Procure-to-Pay: What is it?
Purchasing from a business perspective is not as simple as just buying something outright, the process often involves multiple steps and approvals before a procurement order can be completed. This process is often referred to as Procure-to-Pay.
Procure-to-Pay (P2P) is a subdivision of the procurement process and involves the procurement department working alongside the accounts payable department to keep the procurement flow going.
As such, it plays a major role as all the quantities, qualities and payment of goods and services fall onto this subdivision. What might seem like a typical part of the procurement process, when done right, can bring resilience to the business.
The 5 Steps of P2P
The P2P process can be modified to be as simple or as complicated as your specific needs demand. Even so, there are some reasonable and practical steps that every P2P process should include such as:
- Create Purchase Requisition (PR)
To request for the purchase of goods or services, a requisition order is made by the procurement department that will typically include details of goods or services, quotations provided by the supplier as well as delivery instructions.
- PR Approval
The purchase requisition is then submitted for approval to ensure it is aligned with company policy, is deemed necessary and is within budget.
- Create Purchase Order (PO)
Following approval, a purchase order is created by the buyer which is given to the supplier for fulfilment. This document outlines the types, quantities and price of goods or services identified by the buyer which the suppliers can either approve or reject. Negotiations play a vital role in this area to ensure both the buyer and the supplier come to an agreement that both parties are satisfied with.
- Receive Order & Invoice
The supplier delivers the goods or services which are inspected by both the buyer and supplier to ensure it aligns with the items listed in the purchase order and is free from any damages. If all goes well, the supplier will then issue an invoice that outlines the amount charged to the buyer and the due date for which it needs to be paid.
- Make Payments
The pay process involves the approved invoices being directed to the accounts payable department who will proceed with making the necessary payments. The buyer will need to ensure that supplier payments are paid in due time and that transactions are recorded in relevant systems.
Best Course of Action
P2P processes are liable to human error or poor service, therefore, detailed procedures and systems must be set in place to mitigate any issues. With that, here are some of the best courses of action to take to get the most out of the P2P process:
- Implement P2P software
This is perhaps the best measure to take in regards to P2P, automated systems have the added advantage of being able to compare purchase orders and received goods or services with the given invoice to verify that the items delivered are of accurate quantity, in good quality and are charged accordingly.
A P2P software also highlights any inaccurate information that is needed to be brought to attention and simplifies the procurement process from start to finish. For an example of P2P software that is both efficient and economical, check out ADAM!
- Maintain transparency
An impending audit often leaves companies scrambling as missing documents are found, found documents go missing and it all goes into disarray.
However, this could all be avoided by maintaining transparency during the procurement process. Requisition orders, purchase orders, invoices recorded early on ensures that businesses are saving themselves the headache of preparing for an upcoming audit and allows them to carefully monitor their spending.
- Improve supplier relationship management
Maintaining strong relationships with vendors will benefit the business in the long run as good relationships mitigate a smoother negotiation process during the purchase order stage.
This brings an added advantage to the business as suppliers are more likely to negotiate favourable terms with businesses who are consistent in paying their invoices on time and fulfil their side of the business contract.
Goods or services are also liable to damages during transportation and good relationship management with suppliers eases the process of requesting for exchanges or returns.
Procure to Pay: Do It Smarter!
While it may seem like a linear process, a whole host of different complications that might occur during the P2P process could very well make or break a business. Hence, switching to P2P software would be the logical choice. Click here to know the ins and outs of going automated with procurement and its role in bringing businesses to the forefront.
P2P or procure to pay is a subdivision of the procurement process involving the integration of the procurement department and the accounts payable department.
1. Create Purchase Requisition (PR)
2. PR Approval
3. Create Purchase Order (PO)
4. Receive Order & Invoice
5. Make Payments
A formal internal document requesting goods and services.
A document issued by the buyer given to the supplier that lists the types, quantities and price of goods and services.
A software that manages the procurement process from identifying goods or services to recording the procurement process for auditing.