When running your business, you’ll often need to purchase products or services from suppliers and vendors. No matter what you purchase, though, it’s essential that you have a procurement plan that makes this process efficient and an accounts payable team that can effectively manage the payment of invoices.
These two functions come together in the procure-to-pay process that outlines how products or services are ordered, how they’re delivered, and how you pay for them. With that in mind, let’s look at the procure-to-pay process in more detail.
What is the Procure-to-Pay Process?
Before looking at the procure-to-pay process in more detail, let’s first recap what it actually is. Simply put, procure-to-pay is the process you and your team will follow to purchase products or services, which meet a specific need, at a reasonable price. As such, the process involves several stages that are executed in order.
The Procure-to-Pay Process in Detail
Now that we’ve recapped what the procure-to-pay process is, let’s look at the steps you’ll follow with every purchase.
The procure-to-pay process starts when you or your team identifies the need for a specific product in your business. Once you’ve identified this need, your procurement team will determine the specifications the product will require to meet the need you’ve identified.
Once your procurement team finalizes the specifications of the product needed, a purchase requisition will be created. So, during this step, a requester will complete the purchase requisition based on your administrative requirements. As such, the requisition will provide full details of the planned purchase.
Once finalized, the requester will forward the purchase requisition to their departmental head or a procurement officer. The head or procurement officer will determine if there is a need for the product, confirm the available budget, and make sure that the requisition complies with all the necessary administrative requirements. If satisfied, they will then approve the requisition. If not, they will reject it and send it back to the requester to make corrections and resubmit it.
Once the departmental head or procurement officer approves the purchase requisition, a purchase order will be created. However, if it’s a low-value or once-off purchase, it’s also possible to perform a spot buy.
Purchase Order Approval
Once the purchase order has been created, it will, like the initial requisition, be sent for approval. During this step, the relevant stakeholder will ensure that the purchase order is legitimate and that the specifications are correct. If so, they will approve the purchase order and send it to the vendor.
The vendor can then review the purchase order to make sure that they’re satisfied with the price, that they have the product in stock, and that they can deliver on the date specified in the purchase order. Based on this review, the vendor can approve or reject the purchase order. Once they approve it, a valid, legally binding contract comes into being.
Receipt of Goods
The vendor will then dispatch the products, and, upon receipt, the buyer will inspect the products to ensure that they meet the required specifications as provided for in the purchase order. If satisfied, the buyer will approve the goods receipt to show that the goods were received in good order and comply with the purchase order.
During the next step, your procurement team will evaluate the performance of the vendor or supplier. During this evaluation process, they will consider aspects like pricing, service quality, delivery, responsiveness, and more. Ultimately, they’ll use this data to update their roster of suppliers for future purchases.
When the buyer has approved the goods receipt, the process of invoice approval will start. Here, you’ll use a three-way match to confirm that the information and specifications on the purchase order, good receipt, and the supplier’s invoice match.
When they do, the invoice will be approved and forwarded to your finance team for payment. When there’s a discrepancy, the invoice will be rejected and sent back to the vendor with a reason for the rejection. The vendor can then make corrections to bring the invoice in line with the purchase order and/or goods receipt.
When your finance team receives the approved invoice, they’ll process the payment to the supplier based on the terms of the contract. So, based on the contract, this payment could either be in full, in advance, partial, a progress payment, or retention payments.
The Bottom Line
Hopefully, this post helped illustrate every step of the procure-to-pay process in more detail. To simplify and streamline your procurement processes, you should consider using procurement software.
And this is where ControlHub comes in. It gives you everything you need to optimize your procurement processes and make them as efficient as possible. To learn more about our platform and how it can help you, visit our website for more details.