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How to implement a procure-to-pay process at your company

Procurement

Learn how combining procurement with the accounts payable system creates a procure-to-pay process, which streamlines tasks such as purchasing goods, approving payments, and managing vendor agreements.

Written by
Kathryn Lang
Published on
January 4, 2023
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When you combine procurement with your accounts payable system, you get a procure-to-pay process. A P2P process streamlines procurement tasks like purchasing goods, approving payments, and managing vendor agreements.

A procure-to-pay process is critical for any organization with third-party vendors and suppliers — especially at scale. Before implementing a P2P system, it is essential to consider what makes it practical and effective.

What is the procure-to-pay process?

Combining procurement and the accounts payable system creates a procure-to-pay process. This process involves obtaining goods, services, or both and can be challenging and costly.

Establishing the P2P process helps prevent errors, compliance issues, and late fees.

When we say every step, we mean the business process of

  • Requisitioning,
  • Purchasing,
  • Receiving,
  • Invoicing,
  • Making the payment.

Procurement is critical to business success and growth, so it is essential to understand and effectively organize the procurement process.

How does the procure-to-pay process work

The procure-to-pay cycle requires several critical steps to effectively purchase supplies, equipment, goods, or services. These steps may vary by company.

Vendr | The Procure-to-Pay (P2P) Process

1. Uncover needs for products and services

The procurement team works to understand a company's needs for direct or indirect procurement.

For example, what goods and services do the company need to purchase to upkeep production cycles and stay on schedule?

P2P teams review company requirements at this stage and gather product specifications, including serial numbers, sizes, amounts, and more. This way, purchase requisitions can be accurate.  

2. Generate and approve requisitions

The second stage of the P2P process involves generating requisitions with the information gathered in the first phase. Once P2P teams are armed with the necessary information to create requisitions, they can submit them for review.

Throughout the procure-to-pay process, it’s critical to enforce compliance with management approvals when appropriate. In this phase, P2P leadership and department leaders approve requisition submissions.

This step ensures compliance, upholds procurement ethics, and standardizes purchasing, which are all vital to the end-to-end process.

3. Create and approve purchase orders

Once requisitions are approved, create purchase orders (PO). At this stage, it’s critical to evaluate purchase orders for accuracy. Creating and approving purchase orders becomes an exhausting, manual process without automation to standardize the process and catch errors.

Once requisitions are approved and purchase orders are submitted, vendors can accept or try to negotiate an order. As both parties arrive at an agreeable deal, a legally binding contract is in order. From there, it’s a matter of finalizing the contract and waiting for the delivery of your orders.

4. Receive and inspect goods

Once goods are delivered, the buyer must examine the order to ensure fulfillment according to the purchase order.

After evaluating the goods, buyers accept or reject them based on whether they meet the agreed-upon specifications and ensure that the delivery meets customer demands and expectations.

5. Payments and invoicing

After goods are accepted, the finance team or AP department pays approved invoices according to the agreed-upon terms. Buyers and suppliers can negotiate various payment options such as advances, early payment discounts, or installments.

During this stage, your team may use 2-, 3- or 4- way invoice matching:

  • Use 2-way matching to confirm that the received goods or services match the order and that the prices are correct.
  • Use 3-way matching to confirm receipt of goods or services and ensure that the PO and invoice match.
  • Use 4-way matching to thoroughly check all supporting documents and authorize payment only when everything matches. Large organizations with strict financial controls often use this method.

All that’s left to do is make your vendor payment upon the approved inspection of the delivered goods.

What you need to implement P2P at your company

Onboard procure-to-pay software

P2P software reduces exhausting, error-prone manual procurement tasks and allows companies to customize the procurement process to fit their needs.

Supplier relationship management

Improving and maintaining key supplier relationships is crucial for an optimal P2P cycle. Good supplier relationships can save time, money, and future problems by keeping you on schedule efficiently.

Contract management automation

Automating contract management simplifies contract renewals and helps keep accurate records of deals with suppliers.

Spend visibility

Companies can improve visibility by upgrading their payment methods, standardizing payment methods, and setting up regular automated spending reports.

Centralize your procurement management systems

Automating contract management, enforcing ethics, and increasing spend visibility benefit from centralizing your end-to-end P2P process.

Challenges in the procure-to-pay process

The procure-to-pay process doesn’t come without challenges. These are a few of the most common issues worth considering.

Poor procurement ethics

Lack of standards and visibility can cause unethical behavior, like poor treatment of vendors, unethical decisions, bribery, false billing, and unauthorized purchases.

Lack of proper governance

A lack of governance in the procure-to-pay process can create confusion.

Avoid these issues by establishing robust controls. Your team should leverage automation and optimize budgets through a thorough vendor evaluation process.

Change management

Management validation is a vital part of change management, especially in supply chain functions. Often, the P2P process itself can become costly if mismanaged.

Errors in invoicing and budgeting

Within procure-to-pay, it's typically on suppliers to submit invoices.

Proper financial management of the P2P process helps prevent invoicing errors, late payment penalties, and slower production.

Siloed data can cause difficulties

Successful procurement involves managing several tasks.

These include:

  • Purchasing process,
  • Invoice matching and processing
  • Invoice approvals
  • Spend management
  • Accounting systems
  • Organizing goods receipts
  • Cash flow management.

However, the siloing of these tasks by management hinders the procurement department's ability to achieve cost savings.

Approving software solutions with real-time management features allows for the benefits of automating and consolidating the procure-to-pay process.

How procure-to-pay solutions can help

Using software can help optimize and streamline the P2P process, ultimately improving a company's bottom line.

P2P software helps procurement leaders create a secure, standardized, and adjustable procure-to-pay system.

Procurement tools like Vendr can help lower spend by providing automation and proper recordkeeping.

Automating repetitive P2P tasks allows more time for initiatives that benefit the company, especially when looking to scale procurement efforts.

Vendr is your procure-to-pay partner.

Dealing with a large software ecosystem can make it challenging to manage and optimize tasks for efficiency. Procurement software is a critical component of this process.

Lower resource usage and maximize value by setting robust controls, leveraging automation, and optimizing your P2P budgets with vendor evaluations.

Vendr is a fully integrated solution designed to manage this process by finding, buying, and managing your SaaS so that the procure-to-pay process becomes easy.

Are you looking to streamline your procure-to-pay process and improve efficiency? Then you need to check out the Vendr Procurement Efficiency Guide. This comprehensive resource provides valuable tips and best practices for optimizing your procurement process.

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