Procure to pay, or purchase to pay, is the process an organization follows to purchase goods and services that are required to run business operations effectively.
The procure-to-pay process typically involves:
Procure-to-pay connects with the accounts payable department, to achieve greater:
This entire procurement process can be a significant contributor to improving a business's financial health and operational efficiency.
However, not every business has a sound procedure in place to ensure that these steps are followed, or that the policies relevant to these steps are enforced, or adhered to. This is where procure-to-pay software comes in.
In this article we’ll share insights into the procure-to-pay process and the benefits of automating and optimizing it with software.
Procure-to-pay software, also known as P2P software, is a technology solution that automates and streamlines the procure-to-pay process.
Gartner defines procure-to-pay software as “a fully integrated solution designed to support an end-to-end process that begins with goods and services requisitioning and ends with ready-to-pay files for upload into an accounts payable system. In addition to core e-procurement functionality (including e-requisitioning, approval workflow and e-catalog management), procure-to-pay solutions offer purchase-order-to-invoice matching and processing for invoices that don’t match or when goods are returned.”
For any business that’s scaling, developing a solid procure-to-pay process, underpinned by the right procurement software, can fast-track your route to reducing processing costs and increasing your buying power to ultimately purchase goods and services at the lowest price.
Regardless of the size of your business, you could be experiencing inefficiencies and spend leakage with no defined P2P process in place.
Manual processes, human error, and a lack of visibility and control could be leading to a reactive approach to spending that wastes time and money.
If your business is experiencing any of the following challenges, it’s likely time for you to consider investing in procure-to-pay solutions:
While this isn’t an exhaustive list of the day-to-day procurement challenges facing businesses everywhere, the risk factors in these examples alone make the case for digitizing your procure-to-pay process.
Having a clear understanding of business-critical vs non-essential items is fundamental to making the right decisions when it comes to effective spend management. Let's take a look at how the procure to pay process should flow:
The first step of the procure-to-pay process is identifying business and supply management needs. This means understanding what all your organization’s business functions and departments need on a regular basis to do their jobs well and assigning budgets accordingly.
With this information, you can take action and rely on procure-to-pay management software to provide an effective framework for purchasing control and efficiency. At the appropriate stage, you can leverage your solution to submit purchase requisitions, create purchasing templates for repeat purchases, or set up internal catalogs with approved suppliers so that essential items can be re-ordered with ease, and delivered before items run out and cause unnecessary delays.
In addition, practicing cost avoidance is easy when you’re able to track maintenance costs to assets in a procure-to-pay system: knowing when it’s time to replace rather than repair equipment can drive down your operational costs significantly.
In defining your procure-to-pay process, it’s vital to understand:
Armed with the transactional data you’re able to retrieve from procure-to-pay software, you can negotiate best-value contracts and take advantage of onboarding and approval tools to ensure that spend only occurs with these top performers.
Working with strategic sourcing partners relieves you of having to vet new vendors and assess the quality, speed, prices, and reliability of their goods and services. In fact, this vetting processing can contribute to as much as 60% of all supply costs.
Additional vendor management benefits gleaned from implementing procure-to-pay software include:
After determining what your business needs and the suppliers you should be channeling your indirect spend to, you need to ensure that a sound requisition-to-PO process is in place to ensure that all expenditure is tracked, approved, in budget, and policy compliant.
In organizations that have not automated their procure-to-pay process, a purchase requisition is usually a paper-based document or an email that an employee completes and submits to request the purchase of goods or services. These manual processes are difficult to track, fraught with inaccuracies and delays due to backlogs and out-of-office approvers.
Replacing these inefficient processes with automated requisitioning capabilities will introduce newfound visibility, accountability, and efficiency, and swiftly deter any unauthorized spending activities.
Submitting a purchase requisition does not mean anyone is actually buying anything. Instead, they’re just beginning the purchasing process by asking for internal approval.
With procure-to-pay systems, you’re able to access each requisition’s details, including:
Users can upload supporting documents to verify purchase requisitions and the data is centralized for easy access throughout the procure-to-pay process.
Furthermore, higher-value items might require quoting, another activity that’s simplified by procure-to-pay software through collaborative workflows and internal controls that ensure you’re purchasing goods and services at the best price.
You can empower all employees to submit purchase requests from a web-based or mobile application, from any location. Giving them the tools to spend responsibly, while ensuring proactive financial control. This brings us to our next key step in the procure-to-pay process:
Each request is automatically routed through a defined requisition-to-purchase order cycle that is checked for budget and policy compliance and escalates according to configured rules and approval thresholds.
With procure-to-pay software, wasteful or unnecessary expenditure is quickly identified and their requests are rejected, before any costs are incurred.
Reasons for rejection could include that the request is:
If this is the case, it will be routed back to the relevant user to provide more context, motivation, or additional documentation.
This effortless process, powered by automation, gives business leaders peace of mind, while the workflow engine does the heavy lifting.
You can eliminate delays and bottlenecks and reduce approval cycle times from weeks or days to mere hours with an efficient process automated by procure-to-pay software.
Next, purchase orders are generated from approved purchase requisitions. A purchase order is a contract between a buyer and seller, committing the buyer to paying for goods or services that will be delivered in the future, without the need for immediate payment.
Purchase order approvals ensure the legitimacy and accuracy of requested items. They can be auto-generated by your procure-to-pay software, contingent on all required supplier data and approvals having been met.
Emailing suppliers directly from the system is as easy as ticking a checkbox and each activity, date, and time stamp is logged in an audit trail for easy access and retrieval for auditing or general financial purposes.
Further to this process efficiency, procure-to-pay software enables users to submit change order requests to revise POs. These requests are routed on the same approval track as purchase requests to mitigate any potential risks.
Once a purchase order is submitted to a supplier, they can approve or reject the order and once approved, the buyer and supplier enter into a legally binding contract.
In this step of the procure-to-pay process, goods are shipped or services are rendered. Once the items arrive, the information is recorded in the system. If there are no discrepancies between the purchase order and goods receipt, an invoice is sent to the accounts payable department.
This is the point where collaboration between procurement and accounts payable is necessary. Fortunately, all touchpoints can be streamlined and optimized by procure-to-pay software.
An essential component of an accurate procure-to-pay process is three-way matching. This simply refers to cross-referencing your received supplier invoices, your organization’s purchase order, and the receipt. These also need to match the delivered goods.
More specifically, three-way matching compares the following information:
Comparing these records manually can lead to hours of administration, especially if processes are manual or paper-based with no centralized data repository. Procure-to-pay software streamlines this process with electronic matching capabilities and centralized visibility of all relevant documents, so you can guarantee that your organization realizes better management of exceptions and avoids the risk of duplicate invoices and overpayment.
After these records are matched, invoices are electronically captured, approved, and routed to accounts payable.
After receiving an approved invoice, the accounts payable team processes payments according to the contract terms.
When reviewing procure-to-pay software options, it’s wise to consider a solution that enables integration with an ERP or accounting system. Doing this ensures that your records are accurate and effortlessly maintained, and all budget and compliance checks are in place prior to payments being released by the financial system.
Choosing such procure-to-pay software will enable:
The proven benefits of a digitized procure-to-pay process extend beyond operational efficiency and cost containment advantages. You can capture more value by improving supplier relationships, and boost morale by equipping employees with adequate technology to simplify and fast-track their processes.
With system-driven policy compliance, your procurement teams are freed from the burden of policing spending activities, while their interactions with accounts payable are streamlined and collaborative, bridging the gap between these key departments and strategic enablers.
Find out more about how Fraxion, a comprehensive spend management and procure to pay software that is empowering remote and dispersed teams by guiding their purchasing behavior and enabling fast, accountable, and efficient procure-to-pay processes. Proactively manage your business spend with insights, transparency, and compliance. Request a procure-to-pay software demo to see efficiency in action.
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