Procure to pay is the integration of purchasing and accounts payable (AP) systems to create more significant efficiencies and reduced expenses. The procure to pay process spans from requisition through receipt and payment.
Digitizing your organization’s procure to pay system can streamline processes and lead to significant cost savings. In this article, we’ll define the procure to pay process, review procure to pay best practices and discuss the advantages of automating procure to pay within your business.
Order to Cash vs. Procure to Pay
Procure to pay is called a lot of different things by different businesses and individuals. If you’re wondering what the difference is between order to cash vs. procure to pay, they’re essentially the same. Sometimes order to cash refers to the journey of a consumer good while procure to pay pertains to a business-to-business product or service.
This process can also be known as purchase-to-pay, P2P, source to pay or purchase to invoice. While we will use the term “procure to pay” throughout this article, you may know this process by a different name.
Procure to Pay Process Steps
The procure to pay process involves numerous steps that aim to ensure orders with suppliers and related invoices are processed accurately and on time. The procure to pay process steps include:
1. Supply Management
Supply management is the act of identifying, acquiring and managing resources and suppliers that are essential to the operations of an organization. It includes the purchase of physical goods, information, services and any other resources that are necessary for the company’s continued operation and growth.
The goal of supply management is to effectively allocate resources, control costs and manage risk. Additionally, supply management involves building and maintaining supplier relationships for the purpose of ongoing ordering.
2. Vendor Selection
Vendor selection is the process of choosing suppliers and service providers to meet a company’s needs. It typically involves reviewing specific criteria such as quality, cost and reliability.
Vendor selection is made by evaluating potential vendors through assessments, negotiations and competitive comparisons, ultimately choosing the best option for fulfilling business requirements.
3. Requisition
Requisition involves the formal request of goods or services needed by a department or organization within a business. It typically includes creating a purchase requisition detailing the item, quantity and specifications. The requisition usually needs to be approved by relevant stakeholders before proceeding with procurement.
4. Purchase Order
The purchase order process entails creating a formal document that outlines the specific details of the goods or services to be acquired from a vendor, called a purchase order or PO. The PO includes quantities, prices, delivery dates and payment terms.
Once authorized, a PO document serves as a contractual agreement between the buyer and the seller, facilitating the procurement process.
5. Receiving
Receiving is the act of confirming the arrival and condition of goods or services purchased from a vendor. It includes inspecting, documenting and reconciling the delivered items against the PO. When dealing with physical items, it includes an examination of the items’ quality before accepting them into the company’s inventory.
6. Invoice Reconciliation
Invoice reconciliation is the process of comparing received invoices against purchase orders, receipts and other relevant documents to ensure accuracy and resolve discrepancies. It includes verifying quantities, prices, discounts and terms to reconcile and approve payment for goods or services received.
Depending on the company’s preferences, it may use 2-way vs. 3-way matching. 2-way matching makes sure all data on the purchase order and invoice align. 3-way matching checks data on the purchase order, invoice and sales receipt.
7. Accounts Payable
AP is the last of the procure to pay process steps. Once an invoice is reconciled, AP issues payment to the supplier within the established terms. AP also ensures that this payment is recorded in the company’s accounting system.
An Example of the Procure to Pay Process Steps
Using the steps outlined above, the following is a simplified real-world example of the procure to pay process steps in action.
1. A business’ supply manager identifies that the business will need pens on an ongoing basis.
2. A procurement specialist researches the best pen vendor and requests a quote. Based on the quote, there may be a negotiation phase for a better price or terms.
3. The marketing department is running low on pens, so the head of the department requests new pens through the company’s procurement system.
4. Procurement issues a PO to the company’s pen vendor to order 10 boxes of new pens for the marketing department.
5. The pen vendor fills the order and ships the pens to the company. The company receives the pens and checks that they got 10 boxes of the type ordered.
6. The finance department receives the invoice and checks that it matches the PO and the order receipt.
7. The accounts payable department pays the vendor’s invoice.
Procure to Pay Software
Managing each of the procure to pay process steps manually is complex and time-consuming. Paper-based processes are prone to errors, delays and employee burnout. Digitizing procure to pay is crucial for enhancing efficiency, reducing errors and increasing transparency across an organization.
Procure to pay software automates workflows, streamlines approvals and accelerates transaction processing, leading to faster procurement cycles. It can also offer real-time data visibility, enabling better decision-making, cost control and improved compliance.
When researching the best procure to pay software for your organization, consider the following.
Compatibility
Select procure to pay software that seamlessly integrates with your existing systems including your accounting and enterprise resource planning (ERP) tools. This will facilitate the flow of data across the organization.
Scalability
Choose a solution that can accommodate an increased workload as your organization grows. The ideal procure to pay software will be flexible and customizable as business needs evolve.
Analytics and Reporting
Advanced analytics are a must-have for businesses today. The best procure to pay software includes reporting capabilities that provide insights into spending patterns, supplier performance and cost-saving opportunities.
Usability
If a tool isn’t accessible for your team, it will have limited benefit within the organization. Pick a procure to pay solution that’s user-friendly and allows for any-time access on any device to accommodate an increasingly distributed workforce.
Onboarding Process
Look for a procure to pay software vendor that has the resources, processes and experience to help ensure a smooth and quick onboarding. This will drive faster time–to–value and minimize disruption to your business.
Procure to Pay Automation
Procure to pay automation refers to the use of procure to pay software to eliminate manual tasks and streamline the procurement process, from the initial purchase requisition to invoice payment. Procure to pay automation optimizes procurement processes, promoting efficiency and providing better control and visibility through each step of the procure to pay process.
Procure to pay automation offers several significant benefits for businesses, including those listed below.
Speed
Eliminating paper-based processes makes the entire procurement cycle more efficient. This leads to quicker fulfillment and faster payments to suppliers.
Better Supplier Relationships
Automation reduces errors, which means fewer lost invoices and calls to vendors to check on invoice status. Additionally, faster payments increase supplier satisfaction and potentially unlock payment discounts for your business.
More Visibility
Procure to pay automation delivers real-time visibility, enabling better order tracking, invoice monitoring and spend analysis. This transparency allows better management of cash flow and the ability to pinpoint areas for improvement.
Reduced Expense
Procure to pay automation helps speed processes and reduce errors, lowering the costs associated with manual data entry, paperwork and inefficient workflows.
Better Policy Compliance
With a fully integrated and automated procure to pay process, it’s easier for individuals throughout the organization to adhere to purchasing protocols and regulatory requirements.
Reduced Fraud
Procure to pay automation uses predefined approval processes, budget controls and vendor validation to prevent unauthorized purchases and fraud. By digitizing and centralizing procurement, it flags irregularities in real time and establishes an auditable trail, effectively curbing fraudulent activities.
Procure to Pay Best Practices
By adhering to these procure to pay best practices, businesses can optimize their procurement cycle, leading to improved efficiency, cost savings and better supplier relationships.
Clear Policies
Establish comprehensive procurement policies that include guidelines, approval processes, preferred suppliers and compliance standards. Ensure these policies are available in a centralized location where employees can easily access them.
Predefined Workflow
Build a standardized purchase to pay process workflow that is streamlined and intuitive for all parties to follow. This will reduce confusion and inefficiencies.
Budget Controls
Establish budget parameters to control spending. Enforce thresholds for approvals and regularly check spending against budgets.
Data Analysis
Take advantage of data and reporting to track spending patterns, supplier performance and other key metrics. Use this information for strategic planning and negotiating discounts with suppliers.
Compliance
Conduct regular audits and assessments to ensure compliance with regulatory requirements and internal policies, mitigating potential associated risks.
Vendor Management
Stay on top of vendor management by updating vendor databases, negotiating contracts and evaluating performance regularly. Foster collaborative relationships with suppliers that result in improvements for both parties.
Technology
Investing in procure to pay software helps automate the procurement process, minimizing manual tasks and improving efficiency.
Choosing a Procure to Pay Solution
Choosing a procure to pay solution is an important decision for businesses seeking efficiency in their procurement and payment processes. When evaluating procure to pay solution options, consider scalability, user-friendliness and compatibility with existing systems. Look for features like automated workflows, customizable approval hierarchies and seamless integration with ERP systems.
The best procure to pay solutions will comply with industry security standards and prioritize other cybersecurity measures like encryption and fraud detection. They’ll also feature cloud-based accessibility and convenience for AP and procurement staff.
Finally, when selecting the ideal procure to pay solution for your organization, consider the supplier network and whether it can meet the needs of diverse vendors and suppliers. And, of course, weigh the total cost of ownership, including implementation time and ongoing fees. Select a procure to pay solution that aligns with your budget and your organizational needs.
Procure to pay automation is indispensable for businesses today. It streamlines tasks, enhancing control and providing real-time insights. Embracing automation not only accelerates transactions but gives businesses a competitive edge in an evolving marketplace.
