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How does the procure-to-pay process work?

The procure-to-pay process, also called procure-to-purchase or P2P, encompasses all the steps an organisation takes when it purchases a product or service. 

In this guide, we'll look at how the procure-to-pay process works, along with best practices and key benefits. 

What is procure-to-pay? 

Procure-to-pay is the term for the full procurement process, including requisitioning (getting your purchase approved internally), purchasing from approved suppliers, receiving the product or service, receiving an invoice, and paying the supplier. 

Why is procure-to-pay important? 

Procure-to-pay is important because it determines the ways in which goods and services come into your business. Understanding procure-to-pay can give you the opportunity to choose the best suppliers, negotiate pricing, reduce delays and errors, and gain control over your supply chain. 

6-step procure-to-pay process 

There are six key steps in a basic procure-to-pay process: 

Step 1: Identify need 

Identifying the need for a product or service is the first step in any procure-to-pay process. This can be a recurring need – for example, raw materials for your production process – or a one-off requirement, like a laptop for a new staff member. 

Step 2: Requisition management 

A requisition is the next step. This is a formal request to your accounting, procurement or management team to approve the purchase. 

Step 3: Place a purchase order 

You place a purchase order (PO) with your preferred supplier when your purchase requisition has been approved internally. The PO will include the number of items needed, the order date, your address, your billing information and other details. 

Step 4: Receive goods or services 

You receive the goods or services on the agreed date. 

Step 5: Receive invoice 

You receive an invoice from the supplier, which is entered into your processing system for payment. 

Step 6: Approve invoice and pay vendor

You then approve the invoice and pay the vendor. Your accounting team or software system compares the invoice to the original purchase order and delivery note and approves it if the details match. From there, it goes to invoice processing, where it's paid and recorded in your accounting system. 

Procure-to-pay best practices 

Procure-to-pay best practices for an efficient system include documentation, clear approvals processes, automation to accelerate steps and strategic sourcing. Here's how to do that:

Implement an automated procure-to-pay solution 

Implementing an automated procure-to-pay system takes some parts of the procurement process off your hands and gives you a cohesive view of all key steps. 

For example, automating workflows could save you time raising and approving purchase requisitions, creating purchase orders, matching invoices to purchase orders, and recording the final purchase in your accounting system. This can help you get better visibility and control over your company’s spending practices, improve payment speed, and give you an accurate record of past purchases. 

Document the process 

Documenting the process is about clearly outlining the main steps, including the key stakeholders and approvals you'll need at each stage. This shows everyone in your organisation how purchasing and procurement work and makes it easier to train new employees as they come in. 

Track performance

Tracking the performance of your procure-to-pay system helps you measure success, identify roadblocks, and optimise procurement processes over time. KPIs may include the length of the process, purchase order accuracy, invoice processing timeframes, supplier lead times and duplicate payment rates. 

These KPIs can help you gain insight into what's working and what's lacking in the cycle. For example, if you notice that one supplier has particularly drawn-out lead times, you could switch to a new supplier with a quicker turnaround time. 

Optimise supplier relationship management 

Maintain a select preferred supplier list so that you can negotiate the most favourable pricing, terms and service level agreements for your organisation. Good supplier management means working closely with suppliers and monitoring their performance against agreed KPIs, so you can get the best outcomes for your business.

If your business communicates well and has a solid procure-to-pay process, suppliers are more likely to be flexible, collaborate on solutions if your supply needs change, and communicate clearly when things go wrong. 

Benefits of effective procure-to-pay 

The benefits of an effective procure-to-pay system include streamlining your procurement process, strengthening relationships with suppliers, reducing unapproved spending, and minimising errors caused by manual handling. 

Streamline procurement

Streamlining procurement shortens the requisition-delivery cycle, so you get the raw materials, products, equipment and services you need when you need them.  

Strengthen supplier relationships 

You'll also strengthen supplier relationships when you get orders in on time and pay invoices promptly.

Better order efficiency 

Better order efficiency doesn't just mean ordering in plenty of time, it also means ordering in bulk instead of in smaller volumes, cutting unnecessary steps in your order process, and eliminating delays as much as possible. It all adds up to time and cost savings for your business. 

Decrease maverick spending 

Decreasing maverick spending means your team is less likely to make purchases that fall outside your procurement processes or guidelines. While it's not always malicious, this type of spending can increase your costs and damage relationships with suppliers. A clear process helps minimise this type of spending by making sure everyone knows the procurement rules.

Reduce manual errors

Reducing manual errors often comes hand-in-hand with automation. With manual approvals and  invoice processing, it's easy for typos and transcription errors to slip through, causing delays, order problems, overspending and late payments. 

Improve visibility and control 

Improving visibility and control is another benefit of an effective procure-to-pay system. When your processes are solid, and there's clear documentation in place, you can deepen your understanding of your procurement cycle, identify issues, and control the entire procurement pathway more easily. 

Why use procure-to-pay software?

Procure-to-pay software, or an ERP platform with these capabilities, gives you the visibility, control and flexibility you need to manage your entire procurement process in one place.

Rather than relying on a patchwork of disconnected systems and complex spreadsheets, the software connects the full procurement cycle. With improved control and visibility, it's easier to get the goods and services you need at the right time and the right price, from your preferred suppliers. 

Procure to pay FAQs

What is the difference between O2C and P2P? 

The difference between order-to-cash (O2C) and procure-to-pay (P2P) is that they look at the same processes from opposite ends. O2C focuses on purchases made by your customers, which means the final step in the process is accounts receivable. On the other hand, P2P processes deal with money moving out of your business as you purchase products or services, and the final stage is accounts payable

What is the difference between P2P and procurement? 

The difference between P2P and procurement is that procurement is an umbrella term that encompasses procure-to-pay processes, sourcing, negotiating prices and contracts, building relationships and quality control. 

Procure-to-pay describes the processes that connect procurement with accounts payable – including identifying needs, sourcing products, finding suppliers, ordering, payments, receiving invoices, and managing payments. 

Do procure-to-pay in a different way 

Having clarity around procure-to-pay is important in most businesses, whether a software solution is used or not. The procure-to-pay process should lay out key steps that connect your product and service needs to accounts payable. Every part of the process is an opportunity to optimise – save time, cut unnecessary steps, and avoid errors and overpayment. 

When you’re ready to scale, an ERP platform with procurement functionality is the best way to find those opportunities and streamline your whole process. Each task is managed through the platform, giving you complete visibility across the cycle and automating key processes. The result is a smoother, faster process that helps you accelerate procurement and avoid rogue spending. 

Ready to change your procure-to-pay cycle? Find out more. 

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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