Procure-to-pay (P2P) is an organization’s end-to-end purchasing process. When someone at the company needs goods or services, the P2P procedure begins and finishes with invoice payment. Easy, right?
It is more complicated than swiping a credit card.
Requisition, approval, PO generation, collection and confirmation of products or services, invoice matching, and payment processing are all essential steps in a mature procurement process.
P2P integrates these operations to optimise the procurement cycle, reduce errors, and approve efficiency so employees can perform better, quicker, and smarter.
This post will explain procure-to-pay, why it’s important for company, its problems, and how to leverage advanced procurement solutions like Zip to speed operations and grow faster.
You will: after reading this article.
- Learn about procure-to-pay (P2P) and its phases.
- Why P2P matters to your business
- Learn how to measure P2P process efficiency and what KPIs to use.
- Identify P2P’s common difficulties and solutions.
- Find out how automation software can improve your P2P operation and what features to look for.
- Discover P2P best practices and how to adopt them.
- Discover the future of P2P and how to prepare.
What are procure-to-pay steps?
The P2P process facilitates efficient acquisition of goods and services through interconnected processes. Please let me explain each step of the buying process.
Required identification
Simple—you need something, so purchase it!
Procure-to-Pay begins with need identification. Someone—an employee, department manager, or procurement professional—decides a project, campaign, contract, or other initiative needs products or services. Start the P2P cycle!
Making a request
A formal purchase request, or requisition, starts the cycle. The request usually includes the item’s name, quantity, price, supplier, and preferred delivery date. A procurement-specific requisitioning environment can handle this first intake, but young organisations sometimes do it manually.
Requisition approval
After submission, the requisition goes through an approval sequence that determines who must approve the purchase.
Supervisors or managers may consider money, urgency, and corporate purchasing policies while evaluating the request. This process can be fast in automated systems but slow in manual or semi-automated ones.
Purchasing order
Purchase orders are generated after requisition approval. This official document authorises the supplier order. The PO provides the same information as the requisition plus purchasing terms.
A PO legally binds the vendor and buyer to its provisions.
Receiving goods or services
The seller must provide the products or services with receipt after receiving the PO. The items are checked for quality, quantity, and PO compliance upon arrival. Disagreements must be resolved before proceeding.
Receiving invoices
The vendor bills the buyer (you!). The invoice might arrive by mail, email, portal, EDI, or XML. The invoice validates the PO number, invoice number, invoice date, supplier, item, final purchase price, and payment terms.
Invoice approval (the “Three-Way Match”)
A matching and approval process validates that the invoice matches the PO and GRN or SES.
The “three-way match” involves matching facts from the purchase order, delivery receipt, and vendor invoice. If all three documents arrive
Matching can be done manually or automatically, depending on precision and automation. Depending on procedure, the same or different approvers can approve the requisition.
Payment to vendors
The accounts payable department pays the vendor after a three-way match. Payment by electronic money transfer, credit, or cheque follows the PO and invoice terms.
Recording and analysing
The final phase is to capture and analyse all P2P transactions and documents for insights and improvements.
Understanding the P2P cycle’s sequential steps helps boost procurement efficiency and reduce material friction across your organisation.
The significance of procure-to-pay
Remember that this P2P method is strategic and can affect corporate performance.
A process-oriented P2P strategy has two main benefits:
Increase procurement process understanding
A thorough perspective of your spending lets you find savings, optimisation, and innovation opportunities. Monitor and benchmark vendors, contracts, and compliance.
Maintain compliance and expenditure control
Standardised and automated P2P reduces errors, fraud, and dangers. Since all data is captured and ready for strategic action, you may enforce your policies and regulations.
How to evaluate P2P process efficiency?
If you’re not measuring results and optimising for P2P success, why bother?
You must use the most relevant and reliable KPIs to analyse and improve your P2P operation. P2P workflow performance is typically measured using these metrics:
1. Purchase order processing average
This is the average time to process a PO from requisition to issuance. Speed and agility of your P2P process are measured. Less time is great!
2. Invoice processing time
Track how long it takes to process an invoice from ‘invoice received’ to ‘vendor payment’. It assesses P2P accuracy and automation. Low processing time benefits everyone.
3. Managed spending
SUM is the percentage of spending managed by procurement. It assesses P2P visibility and control. Increase that %.
4. Converted savings
You saved money by negotiating better supplier prices, conditions, and discounts. Your P2P process’s value and impact are measured. The more savings, the better.
5. Supplier failure rate
Your supplier defect rate is the percentage of orders that arrive with errors, damaged goods, or late deliveries. If this percentage isn’t very low, your P2P or supply chain is flawed.
What are the P2P challenges?
P2P has hurdles in today’s fast-paced, ever-changing corporate climate. Here are some frequent P2P issues:
Data and tools silos
Many companies employ spreadsheets, emails, paper forms, and older software for P2P. Manual processes create isolated and inconsistent data, reducing visibility, collaboration, and efficiency.
Policy and regulation compliance
Changing internal and external norms and regulations affect growing organisations’ P2P processes. These ever-changing rules are difficult and expensive to comply with.
Onboarding and managing suppliers
Effective supplier onboarding and management are needed as companies interact with more diversified suppliers.
Without an AI-powered vendor management solution, supplier onboarding and management can be time-consuming and complicated.
Track and analyse spending
Some organisations just starting their P2P process can’t capture, aggregate, or analyse expenditure data. This hinders insight, opportunity, and decision-making.
How P2P automation can help:
Workflow standardisation
You may standardise P2P procedures like approval rules, routing logic, and error handling. This boosts efficiency, compliance, and uniformity.
Improved workflow visibility and analysis
Automation software helps centralise your P2P approval operations, including requisitions, POs, invoices, payments, and supplier information.
Reduce cycle times, route requests to the right subteams, and dynamically pick approvers utilising queues and user hierarchies—your workflows can be as automated as you like.
Manage documents
Data and documents will flow effortlessly across P2P cycle stages with process automation. This decreases the chance of missing paperwork, making procurement more effective and speedier.
Improved vendor onboarding
A single automated work environment will centralise vendor data, including documentation, assessments, risk scores, payments, and cost.
Data and papers are available with automated task scheduling in a centralised system, keeping everyone on track.
Integrations
Finally, automation can combine your P2P process with ERP, CRM, and accounting applications. Link your IT stack quickly and let stakeholders assess requests and use their chosen tools.
Procure-to-pay best practices
After understanding the Procure to Pay cycle and the benefits of automation, execute it efficiently. Best practices for optimising your P2P workflow are below.
Clearly defined procurement procedures
Your team may misinterpret rules and obligations without clear and defined procurement policies and procedures that govern your P2P process.
Communicate and train stakeholders on these rules and procedures and ensure compliance with any issues that may stall the process.
Manage procurement centrally
Centralising procurement procedures and data on a Single Platform to facilitate P2P is optimal. Efficiency, teamwork, and visibility are huge benefits.
After putting a single source of truth into their procurement process, HR software leaders Lattice saw substantial workflow improvements.
Set explicit payment terms and negotiate favourable terms.
Set explicit payment terms with your suppliers and negotiate favourable payment terms where available.
Negotiate early payment reductions, extended payment periods, and flexible payment options to optimise cash flow, working capital, and supplier relationships.
Keep track of and analyse procurement data
Finally, you must track and analyse procurement data throughout your P2P process—otherwise, why bother?
You can now anticipate and resolve procurement challenges.
