How to Get Started With The Procure to Pay Cycle

Procure-to-pay (P2P) is the process of incorporating and purchasing accounts payable systems to improve efficiency. It involves four key stages: invoicing and payment, receiving and reconciliation, enforcing compliance and order, and selecting products and services. Digitizing your procurement process with these solutions can improve control and compliance among accounts payable, buyers, regulations, contracts, and vendors. Because it can help you buy from preferred suppliers at negotiated rates without the spreadsheet headaches and manual paperwork, it can:

  • Drive savings to the bottom line to maximize the value of sourcing negotiations.
  • Quickly enable the approval of new suppliers.
  • Streamline catalog maintenance, freeing up resources and saving time.
  • Consolidate manual commerce procedures to minimize errors.
  • Improve and control global spending.

Procure-to-pay cycle solutions create approval flows that ensure negotiated savings reach your bottom line.

What is the Procure-to-Pay Cycle?

  • Also known as the purchase-to-pay cycle, it’s the systematic process that a business uses to buy and pay for raw products and services. It digitally connects regulations, procedures, organizations, and vendors where they learn about new savings opportunities. Digital procurement software programs address all existing gaps, from improving spend visibility to preventing manual data entry. Furthermore, it’s integrated with accounts payable in an organization.
  • Your procurement department monitors how much your company owes your creditors and suppliers to ensure that payments are made correctly. Your procurement department and accounts payable, as well as suppliers, will have to communicate properly for a streamlined and well-developed procure to pay process to improve transparency. Keeping in touch with vendors will help organizations manage their suppliers.

Benefits of the Procure-to-Pay Cycle

Your well-designed P2P process map will improve daily functions. Below are some of the benefits you can get from investing in procure-to-pay solutions:

Optimize Procurement Methods

Your procure-to-pay cycle determines each step that you should take to transform requisitions into purchases. It enhances organization and transparency, which can improve the overall efficiency of procurement.

Reduce Processing Charges

You can reduce procurement processing costs by using paperless inventory tracking or investing in the latest inventory management software. These systems allow you to quickly adjust to stock levels when orders arrive for online ordering.

Improve Your Transparency

By allowing suppliers and purchasing teams to check their requisitions in the cycle, you can gain greater visibility into the chain.

Improve Supplier Relationships

It ensures that orders are made correctly, and payments are delivered to suppliers on time, which improves the company’s relationship with them. It also promotes collaboration and communication between both parties so that any disputes or inquiries can be addressed quickly.

Leverage Negotiations

With a stronger supplier relationship, your company will better negotiate more advantageous conditions as long as it helps the supplier’s bottom line.

Simplify Data Reporting

You can access reports on waste, costs, and profitability status in real-time when using cloud-based inventory management programs. It will help if you make the right decisions to simplify how you can have access to data. You can control your cash flow better.

Steps in the Procure-to-Pay Process

Using a procure-to-pay cycle involves different steps that focus on both financial and procurement procedures. You should follow these steps to ensure productivity. Below are the steps involved in the procure-to-pay cycles.

1. Identify Needs
Your management department should determine and approve particular products and services that the company requires. Your project and its requirements are thoroughly outlined in the documents.

2. Develop Requisitions

You should create your official purchase requisition after identifying what your needs are. It’s designed to inform the procurement department that a product or service order is required.

3. Purchase Requisition Approval

Once you’ve produced the purchase requisition, it’s submitted to the proper department and procurement executives. Your executives will either reject or approve the request depending on your company’s priorities, budget, and needs. If they refuse a requisition, the author usually makes corrections and submits it for a second assessment.

4. Spot-buy or Place Purchase Orders

Your procurement department can place orders for products and services after approving the requisition. Your company can only do a spot-buy if you only need a single purchase or small volume and the order is only one-time. It involves immediately paying for and receiving the goods.

5. Purchase Order Approval

Executives should review the purchase order for the specifications to be accurate. Then, the requisition is submitted to the supplier, who will reject, accept, or negotiate
it. Once the supplier accepts the order, they’ll gather their inventory to fulfill it.

6. Review Receipt of Goods

Upon receiving the products and services, you should inspect them to make sure they contain the right quality and quantity. Once the goods receipts have been received, management can acknowledge the delivery and record their new stock orders.

7. Evaluate Suppliers

You should evaluate your supplier’s contract compliance, product quality, service, and timing. Re-ordering products in the future will be easier with this piece of information.

8. Invoice Approval

You should approve the invoice and send it to accounts payable if there are no discrepancies between the goods receipt and purchase order.

9. Vendor Payment

Once you’ve approved the order invoice, the accounting system or finance department can process payments to suppliers. You can pay suppliers in different ways, including final payments, installments, and partial payments.

 

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The Disadvantages of Manual Procurement

No transparency and clarityBecause the procurement process involves many groups such as suppliers, the finance department, approvers, procurement teams, and end-users, it’ll result in less visibility and a loss of control over the overall process.
Unsatisfied customers, vendors and procurement teamsUsually, the parties involved in the process can make mistakes. It’s not easy to address these mistakes if you’re using the manual process. In most cases, you’ll have to start again or start from where the mistakes were made, which can be anywhere in the process.
No consistent policy complianceEvery company has set guidelines, especially within departments like procurement and finance, which have to spend the most resources. If these guidelines aren’t followed, things can go wrong. Inconsistency is common in manual procurement. While focusing on individual tasks, other employees may lose sight of the bigger picture of the productivity
and efficiency of the department.
Pro Tip: By following the best practices in the procure-to-pay cycle, a business can improve its procurement process and supply chain management.

Best Practices in the Procure-to-Pay Process

Procure-to-pay is the key to better spending control and compliance. Reach your finance and procurement goals with scalable programs you can adjust as you need other different resources at different times. Here are various ways you can improve the overall efficiency of the process:

  • Streamline contract management.
  • Optimize inventory.
  • Improve supplier relationships.
  • Keep the process transparent.
  • Implement the software.

Challenges in the Procure-to-Pay Process

You can address challenges via the automation of your procure-to-pay process to gain better insights, improve visibility, and increase efficiency. But what are these challenges?

  • E-procurement software involves a lot of steps, and these will require contributions from people in different departments in the organization, from the procurement team to finance, who use a wide range of systems.
  • Each executive of these departments may have different goals and priorities.
  • Data can also get lost throughout the whole process.

 

Manage Your Business Payments Better Today With Spenmo

Using the appropriate procurement and inventory management software can be a tricky decision to make because it depends on your company’s needs. Spenmo understands that different companies have different spending patterns. Book a demo to learn more about payments automation to suppliers!

 

Click here to automate your payments with Spenmo

Procure to Pay Cycle FAQs

What is the most important step in the procure-to-pay process?

Making a requisition order is the most crucial step of the process. You’ll have to make an internal request to purchase something to start the ordering process. It’s where the purchase order is created.

What are the disadvantages of using the procure-to-pay process?

  • Disorganized payment scheduling is one of the cons of this process. Inquiries from suppliers about when they’ll get paid are always a problem. If left too long, they turn into threats. It forces the procurement department into a challenging position as both a people-pleaser and payment-chaser. With these systems, you can send notifications to keep up on time with payments. Transparent workflows and shared calendars make it easy to determine delays and get things moving.
  • Digitization solves a lot of problems. Despite using approved purchasing catalogs, buying products and services through non-PO-based and paper invoices are necessary. With the procure-to-pay process, it’s easy to implement that kind of policy. You can individually scan vendor invoices or in batches to a centralized system. Non-standard suppliers go into the system correctly. You can also limit unnecessary spending that may fall through the cracks.
  • Enabling suppliers to integrate is a common problem in human-led onboarding methods. You don’t have an idea of leveraging a new supplier for volume and multi-product orders. You can integrate your ERP system into the software, which can identify hidden cost savings. It reviews new vendors on the population master data, meaning vendor relationships are optimized immediately. It leads to more sustainable and more extended partnerships.

How do I determine if I need to use the procure-to-pay cycle?

Both silos and manual procurement make the purchasing process and payable systems inefficient and challenging. It can significantly affect your bottom line. From AP and contract management to strategic sourcing, the process offers holistic solutions that will transform the way your company gets paid, pays, and purchases.

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