Ultimate Guide for Procure to Pay Process & Best Practices

Every business, company, or organization has a dynamic need for goods, services, or products. The procurement department or team is responsible for identifying requirements, browsing through the vendors or suppliers, and purchasing the items or products. Although this sounds easy, the all-embracing procurement process needs strategic planning, heavy documentation, and strict procedure or process following. Therefore, the extensive procurement process is broken down into procure to pay, purchase to pay, and source to pay processes.

This blog will focus on the best procure to pay processes and practices for a business, its benefits, stages involved, and challenges faced to enhance your understanding.

What is a Procure to Pay Process?

The procure to pay process is a set of integrated actions and events a company or business adopts to procure the required goods or service order from an outside supplier. The p to p process involves a series of stages, from vendor/ supplier identification and invoice approval to vendor payment. The procure to pay cycle has to be streamlined intricately for the successful fulfillment of services and payment.

The major procure to pay process steps include:

Benefits of Procure to Pay Process

Any business, organization, or company cannot function without certain goods, products, or services. The procure to pay process eases this need and provides the following benefits:

Streamline procurement processes

Having a defined procurement procedure is essential for every company or business. Procure to pay process streamlines the procurement procedure by defining every step or action from the stage of procuring to payment. It helps to prevent duplicate orders, approval, void payment processing, etc.

Reduce invoice processing costs by up to 80%

An automated p to p process, with digitized p2p procurement, reduces the processing cost when the repetitive tasks are automated through software or automation. An efficient procure-to-pay cycle averts duplicate orders, cost turnovers, overpaying, or errors in payment processing.

Get 100% visibility

A well-charted out procure to pay cycle ensures supply chain visibility for buyers and suppliers. With an automated procure to pay process, this visibility and status could be tracked in real-time by the suppliers and buyers.

Realize better management of exceptions

The exceptions get better attention with an efficient and streamlined procure to pay process. With every order procured through the process, the exceptions or errors stand out, leading to better order management and processing.

Improve supplier relationships

Suppliers are crucial for every business. An intricate p2p procurement process improves the supplier relationships with timely payment processing and provision to track the order status and payment approval procedures. The decision-making power of suppliers also improves with greater supply chain visibility.

Leverage negotiating power

Well-defined procurement steps also inform the negotiating power of the suppliers, they may offer better deals and discounts to the buyers based on the payment procedure and approval time. Buyers could also cut a better deal with the suppliers by highlighting the efficiency of their p to p process.

Capture data for better decision making

If the procure to pay process is automated, data analysis and report generation become easy, resulting in better decision-making and process improvement. Cost and budget management become easier.

Is Procure to Pay and Purchase to Pay similar?

Although used interchangeably, procure to pay and purchase to pay differ based on the aspect of the extensive procurement process. P2P procurement concentrates on the transaction lifecycle (i.e., from good/ service selection to invoicing generation and payment) of the procurement process by linking it to the accounts or finance department.

Unlike source to pay process, procure to pay process is void of sourcing, project planning, and predicting the nature of supply chain management. The source to pay process adds strategic sourcing to the p2p procurement steps.

In contrast, purchase to pay process focuses on e-procurement applications, purchasing, and payment modules. Purchase to pay concentrates on the invoicing process of the procurement. The purchase to pay process includes requisition, purchasing, receiving, paying, and record-keeping of items, products, or services.

What is meant by the Procurement Plan?

A procurement plan is crucial to the procure and pay cycle. It’s a document mapping out the planning and process of selecting a vendor or supplier. The procurement plan justifies how the process of vendor identification will take place to fulfill the product or service requirement.

The procurement plan enhances the transparency, efficiency, and effectiveness of the procurement process. A procurement plan is extensive, and it highlights how the entire process of vendor selection, starting from:

• Identifying needs
• The contract type between the buyer and supplier
• Metrics used to judge the supplier’s or vendor’s performance
• Planned delivery dates for the products or service
• The number of suppliers involved in the procurement process
• Project schedules and deadlines
• Vendor management procedures
• Describing how changes will be approved and their procedure

Procurement Process Functions and Responsibilities

The procurement process is an expansive process requiring strategic planning, timely execution, and detailed analysis. The source to pay, procure to pay, and purchase to pay process are subdivisions of the extensive procurement process.

The main functions of the procurement process include the following:

• Identifying the requirements for a business, organization, project, department, or company
• Sourcing the essential products, services, or items
• Vender identification and contract signing
• Evaluating supplier’s vendor’s performance
• Aligning business compliance with the supplier
• Purchasing products, items, or services
• Ensuring procurement budget, approving the invoice, and paying the vendor
• Updating the database and inventory periodically
• Analyze and map future needs with cost estimates
• Improving procurement steps (i.e., sourcing, procuring, and purchasing process)

Best practices in the Procure to Pay Process

Optimizing procure to pay process is essential to keep up with the dynamic needs of a business. Most times, inefficient planning, process clarity, outdated technology, and unnecessary delays interrupt the vendor and customer relationships, impacting the future business. Thus, we will tell you the best practices to optimize the procure to pay process:

Optimize inventory

Inventory management and optimization are what most companies or businesses fail to achieve. Updating, recording, and maintaining live and correct updates about the inventory regarding product needs and restocking leads to inventory optimization. You could plan your procurement strategy, procurement steps,  efficiently, control cost, minimize wastage, and meet client expectations.

Improve supplier engagement

Maintaining a healthy and positive vendor or supplier relationship is significant to the p to p process. Creating an interacting, accommodative, and less complex procure to pay process or purchase to pay process for vendors helps the relationships. Such as early payments or quickly processing payments is also a good way to improve supplier engagement. However, how the supplier behaves toward the buyer equally, their professionalism, promptness, and interactions are equally important.

Streamline contract management  

Contract signing and management is unavoidable and a time-taking procedure officially confirming the supplier and buyer terms and business relationships. Streamlining contract management is beneficial to creating a pre-defined contract management loop to review, monitor, modify, and check compliance.

Keep the process transparent

Ensuring visibility and transparency in the p to p process enables vendors and buyers to improve the procurement process. Real-time access to tracking records, inventory, purchase orders, vendor contract, etc. Using an integrated platform for vendor management, invoices, and purchase order approvals could come in handy to optimize the procure-to-pay process.

Implement procure-to-pay software

Relying on the right software could also do the trick. Many procure to pay software available in the market improves the prcoure to pay process by eliminating errors, ensuring workflow integration, and automating invoice processing, ERP integration, and vendor portals. Saying yes to automation will save time, increase efficiency and improve the procure-to-pay cycle.

Procure to Pay Process Flow

The procure to pay process majorly involves three processes, i.e., purchase order, receiving process, and invoice approval.

How to Maintain an Efficient Procure to Pay System?

Planning and maintaining an efficient procure to pay system are required to fulfill any purchasing order or procure goods and services. Even if you develop the best procurement strategy implementing it becomes a hassle with the huge paperwork, documentation, approval processes, and invoice processing. Finding the right p2p solution would be an efficient way to maintain the p2p system. Conventional record keeping and manual work become a hassle while dealing with big projects and supply chains.

If you are still double thinking about switching to p to p software, here are some of its benefits:

1. Higher efficiency and enhanced productivity with automation
2. Better business intelligence
3. Better process transparency and control
4. Cost reduction with e-procurement
5. Standardization of workflow, approvals, purchase orders, etc.
6. Relatively shorter procure to pay cycle

Challenges in the Procure to Pay Process

Streamlining and integrating the procure to pay process is the dream scenario for every supplier and buyer. However, some hindrance prevents it from happening. The most common challenges in the p2p procurement are:

Disparate Systems

Different departments handle the different stages of the procure to pay process according to their distinct procedures preventing data consolidation. The lack of uniformity between the procurement and accounts departments with unique policies, systems, and procedures leads to inefficiencies and errors.

Policy Non-Compliance

Non-compliance to policies becomes a major issue in the case of the conventional procurement process. The procurement team takes care of the contract negotiation, discounts, and pricing, which the account departments adhere to policy compliance. It becomes difficult for everyone involved in the supply chain to ensure compliance.

Lack of Visibility

In most cases, the lack of transparency in the procurement steps prevents suppliers from getting the required information and live data. The lack of visibility across suppliers regarding procedures like invoice processing impacts the supplier-buyer relationships and business decisions.

Lack of process integration

The lack of an integrated system and processes is yet another challenge faced by procuring to pay process. Vendor management, contract negotiation, purchase order creation, purchase order approval, inventory management, and invoice processing are handled across departments with unique systems and procedures, slowing down the business cycle.

Conclusion

Perfecting the extensive procurement process, including procure to pay, purchase to pay, and source to pay processes, is a difficult task. The key is to develop a detailed yet less complex procurement strategy unifying the different aspects of procurement under one umbrella for easy access. Automation is the key to improving procure to pay cycle, minimizing errors, order duplications, and money wastage. Read our blog to know the three ways to reshape procurement.

Giants like Amazon have an automated inventory management software perfecting their process delivery, shipping, and order processing. Thus, don’t shy away from a p2p solution and get your p2p process cycle automated. Check out Amazon Business, one of the largest online procurement platforms, for your business-related purchases and needs.  

Explore our Buying Guides

• Best Printers for Home & Office use
• Best offfice chairs
• Networking Devices List 2021
• Best CCTV Cameras

Related Articles

• Upselling & Cross-selling
• Business planning process
• Launch a new product
• Supply chain management