Procure-to-Pay: the New Road to Growth
Is procure-to-pay (shortened P2P) becoming a new issue 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 dematerialization of invoices are becoming the norm for organizations seeking better performance.
So, what exactly differentiates an optimized 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!
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,
- then supply,
- 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 digitization of processes, using software solutions
☝️ 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
While procure to pay is defined as a global management process, it nevertheless encompasses a succession of varied activities.
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.
Step 2: supplier choice
You need to select the suppliers. Sometimes they are already integrated in a software database. They can meet the needs of the company in the best way:
- by the nature of the goods or services looked for
- 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 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 receipt, 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 dematerialized) with purchase orders and other documents to certify their correspondence.
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.
Here are all the stages of the purchase to pay process:
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 these risks of human error.
Increased team productivity generates profitability for the company.
In addition, by reducing error-related changes, the cost per invoice is lower.
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.
The automation of P2P processes offers a 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 optimized.
Procure to Pay and Collaboration
It goes without saying that the benefits of an optimized procure-to-pay process are numerous. They respond to two major growth challenges for companies:
- Improving productivity
- Reducing costs
This transition towards the digitalization of the supplier cycle cannot take place without optimal collaboration.
The P2 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 committed to deploying a win-win P2P process.