Procure-to-Pay Process

What is Procure-to-Pay?

The procure to pay process is how an organisation procures the goods and services it needs to do business. Also known as purchase-to-pay and P2P, procure-to-pay is the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services, covering the entire process from point of order right through to payment.

The Procure-to-Pay process

The procure-to-pay process is how an organisation procures the goods and services it needs to do business.

The Procure-to-Pay Process flow contains the following steps:

Step 1: Need identified - The need for a product or service is identified.

Step 2: Requisition management - A formal request is made for the goods or services and approved.

Step 3: Purchase Order issued - Once the purchase requisition has been approved by the relevant management, a purchase order is issued to the supplier.

Step 4: Goods receipt - The supplier delivers the requested goods or services and the relevant goods or services receipt is created.

Step 5: Invoice received - The supplier’s invoice is submitted and entered into the processing system.

Step 6: Invoice processing - The invoice is either matched against the PO and the receiving documents or any exceptions are flagged for investigation. Invoices that do not have an associated PO are routed through workflow for review and approval.

Step 7: Accounts Payable - Approved invoices are passed to accounts payable who make the payment and update the system.

Challenges in the Procure-to-Pay Process

The entire P2P process consists of many individual processes that take place across different parts of the organization and involve multiple people. This introduces complexity and, at times, confusion, especially when the process is manual and paper based.

Disparate Systems

Different departments within an organization typically have their own processes, which can make consolidating data a challenge. Procurement and accounts payable functions are managed by two distinct departments, governed by differing policies, systems and priorities. This lack of uniformity can lead to inefficiencies and potential errors.

Policy Non-Compliance

Procurement departments are responsible for negotiating pricing and discounts with suppliers, whereas the accounts payable operation is responsible for complying with these negotiated contracts. In a paper-based environment, without technology that spans both processes, policy non-compliance can lead to significant, unnecessary costs.

Lack of Visibility

Organizations that use disparate systems often find they lack access to information across the P2P cycle, and even in the cases when information is available it might be inaccurate. This leads to a lack of visibility across suppliers and spend and impacts the ability to make strategic business decisions.

Procure-to-Pay Best Practices and KPIs

Best Practices in the Procure-to-Pay Process

Following the best practices below will allow you to improve efficiency and effectiveness:

  • Implement an automated procure-to pay-solution
  • Ensure the P2P process is transparent and traceable at all times
  • Increase collaboration between procurement and AP
  • Optimize supplier engagement and satisfaction
  • Develop measurable goals and track performance

Key Performance Indicators in the Procure-to-Pay Cycle

Although every business is different, the core KPIs used to review the procure-to-pay process largely remain the same:

  • Purchase order cycle time
  • Average cost to process a purchase order
  • Lead time
  • Electronic PO processing rate
  • Invoice processing time
  • Average cost to process an invoice
  • Invoice exception rate
  • First-time match rate
  • Average invoice approval time
  • Days payable outstanding
  • Spend under management
  • Realised savings
  • Discounts captured

Benefits of Procure-to-Pay Automation

Automating the procure-to-pay process offers a range of benefits to both the procurement and accounts payable teams, as well as the organization as a whole. These benefits include:

Streamline Processes

P2P automation drives cost savings and processing efficiencies by eliminating time-consuming and error-prone manual processes from procure-to-pay operations. When you fully automate your procurement and payables processes, you can capture 100% of your financial data, and achieve the highest levels of visibility across the supply chain.

Improve Supplier Relations

Through automation, you can connect with your suppliers in an electronic and streamlined manner. Leveraging a range of methods to engage with suppliers and exchange data and documents, you can connect to all of your suppliers – from the largest to the smallest. P2P automation also increases on-time payment performance and provides suppliers with real-time visibility into transaction status, improving supplier relations and collaboration.

Eliminate Maverick Spending

The way to ensure compliance with purchasing policies and negotiated contracts is to provide an electronic procurement (e-procurement) solution that enables end-users to quickly find and order exactly what they need. A solution that offers an easy-to-use interface, supported by a robust underlying data model, and guided purchasing will ensure 100% user adoption, enabling users to stay compliant with procurement policy and eliminating maverick spending.

Increase Visibility and Control

Cost containment and spend control are becoming strategic priorities for CFOs and CPOs, while at the same time minimising disruptions to operations. P2P automation solutions provide a holistic view into your suppliers and spend from a single, centralised location to enable better strategic decision-making. Armed with data and visibility into company spending, you will be in a better position to control spend, mitigate risk, and manage the entire supply chain.

To find out more about how Basware can help you optimise your procure-to-pay process, contact us today.

Explore our P2P guides

Learn more about Basware's Procure-to-Pay solution, and how we can support all your automation needs for today, tomorrow and the future.

To find out more about the benefits of P2P please speak to one of our solutions experts.