What is the Procure to Pay Process?
The Procure to Pay (P2P) process is the workflow individuals and teams go through to request, source, purchase, and ultimately pay for the goods and services they need. It’s highly structured, spanning procurement and finance teams, to ensure organizations have complete visibility and control over how their money is spent, how their payments are made, and which suppliers they work with.
Steps in the Procure to Pay Business Process
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Need Identification
A team, department or individual identifies a requirement for a new product or service.
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Requisitioning and Approval
The party with the need creates a requisition. This is then reviewed and either approved or rejected by budget holders, based on available budgets, future plans, and its perceived necessity.
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Choosing a Supplier
For simple and routine purchases, a supplier is chosen based on the price they offer, the quality they can provide, and any other relevant terms related to delivery. Larger and more complex purchases may be put out to tender, where prospective suppliers bid to deliver what’s required.
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Creating and Accepting Purchase Orders (POs)
Once a supplier is chosen, procurement will send a Purchase Order (PO) to that supplier, confirming the exact details of their requirement, and all information relevant to the purchase. This is then approved and confirmed by the supplier, indicating that they agree to the outlined terms.
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Delivery
The supplier delivers the goods or services in line with the terms laid out by the procurement team. They are received by whoever made the initial requisition.
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Invoicing
The supplier creates and sends an invoice for goods and services delivered, referencing the PO for this purchase so that it can easily be tracked and approved by the purchaser’s finance department. If everything appears correct and the PO and invoice are aligned, the invoice is then approved.
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Payment
Approved invoices are paid in line with the terms laid out in both the PO and invoice.
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Reporting
The entire process is recorded, and all documentation created throughout the process is retained for future reference, and future accounting and budgeting needs.
Benefits of Implementing a Procure to Pay Process
Today, most medium and large enterprises have clearly established Procure to Pay processes. They’ve become extremely common thanks to their ability to help organizations:
- Improve spend visibility and use those insights to generate more accurate forecasts
- Better control spending and reduce shadow spend
- Ensure all purchases are made using approved and validated suppliers
- Meet suppliers’ payment terms and avoid lapsed or delayed payments
- Increase the traceability of purchases and maintain clear audit trails
- Enforce robust standards for requisition approval
- Automate time-consuming purchasing and processing tasks
- Provide every team and individual with a clear path to obtaining the goods and services they need to perform well
How Can Businesses Optimize Their Procure to Pay Processes?
Procure to Pay business processes can be optimized by ensuring they’re highly standardized, all possible elements are digitized, all documentation is captured and retained, and dependencies across the process are minimized. The easiest way to achieve all of those outcomes is through Procure to Pay automation.
By automating steps such as order creation, invoice processing, and payment execution, human tasks can be removed, approvals can be accelerated, and governance can be enforced by default. This all improves the efficiency of the end-to-end P2P process.
How Does the Procure to Pay Process Help Improve Spend Management?
A structured Procure to Pay process provides a standardized workflow for all business purchasing. This ensures that all purchase requisitions are reviewed and approved to avoid inefficient or unwanted spending. It also ensures that relevant purchases are made by the procurement department, rather than individuals across the business. That means procurement can select the right supplier for every purchase and avoid overspending.
Because every purchase is tracked and reported on throughout the process, organizations gain greater visibility of their overall spend, enabling them to budget with greater accuracy, and take steps to mitigate overspending where relevant.
How Do End-to-End Procure to Pay Processes Streamline Supplier Invoicing and Payment?
End-to-end P2P processes create standardized workflows for supplier invoicing and payment. Crucially, these workflows are highly traceable, which helps prevent invoices from falling through the cracks and being forgotten or left unpaid.
Through Procure to Pay automation, invoices and even payments can be generated, matched, and executed automatically once approvals by all relevant parties are in place, eliminating unnecessary human intervention.
Challenges and Considerations in the Procure to Pay Process
As complex workflows with many moving parts, there are many things that can go wrong across P2P processes. The most common challenges organizations run into are:
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Manual and Paper-based Processes:
Many tasks, such as invoice creation, PO generation, requisition approval, and more can all be automated with relative ease using accessible automation tools. If organizations manage these processes manually, they miss significant opportunities to increase P2P efficiency and can miss out on many of the benefits outlined above.
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Poor Data Management:
If the data and documentation created throughout the P2P process isn’t well managed and maintained, the process can break down and fail to deliver value. Data should be well structured and governed by robust standards to ensure everyone follows the same management practices.
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Unresponsive suppliers can quickly become a bottleneck to P2P efficiency. Ensure they understand how your P2P processes work, and what you expect from them as part of the supplier relationship.
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Shadow Spend and Fraud:
Even with robust processes and standards in place for P2P processes, teams and individuals can still find ways around them and take purchasing into their own hands. The human element in P2P processes also leaves them exposed to fraud-based threats, which is why it’s so important to have a robust approvals process in place.
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Slow Approvals:
If you rely on human teams to approve requisitions and invoices, they can slow the process significantly. Expectations should be clearly laid out, and enough resource should be allocated to approvals to ensure they don’t become a bottleneck to widely automated P2P processes.
What is the Future of Procure to Pay Process Automation?
Artificial intelligence is transforming what’s possible within the field of end-to-end P2P process automation. Generative capabilities are helping organizations automate essential steps in the process from requisition creation to invoice generation and sending. As a result, far more steps in the P2P process will be successfully automated in the near future.
For many organizations, the final steps which will see limited automation are approvals and payment. Both carry high governance demands, and require human oversight. However, as capabilities become more sophisticated and AI technology matures, there’s no reason why those steps couldn’t also be automated.
Over the years to come, we expect to see the emergence of the first fully automated P2P processes. This will free up human teams to focus on value creation tasks, and spend more of their time on strategic activities, instead of routine administrative P2P workloads.
Conclusion
End-to-end P2P business processes are essential to ensuring high financial performance and controlling spending in any organization. They offer numerous benefits, from streamlining payment and invoice management, to increasing operational efficiency. Those benefits can be boosted even further by applying automation intelligently across the P2P process.
To learn more about how WNS Procurement supports high P2P process performance, click here.