Purchase-to-Pay (often abbreviated P2P) is shorthand for the whole process from point of order to payment, spanning the activities of sourcing, requisitioning, purchasing, receiving, paying for, and accounting for goods and services.
In the center of all these processes stands the electronic transaction of data in the form of requisition orders, purchase orders, invoices, etc. between customer and supplier. Connected to the processing of data through different documents stand the assessment and approval of business processes.
What is procure-to-pay? What about source-to-pay?
Purchase-to-pay is often referred to as procure-to-pay. While source-to-pay refers to the entire acquisition process, procure-to-pay excludes the sourcing process. As such, procure-to-pay is part of source-to-pay.
Purchase-to-pay (P2P) process
The full P2P process consists of a large number of individual processes that take place across different parts of the organisation and involve multiple people. This introduces complexity and, at times, confusion. If a process is carried out manually, it generally takes more time and effort, and allows room for human error to creep in. An electronic and largely automated P2P process, however, can be designed for efficiency, minimises potential sources of errors, increases transparency, and reduces overall costs. This requires a software solution that maps the entire process seamlessly. Such a solution is essentially comprised of four components.
In an electronic purchasing processes, requisitions are generated via catalogues integrated with the system. The solution should be user-friendly to promote adoption. Basware’s e-procurement solution, for example, works like an online store, so it will feel familiar and intuitive to anyone who has ever ordered a book over the internet. In the next step, the order is transmitted electronically to the supplier’s system. If the supplier can’t receive structured data, the order can be sent by email.T order confirmation is then transmitted electronically in return. The system also records the goods receipt and compares it to orders and invoices. If approvals are automated according to pre-configured business rules, the invoice for the order can be posted automatically.
2. Electronic exchange of documents
All documents involved in the P2P process should be exchanged electronically to save costs, time and eliminate paper. This includes the requisition, order confirmation, invoice and any queries that arise. These documents can be exchanged via a direct connection between the parties involved or, more simply, via a transaction network. The Basware Network is open, and connects all senders and receivers universally, no matter what data format or solution provider they use. Among other activities, the network performs the validation, conversion (if necessary), transmission and archiving of the documents.
3. Invoice automation
To fully benefit from an electronic P2P process, it makes sense to automate as many steps as possible. This is especially true of invoice processing. For example, the system reconciles incoming invoices with purchase orders or payment plans and goods receipts. Once matched, the invoice can be processed automatically based on pre-configured rules. If the invoice cannot be reconciled, the system searches for the named contact on the invoice and triggers an approval workflow. Only if the system cannot identify a named reference on the invoice will human intervention be required, to trigger the approval workflow by manually selecting the appropriate contact person. To make the most of invoice automation for your organisation’s Accounts Payable team, you should trust a solution that has consistently been selected a leader in AP automation.
4. Electronic payment
At the end of the P2P process, the invoice is paid. This is where the strategic considerations of working capital come into play, based on payment terms and discounts. That means balancing the considerations of buyers, who typically want to push back payments, and suppliers, who want to be paid sooner rather than later. That’s why some P2P solutions integrate various e-payment or financing services, such as bridging finance or dynamic discounting programs that incentivise suppliers to settle invoices earlier.
Purchase to pay process improvements
Since P2P involves a complex chain of events, organisations may wish to prioritise individual sub-processes in order to make a gradual transition to fully electronic processing. The best candidate for initial focus (and quick wins) is e-invoicing with automated AP processing. However, while there are multiple vendors selling pure-play e-invoicing applications, few offer solutions that cover the end-to-end P2P process. Any organisation planning to adopt e-invoicing as the first step in a broader P2P transformation should take the longer-term picture into account when evaluating and selecting solution providers.
Implementing the right purchase-to-pay solutions help you improve many internal processes:
Better coordination between teams: P2P processes typically involve multiple persons across procurement- &, payables-teams as well as the end user. By utilising automated P2P solutions, everyone involved in the P2P process is on the same page and keeps visibility on the process itself.
Automate redundant manual tasks: Modern P2P solutions can help your organisation find opportunities to automate parts of the P2P process. Ideally you can automate manual and redundant tasks to free up time for your staff.
Stay compliant and reduce the number of suppliers: Robust P2P solutions cover your entire supplier base. This full overview over whose services and goods you spend money on helps you identify the suppliers that help your business – and the ones that do not. Reducing an unnecessarily large number of suppliers while keeping full spend visibility helps your compliance goals.
Business benefits of automating purchase to pay
The benefits of implementing automated purchase-to-pay solutions are not limited to improving the purchase processes. Since comprehensive P2P solutions automate many manual processes, your organisation can yield many operational benefits that have a direct positive impact on your business:
Sourcing of goods & services from a single point
Better spend visibility, since all data is collected across your automated modules and stored in a central hub
Payments are received more quickly, allowing accurate cash flow prediction & spend analytics
Efficiency through automation: no manual re-keying of invoice data
Time-savings for buyers and suppliers
Moving from a paper-based to automated solution means audit trails are easily retrievable and no data is lost
Improved flow of documents and ease-of-use for query and amendments has fostered better buyer/supplier relationships
How to take your first step to adopting electronic purchase to pay solutions
Implementing purchase-to-pay solutions delivers many operational benefits to your organisation. It streamlines your purchase processes in a wholly holistic manner, while also providing you with maximum of visibility on your entire organisation’s spend.
As a global leader in P2P solutions, Basware is uniquely positioned to meet even the most demanding requirements. Let our team of P2P experts help you prepare your P2P process for the future and gain immediate benefits for your business.