Effective Procure-to-Pay Process

From innovating in its work to expanding its reach, your company does the unthinkable everyday. But how do you get the resources you need to continue innovating? Simple - through procurement.

Procurement is the process of acquiring goods, services or works from an external supply chain. It is a vital function within any organization, as it ensures that the resources needed to operate are acquired in a cost-effective and efficient manner. Many companies take up what's called the Procure-to-Pay process in making this a reality, which serves to streamline and optimize the endeavor from start to finish.

Understanding The Procure-to-Pay Process - What Is It?

In simple terms, Procure-to-Pay is the process of selecting, requisitioning, purchasing, receiving, paying for and invoicing goods and services. It encompasses a business' entire purchasing journey, from the first steps of determining what it needs to when it's paid for. The P2P process is an essential component of  any business and is usually managed by a procurement or finance department.

What Does It Involve?

The Procure-to-Pay process can be divided into many stages, each of which entails its own specific tasks.

Identifying Needs

The first step of any Procure-to-Pay process is identifying the given business' needs. This can involve lots of different people, but will almost always include procurement teams and stakeholders. If and when a need is decided upon, procurement staff create high-level specifications of this good or service, as well as Statements Of Work (SOW) and Terms Of Reference (TOR).

Creating Requisitions

Upon getting the aforementioned specifications in line, the next step of the P2P process is creating a formal purchase requisition for the goods or services at hand. In doing this, a requester reviews administrative requirements to ensure all needs are met and completes a purchase requisition form for submission. These forms can be used for a wide variety of procurement types, from consignments to standard purchases.

Approving Purchase Requisitions

Once submitted, purchase requisitions are reviewed and either denied or approved by department heads. In determining whether or not to approve a purchase requisition, a reviewer will take a number of steps, including verifying available budget, evaluating need and validating the form itself.

Creating Purchase Orders

If and when a purchase requisition is approved, the next step of the Procure-to-Pay process is creating a purchase order. This document is a formal, binding contract between a buyer and seller and usually contains information like delivery dates, prices and payment terms. For cases in which the requested goods or services are one-time unique purchases or low-value commodities, spot buys can also be performed.

Approving Purchase Orders

After a purchase order is created, it's sent through an approval pipeline to verify its legitimacy and accuracy. Once it's validated, the purchase order is then dispatched to vendors for review. They can choose to either accept, reject or begin negotiation on the offer.

Receipt Of Goods

Once an agreement is reached and a purchase order is accepted, vendors will then send the requested goods or services to the buyer. It's at this point that receiving and inspection teams get involved to check off items against the purchase order and confirm quality standards are met. If any issues arise, the buyer may send the goods back for replacement or refund.

Evaluating Supplier Performance

After goods or services have been received and inspected, the buyer will assess how well the supplier performed in areas like quality, delivery, responsiveness and price. This feedback is then used to improve future interactions and negotiations.

Paying Vendors

Once an invoice has been approved, the final step of the Procure-to-Pay process is paying suppliers through Accounts Payable. This usually takes the form of an electronic payment, but can also be a check or cashier's order. In some cases, early payment discounts are offered to incentivize suppliers. After payment has been made, the P2P process is complete and the cycle begins anew.

The Importance Of A Streamlined Procure-To-Pay Process

Inefficient procurement processes can spell disaster for organizations in more ways than one. 

Overspending

The first and most obvious problem with inefficient procurement is that it can lead to overspending. This is because the traditional procurement process is often needlessly long and complicated, which gives employees ample opportunity to pad invoices, order unnecessary items or make other financial blunders.

Missed Opportunities

Inefficient procurement and purchasing can also cause missed opportunities. This is because the process often takes so long that by the time an organization is ready to make a purchase, the item or service in question is no longer available. In other cases, a better deal may have come along in the meantime but was not taken advantage of due to the slow nature of the procurement process.

Negative Supplier Relationships

Last but not least, inefficient procurement can damage relationships with suppliers. This is because the process is often so frustrating and needlessly complicated that it causes vendors to view organizations in a negative light. In some cases, this may even lead to suppliers refusing to do business with certain organizations altogether.

A streamlined procurement process can help prevent these problems by streamlining the entire Accounts Payable process from start to finish. This, in turn, will save organizations time and money while also fostering better relationships with suppliers.

Get With The Times

Gone are the days of administering the Procure-To-Pay process using paper documents and manual data entry. Today, a growing number of businesses are turning to technology to help automate and streamline their Accounts Payable processes with P2P.

Cloud-based software provides real-time visibility into every stage of the P2P process, from requisition to payment. This allows businesses to catch and correct errors quickly and efficiently, without disrupting the flow of the supply chain. 

Procure-to-Pay software can help businesses in a number of ways, including the following.

Facilitating Purchase Requisitions And Approvals

A digital Procure-to-Pay system can easily route purchase requests to the right people at the right time, eliminating the need for paper forms and manual approvals.

Automating The Creation Of Purchase Orders

With Procure-to-Pay software, businesses can quickly and easily generate purchase orders based on approved purchase requests. This not only saves time, but also reduces the risk of errors.

Enhancing Supplier Engagement

By providing visibility into the P2P process, Procure-to-Pay software can help businesses to improve communication with their vendors. This, in turn, can lead to better prices, quality goods and services from the supply chain, and more favorable payment terms.

Reducing The Risk Of Fraud

Procure-to-Pay software can help to reduce the risk of fraud by providing Accounts Payable with a complete and auditable record of all P2P transactions. This can be helpful in the event of an audit or investigation.

Optimizing Inventory

With a cloud-based procurement solution, businesses can get real-time visibility into their inventory levels. This helps to prevent overspending and ensures that the right goods and services are being procured.

Streamlining Contract Management

Procure-to-Pay software can help businesses to streamline their contract management processes. By storing all contracts in a central repository, businesses can easily keep track of expiration dates and terms and conditions.

Improving Cash Flow

By automating the procurement process, businesses can improve their cash flow by ensuring that Accounts Payable addresses invoices promptly and efficiently. This, in turn, frees up working capital that can be used for other purposes.

Providing Purchasing Insights

With Procure-to-Pay procurement software, businesses can gain valuable insights into their purchasing patterns. This information can be used to negotiate better prices with suppliers, improve supply chains and inventory management, as well as make more informed strategic decisions about spending.

Matching Invoices To Payments

Procure-to-Pay software can help businesses to match invoices to payments, ensuring that all invoices are paid on time. This helps to improve cash flow and prevent late payment fees.

Generating Reports And Analytics

Procure-to-Pay software can generate a variety of reports and analytics that can be used to improve procurement processes. This information can be used to identify areas of improvement, correct errors, and make more informed decisions in Accounts Payable spending.

Choosing The Right Procure-To-Pay Software For Your Needs

While Procure-to-Pay procurement software is an undoubtedly powerful tool in the endeavor of procurement, it's ultimately only ever as good as its compatibility with the business at hand.  In order to get the most out of Procure-to-Pay software, organizations need to take the time to select a procurement solution that's right for their specific needs.

When evaluating different Procure-to-Pay solutions, businesses should consider a number of factors, including the following.

The Size And Scope Of The Business

When it comes to Procure-to-Pay software, one size does not fit all. Solutions that are well-suited for large businesses may be too complex for smaller organizations, while those designed for small businesses may lack the features and functionality that larger organizations need. It's important to select a solution that's appropriate for the size, supply chain and scope of the business.

The Nature Of The Business

The procurement process can vary significantly from one industry to another. As such, it's important to select a solution that's been designed specifically for the needs of your industry. For example, businesses in the engineering industry have different Procure-to-Pay needs than those in the retail industry.

The Specific Needs Of The Business

In addition to the size and scope of the business and the nature of the industry, it's also important to consider the specific needs of the organization when selecting a Procure-to-Pay system. For example, startup hardware and robotics companies will likely need different features than established enterprises in the financial services industry.

The Budget

While it's important to select a solution that meets the needs of the organization, it's also important to consider the budget when making a decision. In many cases, the most feature-rich and comprehensive solutions may also be the most expensive. As such, it's important to strike a balance between features and price when selecting a Procure-to-Pay solution.

ERP Integration

Last but not least, it's important to consider the ERP integration process when selecting a Procure-to-Pay solution. In some cases, the most user-friendly and intuitive solutions may be the easiest to implement, while others may require more time and effort to get up and running. It's essential to select a solution that can be implemented quickly and easily to avoid disruptions to the supply chain and Accounts Payable process.

A well-run Procure-To-Pay process is pivotal for any business that relies on vendors in their supply chain. And with the right Procure-to-Pay solution in place, businesses can take their P2P operation to the next level.

To learn more about how your business can benefit from Procure-to-Pay software, contact us today.