The term "procure-to-pay process flow" probably doesn't mean much to most people. But if you're a director of engineering at a hardware or robotics startup, it's crucial to understand how this process works. After all, the procure-to-pay process flow allows your company to get the materials and supplies it needs to build its groundbreaking products.
Failure to understand the P2P process flow can lead to problems such as missed deadlines, cost overruns, and defective products. Unfortunately, the procure-to-pay process can be complex and confusing.
That's why we've put together this guide. In it, we'll explain the procure-to-pay process flow and how it works. Continue reading to find out more about the P2P process flow.
What Is the P2P Process Flow?
The procure-to-pay process flow, also known as the P2P process flow, is the process companies use to purchase goods and services. The flow begins when a company identifies a need for a good or service and ends when the account payables department completes payments for the delivered goods.
P2P can be a manual process for small companies. However, large companies building complex products usually automate their P2P process flow with procurement solutions.
The Steps in the P2P Process Flow
Now that we've answered the question "what is the P2P process flow?" It's time to take a closer look at the individual steps involved in this process. Here's a breakdown of the steps in the P2P process flow:
Creating a Purchase Requisition
A purchase requisition is a formal purchase request that a company creates when it needs to purchase a good or service. The purchase requisition should include:
- A description of the goods or services required
- The quantity required
- The estimated cost
- The proposed supplier
- The reason for the purchase
- The delivery date required
Your company can create requisitions for different types of procurement, including consignments and standard purchases.
Purchase Requisition Approval
After the requisition is created, it must be approved by the proper authority. The approver will typically be a manager or director who has been delegated the task of approving requisitions. The approver can reject or approve the purchase request depending on the available budget or how necessary it is to acquire the items outlined in the requisition.
If the requisition is incomplete, the approving officer can send it back to the department that initiated it for correction. Sending back the requisition is possible when your company uses a procurement solution that automates the process and notifies the requisitioner of any errors that need correction.
The purchasing department will identify potential vendors and request quotes from them. The suppliers will each send a bid outlining the price, delivery date, and other conditions of the sale. The purchasing department will analyze the bids and choose the supplier that offers the best combination of price, quality, and delivery time.
You should choose a supplier who meets your company's compliance requirements. In an age where the calls for sustainability are getting louder, it would also help to select a supplier who practices corporate social responsibility.
Creating and Approving a Purchase Order
The procurement team will use the approved purchase requisitions to create a purchase order. It should include items like a description of the goods or services being ordered, the quantity, the price of each unit, the name and address of the suppliers, and the PO number. It should also be approved to ensure the ordering department has the budget to complete the purchase.
Receiving and Verifying Goods
The supplier will use the information in the purchase order to ship the correct products to your company. The receiving department ensures that the products arrive on time and match the description in the purchase order.
The receiving department will also inspect the goods to ensure they are of good quality and not damaged. If there are any discrepancies, the receiving department will note them on the receiving report and send it back to the supplier.
The vendor will send you an invoice after the goods have been delivered. The accounts payable department ensures that the invoice is correct and approved for payment. The AP department will check the invoice to ensure that it matches the purchase order and receipt report.
They will also verify that the invoiced amount is correct and approved for payment by the budget holder. One of the best practices in this step is to embrace AP automation. Such automation will allow you to receive, process, and approve invoices electronically to speed up the approval process and reduce the likelihood of errors.
Paying the Supplier
After the invoice has been approved, the AP department will prepare for the payment process. The payment will usually be made by check or wire transfer.
The supplier will receive the payment and send you a receipt. If you're using procurement software, it will automatically update your records to reflect that the invoice has been paid.
The P2P process flow is the heart of your procurement operation. If the flow is disrupted or disorganized, it can have a cascading effect on the rest of your business. That's why it's important to clearly understand the process and choose technology that will streamline and automate as many steps as possible.