Procure-to-Pay Process: Optimization Guide

Yes, procurement is all about getting the products and services businesses need from external parties like suppliers, but does procurement really ends there? Once your company receives the product, there’s a quite relevant step left: Payment.

But how do you go from your usual procurement activities to the financial side of things? 

That’s why procure-to-pay exists 

What’s Procure-to-Pay?

The procure-to-pay process, or P2P, is the sequence of steps that businesses follow to acquire goods or services and pay for them. It literally involves everything from the moment you identify a need to processing the payment to the supplier.

How Procure-to-Pay Works

Identify the need

The first step begins when someone in the company realizes that something needs to be bought, it could be for simple daily operations or perhaps for a more specific project.  

Supplier selection

The next obvious step is to find the right supplier,you might have preferred vendors or a list of approved suppliers. Take the time to compare options based on quality, price, and delivery times.

Purchase requisition

When a department needs something, they report it and ask formally for what they need, aligning with business requirements.

Approval

Managers and the procurement team check the request. They can approve, reject, or ask for changes, ensuring contract compliance. This approval process is crucial in the P2P cycle.

Purchase order 

If approved, the procurement office orders from the supplier. When the supplier agrees, it's a legal deal. The order sets payment terms and is a step towards cost control.

Receipt of goods 

The supplier delivers, following best practices but it’s still advised to check the quality, often through three-way matching (invoice, order, and receipt).

Payment

Finally, it’s time to pay the supplier as agreed in the order. Artificial intelligence can assist the finance team in this process, providing actionable insights and improving the P2P cycle

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Benefits of Procure-to-Pay

Efficiency

Especially true for the automated P2P process,as it help you cut down on time spent on manual tasks and paperwork. This means you and your team can focus on profitability. 

Cost savings

Optimizing your procurement practices gives you a clearer picture of your spending. This helps you spot opportunities for savings.

Better cash flow management

 A well-managed P2P process lets you keep a close eye on payments and cash flow. You can plan your payments to suppliers based on what’s best for your budget, helping keep your finances healthy.

Stronger supplier relationships

Efficient communication and timely payments build trust with your suppliers. Good relationships can lead to better pricing, special discounts, and overall improved service.

Challenges and Solutions of P2P 

Nothing is completely free of challenges, the good news is that, at least for procure-to-pay processes, it can be quickly solved. 

Lack of Communication

Say it with us, departments in your company need and must communicate with each other so consider using integrated software that boost communication and coordination. This way, everyone involved in the P2P process is on the same page.

Delayed approvals

With poor communication, an immediate problem arises, long approval cycles. Of course, if you don’t know that someone is waiting with urgency for your approval, you can’t do pretty much anything about it. To solve this, implement a digital workflow with clear approval rules to speed up the approval process. 

No visibility

This is another advantage of automation here. Using procurement software designed to give you the right insights will provide you with a clearer view of the P2P process. Constant audits will also help you keep control and spot areas where you can improve.

Suppliers performance 

To improve supplier management, consider creating a centralized supplier database and regularly evaluating their performance so you can act on time if something needs to be discussed. 

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Optimize your P2P with Procurement Software 

The procurement process can take up your time and divert your attention from your engineering tasks. You can change this by P2P automation that makes the process fast, cost-efficient, and a source of value. One such way is incorporating Control Hub procurement software into your process. will automate small repetitive tasks like purchase order generation and management.

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How to Implement P2P Optimization

Audit

The first step to setting up process optimization of your P2P is knowing where you currently stand. Go over your current procedures and determine the following:

• Cost and cycle time for processing purchase orders and invoices
• Percentage of vendors who send manual invoices vs those who send electronic invoices
• Number of errors like duplication and omission
• Challenges in approval workflows
• Existing workflows and internal controls that you can be improve

Identify improvement areas

After identifying the areas that need improvement, you can focus on how to make them better. If the problem is a procurement team or member taking too long to approve or high purchase orders, you can take the necessary steps to get it done right.

Automate

One good way of managing this is by allowing your workers to concentrate on value-adding tasks like customer relationship management and supplier relation development.Automate simple repetitive tasks, save time, increase speed, and reduce errors. Use a good software likeControl Hub

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Monitor

Set up purchasing key performance indicators (KPIs) to help you evaluate things like cost of ownership and turn procurement into a source of value and savings. Also, consider integrating your procurement solution with tools like customer relationship management and enterprise resource planning to uncover improvement opportunities

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