The term "procure to pay" refers to the process of requisitioning, purchasing, receiving, paying for, and accounting for products and services. It gets its name from the fact that it involves all of the steps from procuring (or requisitioning) goods or services to paying for them.
The procure-to-pay process is often seen as a part of the overall financial supply chain management process, which also includes other activities such as order-to-cash (O2C) and record-to-report (R2R).
The Steps Involved In The Procure-To-Pay Process
Purchase Requisition
The purchase requisition phase involves a business identifying its need for an item, service or any other product from an outside vendor. Details of the request are laid out in a document (purchase requisition) which is then sent to appropriate departments for internal review. Upon approval, the purchasing department uses the specifications laid out in the requisition to identify preferred suppliers or vendors for the order.
Purchase Order
After a supplier or vendor is identified, purchasers must then work to set an appropriate price for the goods. They negotiate with vendors to come to a cost that aligns with their departmental spending power and establish a contract outlining terms of the sale. At this point, a purchase order is also created to formally order the required items for fulfillment.
Order Confirmation
Once the vendor receives the PO from their buyer, they acknowledge it through an order confirmation. This document outlines what was ordered, the agreed-upon price and any other relevant details. The order confirmation acts as a final check to make sure that both parties (the vendor and buyer) are in agreement about what is being delivered and when it will be sent.
Delivery Notification
As their ordered items arrive, companies transmit confirmation that they've received the products through a delivery notification. A crucial step during this time is to double-check the shipment against the PO to verify that everything has arrived in proper condition and that all of the original terms of the order have been met. This helps ensure that businesses are fully aware of any exceptions of broken or missing items and that they are not paying for anything they didn't order.
Invoice Processing And Payment
With the information supplied by the delivery notifications in hand, the vendor then applies any necessary deductions to the company's invoice and sends it for payment. This stage involves one of the most pivotal aspects of ensuring a successful order - three-way-match. Three-way-match involves reconciling the original PO, invoice and delivery receipt to ensure that what was ordered, what was delivered and what the company is being billed for match up. Any discrepancies identified at this stage need to be resolved before the invoice can be approved for payment.
If and when the order is approved, the business can schedule payment according to the agreed-upon terms with the vendor.
The Traditional Barriers Of The P2P Process
In its simplest form, the procure-to-pay process is a linear progression from requisition through to payment. However, in reality, the process is often fraught with disruptions and delays that can jeopardize an organization's bottom line.
The most common barriers to an efficient procure-to-pay process include:
Lack Of Visibility
One of the main reasons the P2P process has been plagued by inefficiencies is the lack of visibility into each stage of the process. Because different departments are often responsible for different steps, it can be difficult to track the progress of an order and identify any bottlenecks. This lack of visibility can lead to late payments, duplicate orders and other problems.
Inaccurate Data
Another common issue is inaccurate data. When different departments are manually inputting data into different systems, it's easy for errors to creep in. This can lead to incorrect invoices, late payments and other issues.
Lack Of Standardization
Another barrier to efficiency is the lack of standardization across different departments and systems. This can make it difficult for different teams to communicate with each other and share information. It can also make it difficult to track progress and identify bottlenecks.
Manual Processes
Another inefficiency in the P2P process is the reliance on manual processes. From manually inputting data into different systems to physically sending documents back and forth, there are many opportunities for errors and delays.
A common solution used by companies to overcome these challenges is to implement a procure-to-pay software solution. Through AP automation tools in P2P, companies can gain visibility into every stage of the procurement process, eliminate manual errors, improve communication across departments and implement best practices that streamline their work.
If you’re in the market for a P2P automation solution, consider ControlHub. Our procurement software is specifically designed to help business leaders like you free up their time and bolster their operations to success.
