Procure-to-pay systems have been buzzworthy in procurement-heavy industries for years now, especially since advanced procurement software has become more affordable.
But that model has its limits, particularly if teams have the authority to make purchases within a company’s procurement process.
We’re going to discuss how procure-to-pay software has evolved into spend management software now that companies are looking for more flexibility in managing accounts while making sure spending and purchasing stay under control.
What is procure-to-pay software?
Procure-to-pay software offers an all-in-one solution within a company’s procurement process. One centralized platform allows a procurement department in larger companies or those authorized to make purchases at small businesses.
P2P software automates workflows across departments and roles while having someone oversee the final purchases. It starts with procurement and goes all the way to paying for an invoice as the final step.
This is how one workflow would happen in a procure-to-pay environment.
- Someone makes a purchase order request and fills out the necessary form online.
- The requisition request is emailed to the person authorized to make the purchase.
- The supervisor authorizes the request, and the purchase order is sent to a supplier.
- The supplier then sees the purchase order and confirms that it can be filled.
- Upon delivery of the materials listed in the purchase order, the system receives an invoice from the supplier.
- The final step is that the software pays the invoice upon performing a three-way match for the purchase order, bill, and invoice.
Who benefits most from procure-to-pay software?
Large companies with a lot of regular procurement activities as part of the ordinary functioning of the business. Manufacturers that need raw materials for finished products. Equipment suppliers who need parts. Janitorial supply firms that regularly purchase chemicals, equipment, cleaning supplies, and PPE to send to janitorial departments. Any company that makes a lot of purchases from several suppliers on a regular basis benefits greatly from procure-to-pay software as a way to manage spending, expenses, and payments from start to finish.
This software is great for many departments who have various expenses and purchasing requests.
For example, your lead engineer needs more bolts to fulfill a large order your company just received. It’s outside of the normal order you send to Acme for bolts every two weeks. It’s a rush order, which costs extra. Your finance team understands this because they can match the purchase order request with the profits made on the larger order to justify the request based on the cash flow they expect.
Meanwhile, in the sales department, the sales director is onboarding three new people due to the success of recent contracts. She requires three more software licenses for the CRM, and those are $100 per person for a year. The sales director puts in a purchase order request for $300 from a software supplier.
Even though these are two different departments, they both fall under procure-to-pay software because they regularly spend money on things they need to keep the company functioning properly.
Procure-to-pay is an essential expense-tracking tool that lets managers and finance teams track spending across all departments.
Other benefits of procure-to-pay include:
- Making payments by connecting to accounting software
- Contract management and quoting tools.
- E-sourcing and sourcing optimization based on supplier costs
- Supplier information management and risk management in case of supply chain anomalies
- Spend analysis and savings tracking
- Employee expense tracking and management when using company property or when needing reimbursements
AI continues to push the boundaries of procure-to-pay software to make it easier for teams to use.
Procure-to-pay software does have limits.
It’s generally geared for larger companies that make a lot of purchases in a short amount of time throughout the year.
It also doesn’t account for spending and purchases outside of the procurement process of buying products or services the company needs on a regular basis. For example, one employee uses the company vehicle to purchase supplies from a local retail store. Another time, a department head purchases lunch for his staff of five. These types of one-time purchases would be made outside of a procurement process.
This is where spend management software comes into play.
How does spend management software work?
Spend management software works in a smaller, more decentralized spending environment compared to a more structured procurement setting.
As an example, your marketing manager’s Google Ads spend ran out because the bidding was higher during a particular week and the spend ran out. The marketing manager needed to make the payment on a company credit card to reactivate the ads. Meanwhile, a developer needed to upgrade premium plugins on the internal domain so it would function properly.
These aren’t necessarily part of regular procurement, but they are expenses necessary for the operation of a company.
Accounting software for these things are great. QuickBooks lets you create expense reports, cash flow graphs, and other spend data.
But it doesn’t necessarily have powerful spend analytics tools customized in the same way that procurement software can.
Spend management software’s goal is to solve a company-wide problem of optimizing spending coming in from all avenues and departments, regardless of where the expense comes from.
Whereas a procure-to-pay model generally goes through a procurement department for approval, spend management software is less centralized and gives authority to department directors and managers to make purchases necessary for their departments.
Why is spend management software important for enterprises and small businesses?
The theory behind a decentralized spend management software paradigm is purely from an expertise standpoint. Does a procurement team, who is great at sniffing out problems with suppliers and supply chain issues when approving purchase orders, know better than a lead engineer at a small business as to what parts he needs to fix or maintain a $100,000 piece of equipment?
Doubtful.
Spend management software, also called expense management software, allows startups and small businesses to employ agile and flexible models to make sure they can get things done faster. It grants people with the greatest knowledge the ability to make decisions on transactions within a budget.
Whereas procure-to-pay software doesn’t necessarily work within budgetary constraints, expense management software has the ability to show a manager how much budget he or she has left to spend before it runs out. Managers can customize alerts when budgets get under a certain amount or percentage, when that budget may increase, and how much they have left to spend on purchasing within a certain timeframe.
For example, the company gives the sales department $500 a month for weekly lunches. That comes out to $125 a week. One week, the lunch comes to $150. The expense management platform sends an alert to the sales manager and that person’s supervisor noting the over-expense.
The small business owner can go into the platform, run spend analytics, and see real-time spend data that shows budgets, money already spent, and what the owner can expect by the end of the month.
If anything seems amiss, like with the sales lunches, the owner can make adjustments. Let’s say someone left to find other work at the beginning of the month. Therefore, HR’s budget is less. The owner can shift the budget from HR to sales to cover the extra $25 it needed for the lunch. Meanwhile, the expense management platform still shows how much cash is on hand, how much money should come in by the end of the month, and the overall financial health of the company based on purchasing and orders.
What are the benefits of spend management software?
It automates budgeting, spending, and purchasing processes for SMBs and enterprises that are heavy into procurement.
These platforms are more agile than procure-to-pay suites because they look at expense management within a smaller company as a whole versus an individual procurement department of a larger enterprise.
Small business owners can adjust on the fly, based on their knowledge or what department heads say they need during any given month, without having to wait on end-of-the-month expense reports generated by accounting software.
Owners can generate expense management reports that give data in real-time based on company-wide data gathered from procurement, sales, operations, bank account information, receiving, and purchasing.
It’s also at a lower price point compared to larger procure-to-pay or spend-to-pay systems required by larger companies with several departments that have their own standalone budgets.
Much like SMBs, expense management software is agile and cost-effective when business owners don’t need to hire a procurement expert or accountant to manage expenses.
Another benefit of expense management software is the ability to project into the future. Spend analytics can help someone set budgets based on future orders, increased labor costs, seasonal slow times, increases in equipment costs, or changes in suppliers.
Enter ControlHub for Your Spend Management Software Needs
ControlHub excels at giving small business owners a solution for procurement-heavy hardware companies who need up-to-the-second information on spending, supplier management, and purchasing.
Our agile platform does it all, including allowing you to create virtual cards that let department heads spend money on what they need within budgetary limits.
Talk to us about your requirements, and we’ll have a conversation about what we can do for your data analytics.
Learnings
Procure-to-pay software has evolved into spend management software to give companies more flexibility and control in managing their accounts while staying on top of spending and purchasing.P2P Software is mainly geared towards larger companies that have a high volume of regular procurement activities and offers features like automated workflows, contract management, and spend analysis.
However, it has limits and doesn't account for one-time purchases outside the procurement process. On the other hand, spend management software is more decentralized and gives authority to department directors and managers to make necessary purchases for their departments, regardless of where the expense comes from.
It is important for both enterprises and small businesses to have spend management software to optimize spending from all avenues and departments.
