What is Purchase-to-Pay and why would you automate?
Thursday, 1 Mar 2018
Senior Account Manager
Purchase-to-Pay (sometimes referred to as Procure-to-Pay and often abbreviated to P2P) is shorthand for the process from point of order to payment, spanning the activities of requisitioning, purchasing, receiving, paying for and accounting for, goods and services. As such, the entire 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 to 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 solution, for example, works like an online store, so 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) and the order confirmation is 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.
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.
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.
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 programmes that incentivise suppliers to settle invoices earlier.
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 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.
Learn how Basware can help you make the move to an electronic P2P process.
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