How to Optimize the Procure to Pay Process for Cost Control

What is the Procure to Pay Process?

The procure to pay, or P2P, process is a workflow for requesting, sourcing and purchasing various goods and services.

It’s becoming increasingly common in complex organizations to structure and standardize procurement and remove silos between departments with a stake in the process, including finance. Offering more oversight and control, procure to pay processes allow organizations to optimize spending and better manage costs throughout the workflow.

Where are the Opportunities for Cost Control in the Procure to Pay Business Process?

There are eight key procure to pay process steps, and each offers opportunities for cost control in the procurement workflow.

1. Need Identification

   With more detailed records on how and when they’ve needed goods or services in the past, individuals, teams or departments can make data-led decisions about what to request and the best time to put in a requisition. This can help avoid additional costs through factors such as overprovisioning.

2. Requisitioning and Approval

   In an end-to-end procure to pay process, data is centralized, complete and up to date. This gives decision makers full visibility of the request and its context, as well as the organization’s overall budget and the list of available suppliers. They’re empowered to reject unnecessary requests or even divert resources from elsewhere if that’s more cost efficient.

3. Choosing a Supplier

   Because the organization has a more complete view of the market, budget holders can make a more informed choice about the best supplier, balancing cost, quality and timeliness. And that knowledge can also provide more negotiating power, enabling organizations to discuss more favorable pricing or discounts.

4. Creating and Accepting Purchase Orders (POs)

   Automating processes for producing and sending POs helps save on one of the key hidden costs in procurement: personnel hours.

5. Delivery

   When right-sized orders are made at the right time, the organization can optimize storage and handling costs, and ensure goods arrive exactly when they’re needed.

6. Invoicing

   Automated three-way matching ensures POs, invoices, and receipts match, for faster approval to keep the process moving and avoid delays.

7. Payment

   Prompt payment and simplified processes make the organization a more appealing partner for suppliers, often leading to more favorable payment terms that improve cost control. It also helps avoid late payments and the associated penalties, further reducing unplanned spend.

8. Reporting

   All procure to pay processes are closely monitored and recorded in detail. This documentation helps build a cycle of cost control and optimization, where every purchase contributes to a broader picture of how the organization is spending and where there are opportunities to reduce costs. For example, decision makers may choose to consolidate their pool of vendors and focus on strengthening those relationships to negotiate better costs and terms.

How Can You Maintain Cost Control Across the End-to-End Procure to Pay Process?

Implementing end-to-end procure to pay services within the procurement workflow ensures everything is integrated, which enables regular spend analysis – the key to maintaining cost control. With every stage in the workflow reported on in detail, decision makers and budget holders have a constantly evolving view of spend throughout the organization.

This improves auditability, so leaders can enforce budget limits, ensure everyone is compliant with the organization’s procurement policies and identify opportunities for lowering spend. It also means it’s easier to report to external bodies for industry-level compliance requirements, helping to reduce the risk of fines or penalties.

P2P also centralizes and digitalizes procurement processes, ensuring decisions are only made by those with this level of visibility. This opens up opportunities to:

1. Redistribute budget and resources to meet different needs, potentially avoiding additional spend entirely

2. Select suppliers based on a full view of their relationship with the organization, including previous orders and ongoing agreements

3. Negotiate terms for larger order quantities, multiple products or repeat business that wouldn’t be visible to individuals

How Does Automating Procure to Pay Process Steps Help Control Costs?

Automation is a hugely valuable step for procurement cost control – and there are several stages in the procure to pay process flow where organizations can benefit.

For example, adding automated approval processes for low-level purchases allows teams to make requests faster and saves budget holders from needing to approve everything manually.

Because it’s easier to get simple requests approved, people are less likely to resort to shadow spending to get what they need, ensuring decision makers can see all of the organization’s outgoings. Budget holders can add thresholds to their procure to pay process automation, which escalate requests that exceed a specific value or affect multiple departments.

Conclusion

Large cash flows that move between different systems and departments can be difficult to manage, but end-to-end procure to pay processes help decision makers maintain complete oversight and control. A faster, standardized approach to procurement means everyone in the business can get the goods and services they need quickly and cost-effectively, even in rapidly shifting market conditions.

Ultimately, procure to pay processes deliver greater visibility of procurement spend, which helps finance teams manage the organization’s budget and accounts more effectively.

To learn more about the impact of end-to-end procure to pay processes – and to discover how WNS Procurement can help you take control of costs, visit click here.