It is important to understand procure-to-pay and the automated systems that can be used to help you manage any type of business, digital or otherwise.
Your procurement and accounts payable departments should be able to check the status of any transaction from the moment a product is ordered to the time that an invoice has been paid.
This article will discuss the procure-to-pay continuum. It’s what it is and how digital software can help.
What is Procure-to-Pay?
This is, at its literally, the process of requesting a product, placing an order, and Once the order has been received, payment will be made on the basis of an invoice from the supplier.
Procure to Pay (or P2P) is an automated system that integrates procurement and accounts payable to reduce costs, improve accuracy, and increase efficiency in both time and cost.
Key Performance Indicators for the Procure-to-Pay Cycle
Even though every business is unique, the core KPIs that are used to evaluate the procure-to-pay process remain largely the same.
The time frame for purchase order cycles
- The average cost of processing a purchase order
- Lead time
- Processing rate for electronic PO
- Time is taken to process invoices
- The average cost of processing an invoice
- Invoice exception rate
- The match rate for the first time
- Average invoice approval time
7 Steps to Procure-to-Pay process:
These seven steps are the core steps of the P2P process. It is important to remember that not all businesses use purchase orders for every purchase.
We believe that a lack of POs can cause significant losses if spread across an entire company. Companies that do not have a digitalized system in place to automate this business process can still make human errors. This is often due to reliance on paper and manual processing.
These companies are also subject to delayed payments as a result of disputes and a lack of visibility into the status of their invoices.
- Purchase Requisition: Once a need is identified and approved in any department within the organization, the request goes to procurement. The P2P process begins with the request.
- Purchase Order: The procurement departments will first review their list of approved suppliers. Based on the requisition information, they will then select the best supplier to fulfill the requirements. The procurement department creates a purchase or (PO) in the system. This is then automatically routed to the supplier for approval. This works best with electronic purchasing orders.
- Receipt for goods/services: The supplier will send invoicing to accounts payable upon shipment or completion of services. After the shipment has been received, procurement will add shipment information to the system.
- E-invoicing: All steps up to this point were handled by the procurement department. Here is where the accounts payable team steps in. The supplier sends invoices electronically via the P2P portal or by mail, email, and fax. If electronic invoices are not used by the supplier, invoices go through scanning and double-blindkeying technology. Relevant data is extracted and standardized and then converted to electronic bills (invoices).
- Invoice matching: The e-invoice is automatically matched against the PO or receipt of goods. The invoice will be automatically approved if all items meet the agreed-upon thresholds. This is commonly referred to as two-way matching and is an important part of any P2P business program.
- Approval workflow: Invoices that pass the 2-way and 3-way match are sent straight to the ERP for payment. This process can be automated by an invoice approval workflow solution. Additional signatures may be required for invoices exceeding a dollar amount. The solution will automatically forward these invoices to the appropriate people and notify them that they require a signature. These invoices will be automatically entered into the ERP system to be paid.
- Payment: Payment methods can vary from one company to the next. While we believe that electronic payments such as ACH and virtual cards are the most cost-effective and efficient way to pay suppliers for their services, many companies still use paper checks and cash. procure-to-pay solutions should include e-payables functionality. However, companies can still choose not to use this method.
7 Key Benefits of Procure to Pay
Automating procure-to-pay processes can bring many benefits to procurement and accounts payable. These are just a few examples of the benefits your company will see.
E-procurement and P2P systems can help you free up your procurement team, improve spend management, and even manage supply chain management.
- Streamline procurement procedures – Procurement Software provides connectivity throughout an organization so that requisitions can be approved and processed faster. The software also allows for the selection of appropriate suppliers based on data and the production and sending of POs to those suppliers…all electronically and with all the information easily tracked.
- Lower invoice processing costs up to 80% – Going paperless allows companies to utilize employees for more strategic initiatives and less repetitive tasks that can be automated.
- Get 100% visibility – A P2P solution gives visibility to the entire supply chain. It allows both suppliers and buyers to see the status of their invoices in real-time.
- Improve your management of exceptions – Most invoices are processed straight through so exceptions get the attention they need and can be resolved quicker.
- Enhance supplier relationships – Suppliers can use the supplier portal to know when they will be paid and make better decisions. Buyers also benefit from a quicker resolution of invoice disputes and exceptions.
- Leverage negotiating power – Suppliers who are confident in their payment status may be more willing to negotiate terms that are more favorable to buyers, while still providing the revenue they need to grow their businesses.
- Capture data to improve decision-making – Robust P2P options offer robust, on-demand reporting capabilities. Companies can have greater control over their cash flow and working capital by using historical and real-time data.