The larger your business grows, the more stressful the procure to pay process will be if you don’t have a dedicated P2P software solution in place. As your business grows, without a system in place to manage the entire P2P process, the more moving parts there are, meaning the more things that can go wrong.
Here we’re going to discuss all you need to know about the procure to pay P2P process, as well as the benefits, challenges, and solutions associated with P2P.
Procure To Pay Process Definition
Procure to pay, often referred to as purchase to pay, or P2P, is the entire process an organization goes through to acquire the goods and services they need to do business.
The step-by-step guide of the procure to pay process is explored later in this article.
The procure to pay cycle begins with identifying what goods and services are needed and ends with a completed invoice. It is important to note that the procure to pay process ends here, but the procurement process includes goes beyond this stage to ensure both the purchaser and supplier are happy with the transaction. The reason it’s important to ensure both parties are happy is that supplier relationships are important to the procurement cycle.
Steps of an Effective Procure to Pay Process Flow
Step 1: Identifying Needs
The first step in the procure to pay process is identifying what raw materials, good, or services you need to carry out business. For example, when you go to the supermarket before making your dinner, the first step is considering what ingredients you must purchase in order to make the dinner that evening.
Step 2: Purchase Requisition
Purchase requisitions can be simply described as putting the identified needs on paper. This step includes filling out a purchase requisition form, which is a form filled out by employees stating the items and quantities needed of each good or service.
Step 3: Purchase Requisition Approval
If any internal approvals of purchase requisitions need to be made by management before the purchase order is placed, this is when it happens.
Step 4: Purchase Order (PO)
After purchase requisitions have been approved, a purchase order is placed with the specific amounts and delivery requirements. The purchase order is a formal request that is sent to the appropriate vendor.
Purchase orders can be accepted, rejected, or negotiated by vendors. Once they accept the purchase order it activates a legally binding contract.
Step 5: Goods Receipt
Once the goods or materials are delivered, the purchaser must inspect to make sure the delivered item match the original purchase order and the supplier satisfied the contract compliance.
It is important to check and approve all items delivered upon delivery, because if items are missing or broken it is much more difficult to receive a refund at a later stage.
Step 6: Supplier Performance
After the supplier delivers the goods, their performance is evaluated on a number of factors such as quality, service, contract compliance, responsiveness, and whether or not it was an on-time delivery.
Step 7: Invoice Received
The vendor submits an invoice to the purchaser. The invoice is entered into the system to be reviewed by the accounts payable department. Automated systems for P2P usually support electronic invoicing through vendor portals.
Step 8: Invoice Reconciliation
The vendor invoice is reconciled against the original purchase order another documents to ensure everything matches and it’s all set to be paid. This is to clarify that the goods were delivered as ordered and billed accordingly.
Automated systems will facilitate three way matching comparing invoices to PO’s and receiving documents. Items that don’t match in the three-way matching process are flagged for investigation.
Step 9: Vendor Payment
After invoice matching, the approved invoice is sent from the finance team to the accounts payable team to make the payment.
Some suppliers may negotiate early payment discounts, or even late fees, with procurement teams.
P2P Best Practices and its Benefits
Best Practices of P2P
Having a structured P2P process has many advantages, but these only arise when the best practices are being used by all involved in the process. The best practices of P2P are as follows:
- Install procure-to-pay software: As with all big business decisions, do your research and find out which software solution is best suited to your business.
- Improve supplier engagement: Keep a high level of transparency with suppliers to maintain a healthy supply chain.
- Optimize stock/inventory.
- Streamline contract management
Benefits of having P2P software
Some of the advantages of having P2P software include:
- Reduced margin for error
- Clear order flow from purchase orders to completed invoice
- Saves time on admin tasks (no more manual data entry)
- Facilitates a move to paperless invoicing
- Reduced lifecycle times for purchase orders and invoice processing
- Supply chain optimization
For businesses not using a P2P system, the P2P process can be very time consuming, and allows a much higher margin of human error. Most organizations face their P2P challenges from not having a system in place, or not having a good system in place for that matter.
Many challenges businesses face using P2P systems are a direct result of the outdated procure to pay software they use. There is a still a lot of procure to pay software solutions being used that don’t meet the needs of businesses today. Using these outdated inefficient software solutions can prove to be costly and time consuming for users.
A common challenge that faces procure to pay software users comes down to not receiving sufficient training and support from the software provider. As with almost all new software or platforms, not providing sufficient training on how to use it creates massive barriers for its users.
Procure to Pay Solution
It is growing increasingly clearer in the public eye that acquiring an intuitive procure to pay system is an investment for your business. Top of the range P2P systems help organizations improve their spend management which allows them to gain more control over their costs.
It is estimated that by 2025, over 50% of businesses worldwide will be using a cloud-based P2P software solution. Each industry has different P2P systems that are best suited to that specific industry.
Access Procure Wizard – P2P Software
Access Procure Wizard is Ireland’s leading provider of purchase to pay software for the hospitality sector. For hotels, restaurants, and bars in Ireland and Northern Ireland, this is the answer to all their P2P issues.
Access Procure Wizard is an intuitive purchase to pay system that allows organizations to improve overall efficiencies. This is a customizable system that highlights savings opportunities within your nominated supplier product listing.
This P2P system protects your bottom line even through inflation by giving users full visibility over your expenditure. It also puts users in control of price increases as all price increases on the system must be approved by the user.
This cloud-based system will allow you to go 100% paperless with invoices and will result in a 5% increase in invoice to credit ratio. It also seamlessly integrates with accounting software and other solutions your business uses.
To find out more, book a completely FREE demonstration of Access Procure Wizard procurement software.
What are the steps of a typical procure-to-pay process?
The steps of a typical procure to pay process are outlined earlier in this blog. It is important to note that for smaller organizations, the process may seem a lot less than 9 steps because the steps flow easier with less moving parts. In these cases it seems more like 5 steps.
What is the difference between accounts payable and procure to pay?
The accounts payable is sometimes used to describe the P2P process, but accounts payable is in fact only one part of the purchase to pay process. Accounts payable is the final step in the process that we referred to earlier as vendor payment.
The accounts payable process however is another way of describing the steps in the P2P process from when the PO is placed to when the invoice is paid and completed, as the accounts payable have a vested interest in these steps.
What is the difference between ‘procure to pay’ and ‘purchase to pay’?
‘Purchase to pay’ and ‘procure to pay’ are both the same thing. They are simply two different ways of saying the same thing, P2P. There is a common misunderstanding where people think they are 2 different things.
Another common misconception is that sourcing is the same as procurement. These however are different, and are highlighted in our article about Sourcing vs Procurement Differences.
What is P2P life cycle?
The ‘procure to pay cycle’ or ‘procure to pay life cycle’ is the same thing as the procure to pay process, it is just another way of saying the phrase.