Businesses employ the procure-to-pay procedure to ensure efficient procurement. It entails connecting accounts payable and purchasing software to manage each step of the procurement process conveniently. If you run any business, whether 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 accrued expenses teams should be able to examine the progress of a transaction at any moment, from the moment someone orders a service or product through the time a bill they send the invoice.
P2P stands for procure to pay; however, it should not be confused with peer-to-peer communication networks, shortened as P2P.
Understanding Procure-to-Pay
Requisitioning, buying, acquiring, paying for, and accounting for goods and services are procure-to-pay. Its name comes from the organized procurement and financial processes sequence, which begins with the earliest steps of procuring an item or service and ends with the last payment stages.
Though there is software specifically equipped to accommodate the complete procure to pay system or elements of it, such as invoicing, or associated activities, such as inventory management and financial accounting, it is a process, not a technology.
According to Paystream’s 2018 Procurement Insights research, 80% of companies still handle their procure-to-pay cycle with manual or semi-digital solutions. The majority of businesses use a procurement module that gets coupled with their ERP or accounting software. It’s analogous, like cracking a nut with a flashlight. It does the job, but it isn’t the best tool for the job.
This erroneous application will cause problems in the not-too-distant future. Using antiquated procure-to-pay software, or worse, no system at all will hurt an organization’s bottom line. Organizations must abandon their conventional approach and embrace technology to stay competitive.
The P2P 7-Step Process
When distributed across an entire organization, we believe that a lack of POs can result in significant losses. Furthermore, businesses that have not established a digitized system to automate this process are still vulnerable to human errors, common when using paper and manual processing.
These businesses also face late payments due to disagreements and a total lack of consistency in the progress of invoices in real-time. Here are 7 steps involved in the P2P process:
- Purchase Requisition
Once the administration (department of the firm) has recognized and approved a requirement for a particular product or service, they send the request to the procurement department. The need that initiates the P2P process is referred to as requisitioning.
- Purchase Order
Procurement professionals will first go through their list of permitted suppliers and then choose the best provider for the job based on the requisition data. The procurement department then generates a purchase order (PO), routed for approval, and automatically sent to the supplier. With computerized purchase orders, this is the most effective technique.
- Receipt of Goods and Services
The supplier will issue an invoice to the accounts payable division once the goods are delivered or complete the service. Procurement will enter consignment information into the system once the other side receives it.
- E-Invoicing
The procurement department has handled all of the stages up to this point; now it’s the accounts payable department’s turn. The supplier can send invoices electronically using the P2P solution’s supplier portal or by mail, email, or fax. If the supplier does not use electronic invoices, they go through a scanning and double-blind keying procedure to extract, standardize, and convert important data to electronic invoicing.
- Invoice Matching
The e-invoice is then instantly matched to the purchase order and goods receipt. The invoice is immediately forwarded for clearance if all items match under agreed-upon parameters. It is also known as two-way or three-way matching, and it is a critical component of any P2P system.
- Approval Workflow
Invoices that satisfy the 2-way or 3-way match are sent directly to the organization’s ERP for payment via an automated P2P solution. This process can be automated using an invoice approval workflow system.
If the defined rules require additional approvals on bills beyond a specific price level, the solution will immediately forward such invoices to relevant people and notify them that a signature is required. Those invoices will then be automatically entered into the ERP system and paid.
- Payment
Payment options differ from one company to the next. Even though we believe that contactless cards such as ACH and virtual credit cards are the most practical and cost-effective way to pay vendors, many businesses still use paper checks and cash. Although companies should include an e-payables feature in a procure-to-pay system, a corporation can choose not to use it.
Key Benefits of the P2P Process
Procurement and accounts payable can both benefit from automating their procure-to-pay operations. Here are just a few examples of the benefits your firm will experience.
E-procurement and peer-to-peer (P2P) technologies can help you free up your procurement teams, increase expenditure management, and even control your supply chain.
- Streamline Procurement Procedures
Procurement software connects the entire organization, allowing requisitions to be requested and authorized faster, relevant suppliers to be identified based on data, and POs to be created and sent to suppliers, all digitally and quickly retrievable.
- Reduce Invoice Processing Expenses by up to 80%
Going paperless saves time and money, allowing businesses to focus their resources on more strategic initiatives rather than repetitive processes that they could automate.
- Get Complete Visibility
A P2P solution gives full visibility throughout the supply chain, allowing buyers and suppliers to see invoice status in real-time.
- Improve Exception Management
Because most bills are processed straight through, exceptions can receive the recognition they crave and get resolved more quickly.
- Improve Supplier Relationships
Using the supplier portal, suppliers can determine when they will get paid, providing them with the knowledge to make better decisions. Faster settlement of invoice exceptions and disputes generates goodwill and gives buyers more visibility.
- Enhanced Teams’ Skill Sets
Procurement teams can focus on objectives with more strategic value than laborious and repetitious administrative activities.
Procurement divisions can focus on value-added responsibilities like sourcing, development, end-user intimacy, and strategy because the Procure-to-Pay process is straightforward to program.
- Utilize Negotiation Leverage
When suppliers are confident in their payment status, they may be ready to offer more favorable conditions to buyers while still ensuring that suppliers receive the revenue they require to expand their business.
- Capture Data for Enhanced Decision-Making
P2P systems with robust on-demand reporting features are ideal. Companies can control cash flow and working capital by utilizing the real-time and previous data supplied.
One of the most significant advantages of consolidated procure to pay suites is their ability to combine data, allowing executives to adopt a process known as spend management to have more control over overspending.
Bottom Line
The new savings potential gets discovered via procure-to-pay solutions that digitally integrate vendors, organizations, policies, and processes. Automated procurement software addresses all current process gaps, from preventing human data entry to enhancing spend visibility.
Purchase-to-pay technologies, data optimization, historical trend knowledge, and supplier research should all be priorities for your company. Payable systems and purchasing processes are inefficient due to manual processes and silos, which can substantially impact your bottom line.
