The P2P process starts when a shortage or need for specific goods or services is identified within an organization. At this stage, the company establishes procurement objectives, including budgetary considerations. As soon as a need for a specific product or service is determined and approved by management, a purchase requisition is submitted to the procurement department.
Once the purchase requisition is approved, the procurement team searches for the best vendor based on factors such as delivery schedule, credit terms, and service quality. After receiving quotes from third-party vendors or suppliers, the company puts together a list of vendors that can potentially provide the required materials. Based on this shortlist, the company selects its preferred vendor.
After the company approves the purchasing of goods and services, a purchase order, or PO, is sent to the vendor. Upon receiving the goods from the supplier, the company sends an invoice to the accounts payable department. The invoice serves as a record of whether or not the seller fulfilled what was specified in the PO. After invoice reconciliation, the accounts payable team handles the purchase order for payment, releases the payment to the vendor, and enters the amount into the accounting system.
By looking at a manual procure to pay example and comparing it to an automated P2P process, it can be seen that the manual process is time-consuming, requires more effort, and is more prone to human error. By automating procure to pay, however, the accounts payable workflows can be streamlined.
For example, automating purchase requisitions eliminates the need to locate managers and wait for their approvals. Requisitions can be automatically routed to the appropriate approvers for immediate action. Purchase order automation, on the other hand, means that there is a central location where POs can be created quickly and tracked more effectively. PO automation also reduces manual processes, such as typing and sending out purchase orders.
To streamline their accounts payable processes, businesses may benefit from using AvidInvoice, an automated invoice processing software from AvidXchange. A paperless invoice processing software such as AvidInvoice can enable companies to receive, track, and approve invoices using their current approval workflows.
Procure to Pay Cycle
The procure to pay process involves researching the market to source new suppliers. It also entails gathering information about potential vendors, evaluating vendor compliance and risks, and integrating vendors into the company’s existing platform and supply chain.
A procure-to-pay cycle includes requesting, acquiring, managing, and making payments for goods or services required for product manufacturing or service delivery. A typical P2P cycle involves researching products and vendors, managing the supplier contract, and determining the value and price of goods and services provided. Sending out purchase orders, receiving goods and services, reconciling invoices to purchase orders, and paying the vendors are the steps that round out the procure-to-pay process.
While there are many software systems that can automate the P2P process, not all systems are created equal. Some P2P software providers may be unable to offer excellent tech support; in other words, their customer support agents might not have sufficient knowledge or be able to handle complex issues during emergency cases. Other providers might have unclear purchase order distribution methods or an outdated user interface.
Companies such as AvidXchange can assist businesses with more complicated payment processes. AvidXchange can find vendors, manage vendor relationships, receive invoices, streamline the invoice reconciliation process, and process payments to third-party vendors.
By combining the benefits of AvidInvoice[CO4] and its procurement software, AvidBuy, AvidXchange can help companies with invoice reconciliation.
AvidBuy can assist in automating the purchase order process and establishing limits to help prevent non-essential purchases. AvidBuy can also help companies avoid making duplicate purchases by determining the most efficient purchasing patterns. Users can also set up AvidBuy to create requisitions for frequent purchases, which could eliminate the need to create a purchase order every time one is needed. When integrated with AvidInvoice, AvidBuy can automatically match invoices from suppliers with corresponding purchase orders.
Procure to Pay Process Steps
In a procure-to-pay process, steps must be observed carefully in order to help reduce overall costs and boost productivity. By following procure-to-pay best practices and understanding procure-to-pay process steps, companies can achieve a more effective and less costly P2P cycle while identifying and correcting areas for improvement at the same time. By following P2P best practices, companies will gain not only cost reductions, but also actionable insights for better budget planning and more strategic vendor sourcing.
To differentiate procure-to-pay vs source-to-pay, the procure-to-pay process typically starts with the requisition of goods and services, and the P2P cycle is completed when the accounts payable team issues payment to the vendor. Source-to-pay, on the other hand, involves strategic sourcing of new vendors, as well as products and services to be purchased, even before the request for goods or services is made.
Source-to-pay focuses on strategies and solutions, such as vendor research and negotiations, that can influence the procure-to-pay process. The goal of source-to-pay is to use details and data to regulate the flow of procure-to-pay, thus lowering the risk of spend problems that may arise.
Through automation and the cloud, AvidXchange[CO7] can help companies gain control of the who, what, and when of their purchasing process.
To streamline invoice processing, AvidXchange can automatically code invoices and start the invoice approval process. AvidXchange uses optical character recognition technology to convert paper invoices into data. Companies can use AvidXchange’s software solutions to optimize their source-to-pay processes.
Procure to Pay SAP
Procure to pay SAP can make the accounts payable process more manageable. To understand the procure to pay cycle in SAP and the P2P cycle in SAP with accounting entries, it might be beneficial to examine a SAP procure to pay process flow diagram.
Businesses that use SAP can leverage automation to process large volumes of invoices quickly and efficiently. By having more payment features, companies can improve the speed, accuracy, visibility, and control of their accounts payable and procure-to-pay process. SAP Concur’s partnership with AvidXchange means that customers can enjoy a fully automated invoice-to-payment integration.
AvidXchange integrates with SAP Concur to provide a payment automation solution that allows businesses to automate inefficient payment processes and pay bills more easily.
Concur Invoice users can pay invoices more efficiently from any location at any time through AvidPay Network and AvidPay Direct. By completing their accounts payable process with AvidPay, Concur Invoice customers can speed up approvals and payment transfers. Customers who send electronic payments through the AvidPay Network may benefit from faster and more secure transactions, as well as the assurance that suppliers and vendors are paid in a timely and accurate manner.
Benefits of Procure-to-Pay
Companies might be asked about the benefits of procure-to-pay automation in their business. To answer procure to pay process interview questions such as, “What are the business benefits of P2P?” or determine how to explain p2p cycle in interview sessions, organizations might need a strong partner like AvidXchange to assist them in navigating P2P automation and breaking down the process with ease and authority.
By using a purchase order software solution such as AvidBuy[CO12], companies can reap benefits such as real-time reporting on purchasing to determine the best patterns and to better organize supplier invoices. With AvidBuy, companies can reduce unapproved purchases, coding errors, and unnecessary delays in their purchase order process.
AvidBuy can match purchase orders with invoices to ensure a smooth process. In addition to standardizing purchasing patterns, AvidBuy can assist in keeping track of purchasers and products.
Procure to Pay vs Order to Cash
It might be helpful for companies to understand the differences between procure-to-pay (P2P), order-to-cash (O2C), and record-to-report (R2R), as well as procurement order to cash and what procure to pay vs order to cash might entail.
To distinguish between procure-to-pay vs order-to-cash, it is important to first answer the question, “What is order to cash?” The P2P process starts with a business’s procurement requirement and ends at payment to the vendor for raw goods purchased. The order to cash process, on the other hand, starts with receiving an order and ends with the cash received from the customer. In other words, the P2P process deals with procurement, whereas the order to cash cycle deals with sales.
The O2C process is critical to business since it can affect a company’s cash flow. Any disruptions in the O2C cycle could result in financial losses and may harm a company’s reputation. To better illustrate O2C meaning in finance, an order to payment cycle example could prove useful.
Meanwhile, record-to-report is a finance and accounting management process that involves collecting, processing, and providing relevant, timely, and accurate financial information. R2R provides stakeholders with strategic operational and financial feedback on whether or not an organization is performing well.
P2P Process in Accounts Payable
The final step in the procure-to-pay process is focused on handling the purchase order for payment, sending the payment, and entering the amount into an accounting system.
Regarding P2P meaning in finance and P2P meaning in banking, procure-to-pay is in essence a system that is only as effective as the kind of input it receives. Therefore, the P2P process in accounts payable requires a good standard operating process that includes determining which vendors to negotiate with, ensuring that contracts are valid and enforceable, stating payment terms on the invoice at the time of purchase, and most importantly, managing supplier relationships. Without addressing such factors, a P2P system might not work successfully.
AvidXchange is a cloud-based solution for invoice management and payment automation. All payment-related files are stored in AvidXchange’s central, cloud-based hub, which can be accessed by the accounts payable team anytime, anywhere, using any device. Invoices can be standardized, coded, and uploaded for easy visibility with AvidXchange. This eliminates the need for manual data entry and allows for remote invoice review and approval.