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Procure-to-Pay: the New Road to Growth

Procure-to-Pay: the New Road to Growth

By Nathan Cavet

Updated: 5 March 2021, first publication: 26 January 2021

Is procure-to-pay (shortened P2P ) becoming a new hot topic for companies? In an increasingly competitive market, the need for companies to take the path of operational efficiency has become a necessity.

Therefore, the automation of activities related to the supplier cycle and the digitisation of invoices are becoming the norm for organisations seeking better performance .

So, what exactly differentiates an optimised P2P process from traditional purchasing, supplier relationship management and invoicing? How to define procure to pay? What are its benefits ? Appvizer is here to give you all the answers!

Definition

What is procure-to-pay?

Procure to pay, also known as purchase to pay , refers to the flow of business activity from:

  • requesting purchases from suppliers ( supplier requisition ),
  • delivery ,
  • to the payment of the associated invoice

The notion of supplier cycle , occurring upstream of the customer cycle , is associated with procure to pay. However, the definition of procure to pay goes further than a simple succession of activities. It also includes:

  • The idea of streamlining processes to increase productivity
  • The digitisation of processes , using technology

☝️ Note that it is important to differentiate procure-to-pay from source-to-pay (S2P) . Procure to pay focuses on the processes between purchasing and payment of supplier invoices. Source to pay also includes sourcing activities , i.e., active and strategic research of products and services.

Steps of the Procure to Pay process

Procure to pay is defined as a global management process. Thus, it encompasses a succession of varied activities.

Below are all the stages of the purchase to pay process :

Step 1: needs identification

One or more members of the company (e.g., the procurement team ) find and formulate a need for products or services. ERP systems can be of great help to manage your inventory and detect the need for resources.

Step 2: supplier choice

You need to select suppliers . Sometimes they are already integrated within a software database. P2P platforms like BuyerQuest integrate marketplaces you can use to find the best vendors. Suppliers can meet the needs of the company in the best way:

  • by the nature of the goods or services requested
  • in accordance with the assessed budget
  • based on their adherence to the company’s P2P rules

Step 3: supplier contract establishment

This action often requires a negotiation phase with the vendor to obtain the most advantageous execution conditions and rates.

Step 4: the purchase request

The purchase is confirmed and executed via a purchase order transmitted to the supplier.

This document should contain:

  • the identity of your company
  • the identity of the supplier
  • a detailed description of the order
  • terms of delivery
  • terms of payment
  • the general terms and conditions of the sale

Step 5: receipt of orders

Upon reception, payable orders are checked by the approved teams to ensure that they comply with the initial request.

Therefore, it is recommended to issue an acceptance slip .

Step 6: invoices reconciliation

Accounting teams reconcile incoming invoices (ideally using digital processes) with purchase orders and other documents to certify their correspondence and grant their approval.

Step 7: invoices payment

The payment of the supplier’s invoice is made in accordance with the terms and conditions agreed upon with the supplier. Then, the accounting records are updated.

🛠 This process is critical to your business and its day-to-day operations . Each step can be greatly accelerated using technology. All-in-one tools like Yooz can automate purchasing and invoice processes for best efficiency .

© Manutan

The Advantages of Procure to Pay

Acceleration of Processes

Thanks to workflow optimization , teams are freed from certain tasks and have more time to work on higher value-added assignments.

Reduced Risk of Errors

The automation of processes naturally reduces the risk of human error .

Cost Reduction

Increased team productivity generates profitability for the company. In addition, by reducing error-related changes, the cost per invoice is lowered.

Improved Relationship with Suppliers

Fewer errors, shorter payment terms, better communication…. procure to pay allows you to maintain privileged and trust-based relationships with suppliers.

Increased Visibility

The automation of P2P processes offers better traceability of the company’s expenses.

Thanks to the monitoring of physical and informational flows, real-time performance analysis and decision-making become more efficient.

The result is that costs and resources are even more optimised.

Procure to Pay and Collaboration

It goes without saying that the benefits of an optimised procure-to-pay process are great. They respond to two major growth challenges for companies:

  • Improving productivity
  • Reducing costs

This transition towards the digitisation of the supplier cycle cannot take place without optimal collaboration .

The P2P process includes several employees in the same structure: from the accounting department to the purchasing and production departments. Therefore, collaboration and commitment to change can only come from excellent internal communication and training .

Do not forget that the alignment of procure-to-pay actors must go beyond the company’s borders: it is also a question of collaboration with suppliers . To make this relationship as smooth as possible, the key is clear communication as well as understanding and accepting predefined rules. This ensures companies are willing to create a win-win P2P process .