Procurement is an essential part of running any organization. When it comes to procurement, the procure-to-pay cycle is one of the most important processes to understand and optimize.
Any organization that requires goods or services to operate implements a procure-to-pay cycle in some form. This should be carefully planned and managed to help the organization save time, save money, and achieve the best value from suppliers.
In this guide, we’ll cover the basics of procure-to-pay, how it works, what steps are involved, and some strategies to get better results.
What is Procure-to-Pay?
The procure-to-pay cycle, also called P2P, refers to the entire procurement process - from ordering the goods through to paying for them. There are multiple steps and processes involved in a procure-to-pay cycle.
A procure-to-pay process is necessary for any organization that needs to procure goods or services. The entire process includes creating a purchase requisition, purchasing, receiving the goods or services, and paying for them.
Steps in the Procure-to-Pay Cycle
The P2P process can be quite complex, with multiple steps involved. Here are the different stages that this process covers:
- Identify a need: The organization realizes a need for certain goods or services.
- Purchase Request: Making a requisition for the goods or services. This request will require approval.
- Purchase order: Following the approval of the purchase requisition, a formal purchase order is created and sent to the supplier.
- Delivery: The supplier delivers the goods or services based on the conditions in the purchase order. They also deliver a receipt for this.
- Invoicing: The supplier sends an invoice for the goods or services to the organization.
- Invoice processing: The invoice is entered into the organization’s invoice approval workflow. It needs to be compared to the purchase order and goods or services delivered. If it corresponds, then the invoice is approved for payment.
- Accounts payable: Invoices that have been approved are sent to the accounts payable department for payment. The payment is recorded in the system.
- Evaluate performance: It’s important that the organization evaluates supplier performance with each round of procurement. Supplier performance is measured on factors like price, speed, communication, and delivery quality. This is necessary for guiding future procurement operations.
Why Your Procure-to-Pay Cycle is Important
Procure-to-pay covers many vital steps in the procurement process. This needs to be carefully planned and executed for an organization to achieve procurement efficiency. Basically, you save time and effort, while avoiding wasting money if P2P is managed properly.
Every organization requires goods and services to operate. The process of procuring these is an essential part of business operations. It’s also important that businesses work with the best possible suppliers, and get the best possible deals with each procurement. Having a carefully planned P2P process enhances this.
Streamlining procure-to-pay with the right procurement software can make an enormous difference. This saves time and ensures each process follows the correct standards. The software eliminates the risk of error, and it helps achieve total visibility across your supply chain. It also makes it easier for departments to manage procurement while also working on other projects at the same time.
It’s important to note that procure-to-pay starts with procurement being done through a supplier that has already been identified. If the organization does not have a supplier for their need, then they will need to add a strategic sourcing step before creating the purchase request. If this is the case, the process is referred to as source-to-pay.
Procure-to-Pay Best Practices
Procure-to-pay can become quite a complex process if it’s not managed carefully. Here are some best practices to help your procurement department streamline operations:
- Automate the process: Procurement software lets you automate the procure-to-pay cycle. This saves time and ensures total accuracy across the entire process.
- Transparency: Each step in procure-to-pay needs to be easily traceable. Make sure that there is a clear trail for each purchase. This makes audits a lot easier. Again, using the right procurement solution will help with this.
- Form strong supplier relationships: It’s important to keep suppliers engaged and happy during procurement. Good supplier relations will optimize the P2P process.
- Work closely with accounts payable: The purchasing department and accounts payable department need to collaborate closely together. This improves procurement efficiency.
- Monitor procurement performance: It’s important to set measurable goals and KPIs for your P2P process. These should be reviewed and monitored with each purchase to ensure your organization is performing properly.
The P2P cycle includes many essential steps in the procurement process. These need to be carefully managed to ensure organizations get the best possible value from suppliers. Using the right P2P solution will help makes things a lot easier, more efficient, and more accurate. This can improve the way a procurement department operates in a big way.