-pay continuum in this post, including what exactly is procure to pay and how to use digital technologies to help.

The process of linking purchasing and accounts payable systems to increase efficiency is known as procure-to-pay. It is part of a wider procurement management process that has four stages: choosing products and services, enforcing compliance and order, receiving and reconciliation, and invoicing and payment.

Procure-to-pay software solutions may help you improve compliance and control among suppliers, contracts, regulations, buyers, and accounts payable by digitizing your procurement process. Process automation using procure-to-pay software may enable firms to acquire from chosen suppliers at agreed pricing without the human paperwork and spreadsheet difficulties.

• Actively manage and improve overall spending.
• Reduce mistakes by consolidating the majority of manual commerce operations.
• Make catalog maintenance more efficient, saving time and resources.
• Facilitate the approval of new suppliers promptly.
• Increase the value of sourcing discussions by driving savings to the bottom line.

Requisitioning, purchasing, and payment are the three key stages in the procurement lifecycle covered by the phrase Procure-to-Pay, also known as Purchase-to-Pay or P2P.

The Procure-to-Pay procedure includes everything from product research to updating accounts payable. Between these two stages, the following activities may be found:

• Conduct a product search
• Add items to a shopping cart
• Make a purchase order requisition.
• Completing and authorizing the purchase
• Produce a purchase order.
• Take delivery of the products
• Verify that the order is in order.
• Recieve the bill
• Process and reconcile the invoice
• Make the payment on the invoice
• Make any necessary changes to the accounts payable.

Each company’s Procure-to-Pay process is unique, and it may incorporate extra steps.

When a vendor has been chosen, the buyer will enter the requisitioning step to formalize consent for the purchase.

This is accomplished by preparing and approving a requisition order, an internal document used when a purchase is required. The products being purchased, as well as the vendor’s quote and any delivery instructions, will normally be included in the requisition order.

Paying supplier bills on time and accounting for transactions are all part of the accounts payable process.

The purchasing business will need to ensure that vendor payment data are up to date as part of this process, as well as take precautions to prevent accounts payable fraud.

The Procure-to-Pay cycle refers to the end-to-end purchasing process’s repeated consecutive steps done in tight order.

Requisitioning, purchasing, and payment are all covered under the procure to pay procedure.

The procure-to-pay cycle isn’t meant to speed up the vendor payment process because clearing bills faster hurt the company’s cash flow and prohibits them from keeping their cash for as long as feasible.

Users are presented with suppliers’ items (through Punch-Out catalogs, e-catalogs, and APIs) before the procurement and finance processes are digitized, automated, and enhanced. They include actions like control, verification, validation, and document management, allowing businesses to have more control over their purchases and increase efficiency.

As its name indicates, a Procure-to-Pay (or Purchase-to-Pay) system is a fully integrated solution designed to enable an end-to-end process that starts with products and services requisitioning and concludes with ready-to-play files for upload into an accounts payable system. To enable suppliers to submit invoices electronically, procure-to-pay systems employ a scan-and-capture service, a supplier portal, and/or a multi-enterprise network. Procure-to-Pay systems enable purchase-order-to-invoice matching and processing for invoices that don’t match or when products are returned, in addition to fundamental e-procurement features (such as e-requisitioning, approval workflow, and e-catalog management).

Read More:- Spend Analysis – Comprehensive Guide to Procurement Spend Analysis

Procurement teams may focus on objectives with more strategic value for the firm rather than spending time on manual and repetitive administrative activities.

Procurement divisions can focus on value-added responsibilities like sourcing, innovation, end-user intimacy, and strategy since the Procure-to-Pay process is very simple to automate.

Procurement executives select to complete the most important steps of the procure-to-pay process based on corporate practice and the demand in the issue.

Simfoni’s Procurement technology and solutions can help with this. You may tailor your flow to your company’s requirements. However, here’s an example of a basic procure-to-pay method.

A formal purchase requisition is generated when the specifications/TOR/SOW are finalized. After verifying that all essential administrative criteria are satisfied, the requester submits the completed purchase requisition form.

From ordinary purchases to subcontracts and consignments, requisitions may be produced for any sort of procurement.

The finance team will execute payments by the contract conditions after an invoice has been accepted. Any contract revisions or financial security liquidation evaluations will be considered. Advance, partial, progress or installment, final, and holdback/retention payments are the five types of payments made to a supplier. In the procure-to-pay process, there are several best practices to follow.

The following five best practices can assist firms to enhance their procure-to-pay process’ efficiency and effectiveness:

• Procure-to-pay software should be implemented.
• Maintain transparency throughout the process.
• Boost supplier participation.
• Inventory should be optimized.
• Streamline contract administration

According to recent Simfoni research, more than half of all enterprises across the world will have implemented a cloud-based procure-to-pay suite by 2025. As companies discover more about the benefits and cost-saving prospects of adopting procurement software, cloud-based procurement systems like Simfoni are gaining favor.

The following are some of the ways you may improve buying efficiency.

The procure-to-pay cycle, as previously said, consists of various phases. Typically, they will entail activities by a variety of employees across various departments within the firm, ranging from procurement to finance, who will be using a range of platforms. People participating in procure-to-pay may have conflicting or even opposing agendas and objectives.

These characteristics can result in a variety of issues, ranging from a lack of reliable data across the whole procure-to-pay cycle to the likelihood of mistakes due to manual operations. Companies may attempt to solve these issues by automating their procure-to-pay processes to improve efficiency, visibility, and intelligence.

You may increase efficiency and effectiveness by following the best practices listed below:

• Implement an automated procure-to-pay system.
• Ensure that the peer-to-peer (P2P) mechanism is always transparent and traceable.
• Collaboration between procurement and accounts payable should be improved.
• Boost supplier satisfaction and engagement.
• Create quantifiable objectives and keep track of your progress.

Even though each company is unique, the following key performance indicators (KPIs) are used to evaluate the procure-to-pay process:

• The time it takes to complete a purchase order
• The average cost of completing a purchase order
• Time to market
• Processing time for electronic Pos
• The time it takes to process an invoice
• An invoice’s average processing cost
• The rate of invoice exceptions
• Rate of first-time matches
• The time it takes to approve an invoice on average
• Outstanding days payable
• Management of spending
• Savings realized
• Discounts were taken advantage of.

Read More:- Comprehensive Guide to Tail Spend Management.

End-to-end procure-to-pay solutions are available from some suppliers, to automate the entire P2P process.

From vendor management platforms to systems that automate the production of requisitions and the issuance of purchase orders, technology may play a role in expediting key components of the procure-to-pay cycle.

Furthermore, invoice automation systems may help businesses streamline invoice data gathering, decrease the risk of mistakes, and automate accounts payable operations.

Vendors, too, may limit the risk of mistakes or delay in the bills they send to their customers by utilizing electronic invoicing systems that guarantee invoices are sent to the correct location and in the correct format. Solutions that transform purchase orders into invoices automatically, as well as a system-to-system connection for huge numbers of invoices, are among them.

The vendor selection procedure may need to be used for new orders. The procurement department issues a request for proposal (RFP) stating the criteria, based on a limited list of bidders. Suppliers submit a bid for the task, which includes information such as turnaround time, pricing, and material specs.

Negotiations take happen as part of the supplier selection process. Aside from quality, pricing, and delivery dates, the procurement department will look into prospective benefits like:

• Price drop compared to the previous year
• Discounts for large orders
• Quality will improve in the future.

Requirements for compliance must also be considered. The industry may be bound by government regulations, and the corporation may have a socially aware mission ingrained in its culture.

Consumers are becoming increasingly concerned about corporate social responsibility, and organizations are required to achieve specific sourcing requirements to impress their customers and prevent unnecessary risk exposure.

For example, to prevent a public reaction, several corporations have committed to fair-labor and environmental criteria that contractors must be able to satisfy.

After all of the short-listed vendors have concluded their discussions and the best offer has been discovered, a supplier is picked based on the procurement plan’s selection criteria and a purchase order is issued.

Many things might change throughout a project or calendar period, and keeping the P2P system in top operating condition necessitates meticulous attention to detail. In an ideal world, the procurement and accounts payable teams keep in frequent communication with suppliers, cultivating positive working relationships that encourage vendors to bargain in good faith with customers who pay their bills on time and keep their promises.

Raw material costs can rise or fall as a result of anything from natural catastrophes to political events, influencing every link in the supply chain. For procurement and AP professionals who want to accomplish strategic sourcing while keeping costs low across the whole purchasing process, supply chain management and supplier relationship management are just as important as process efficiency and data management.

The genuine value of a comprehensive procure-to-pay solution, on the other hand, comes in its capacity to facilitate open communication and entire transactional transparency between procurement and accounts payable departments. Consider the following scenario:

• The purchase order and invoicing cycles are streamlined thanks to centralized data management, automated routing, notifications, and contingencies, which ensure automatic three-way matching.
• All of your data is brought together in one place for easy, mobile-friendly access for all stakeholders thanks to integration with your existing enterprise resource planning system (ERP system) and accounting software.
• Artificial intelligence and process automation decrease human error, expedite processes, eliminate time-consuming manual chores, and allow employees to devote their time and expertise to higher-value jobs while still being able to investigate and solve issues as required.

Vendor management is substantially enhanced by implementing the following strategies:

Total data transparency, real-time reporting, and centralized contract administration are just a few of the features available.

• A closed purchasing environment that keeps maverick spending, invoice fraud, duplicate/late payments, and late penalties out while allowing for greater early-payment discounts to be captured.
• Cultivation of long-term, strategic supplier relationships that enable firms to create powerful alliances with their finest suppliers while reducing supply chain bloat by removing under-performers.
• When both essential participants have the tools they need to monitor and improve expenditure, vendor management, and workflow efficiency, they may create a P2P process that saves money and adds value to their businesses.

What exactly is Procurement?

Procurement is the process of acquiring products or services, usually in the business world. Everything from acquiring products and services to negotiating agreements, ordering, guaranteeing proper delivery and quality, and managing payments fall under procurement. This procedure has several details and sub-activities. Procurement encompasses the entire picture, yet depending on the company, an organization’s procurement solution may or may not comprise many distinct components.

A manufacturing facility, for example, may have different procurement requirements than a film studio, yet both must buy commodities and services to succeed. Because every organization has unique requirements, procurement solutions should be tailored to meet those requirements rather than being one-size-fits-all. Today, e-procurement refers to cloud-based procurement software that enables companies to execute their purchases online.

Procure-to-pay is a subset of procurement that does not include sourcing. As a result, after a company has identified its suppliers, it will turn to a procure-to-pay solution to automate the rest of the process.

Procure-to-pay software assists businesses in managing their purchasing processes by allowing them to place orders digitally, handle approvals, and track shipments and payments. Companies may get greater control and visibility into their whole procurement activities by using tools like 3-way checks between purchase orders, goods receipts, and invoicing.

Even though many people use several procurement-related terminologies interchangeably, knowing the actual definitions of procurement vs. Procure-to-pay is important. Procurement is a broad term that encompasses a wide range of purchasing operations. Procure-to-pay is primarily concerned with the operations that take customers from placing an order to receiving their goods.

There are no two firms that are alike. Best practices, on the other hand, are meant to accept variances and allow each firm to identify areas in need of development, then build and formalize workflows, protocols, and procedures that will result in efficiency, cost savings, and other benefits desired.

For the highest return on your procurement money, consider using these P2P best practices:

You’ll need the correct tools to get the greatest outcomes from any business procedure. Automation—specifically, a fully built, cloud-based procurement system with support for data management and analysis—is one of the most important requirements for any firm serious about improving their procure-to-pay process in today’s fast-paced, always-on marketplace.

Automation benefits all aspects of procurement, but it shines brightest in the P2P cycle. Intelligent features such as built-in three-way matching and supplier relationship management/contract management can help organizations achieve massive gains in efficiency, cost-effectiveness, and decision making by automating common workflows, increasing data transparency, and eliminating common procurement process woes like invoice fraud, rogue spend, and supply chain bloat.

Top-of-the-line procurement management solutions can be standalone applications or seamlessly integrated with existing enterprise resource management systems (ERP systems) to bring all business units together for faster, mobile-friendly collaboration and easy adoption of process improvements across the entire organization.

Beginning with purchase requisitions and continuing through vendor payment and financial record reconciliation, automation, and artificial intelligence allow you to construct unique « touchless » workflows with built-in contingencies and alarms. All operations are significantly faster and more accurate, lowering cycle times for purchase orders and invoicing, by removing the human element—and errors!—from data input, document routing, and three-way matching.

All transaction data and accompanying documents are gathered and saved automatically on a single, cloud-based server for real-time access and analysis from home, the office, or on the road. Instead of manually inputting data or tracking down exceptions, employees may focus on higher-value work.

Supply management and strategic sourcing are also substantially enhanced; suppliers may be reviewed and on-boarded from the very first transaction, and their performance can be followed using whichever KPIs are most important in your P2P cycle. Faster processing times, data analysis to find potential for mutually beneficial partnerships, and stronger contract negotiation backed by real performance and industry statistics may all help to develop and enhance supplier relationships.

These are just a few of the advantages that a high-quality, automated procurement system may give. Your team can handle the guts and bolts of building particular best practices much more successfully if you start with automation, data analysis tools, and centralized, mobile-friendly data management.

The first step is to get the correct tools. Making sure everyone is on the same page and following the same playbook is the second stage in P2P optimization. To achieve and maintain quantifiable progress, standardization is required.

A successful standardization strategy is as follows:

• Has C-suite support and a cultural mandate emphasizing the significance of compliance in accomplishing company objectives.
• Defines the duties and responsibilities of everyone participating in the procure-to-pay process thoroughly and explicitly.
• Provides training (with periodic refreshers) on the use of procure-to-pay software and other tools used throughout the P2P process for staff, management, and the C-suite.
• Establishes specific expenditure management policies that emphasize the necessity of adhering to processes, as well as any possible repercussions for non-compliance.
• Focuses on simplicity to reduce unnecessary complexity and confusion while yet allowing for further development as needed.

After you’ve got your software tools in place and your team on board, the next stage in P2P optimization is to ask and answer an important question: What aspects of our P2P process can be enhanced to help us reach our objectives?

There is no wrong answer to this issue; data management solutions make capturing and analyzing data over the whole p2p cycle considerably easier. However, you can’t measure what you can’t see, so having complete visibility of your expenditure data, as well as role-appropriate access for all parties to do analysis, is essential.

Your team will be able to correctly monitor current performance thanks to this visibility and control, allowing them to identify issue areas and design procedures and processes to adequately address them.

Any effort to improve your procure-to-pay process must have total buy-in from all levels, as well as the communication tools and training needed to avoid misunderstandings and build a feeling of shared purpose.

It’s much easier to ensure key stakeholders can connect easily and access shared resources needed to complete something as simple as a purchase order approval or as complex as a contract negotiation when everyone is operating within the framework of the eProcurement solution and following standardized protocols.

Your team will be able to correctly monitor current performance thanks to this visibility and control, allowing them to identify issue areas and design procedures and processes to adequately address them.