Overwhelming financial processes can naturally complicate the control of financial data and the relatability of transactions that are actively taking place in an organisation’s procurement department. Procure-to-pay, typically abbreviated as P2P, is an umbrella term used to keep track of all procurement processes relating to business spending of an organisation. This cycle embodies several activities, such as:
- Preparation and solicitation of payment processes,
- Purchasing of business supplies,
- Receiving components from suppliers,
- Transferring business money and
- Updating financial documentation accordingly.
P2P is misinterpreted by many as a technological solution rather than a concept; but in reality, P2P is a process that encompasses all the processes from procuring supplies- goods or services- to accounting the necessary transactional data, thus, the process is labelled as “Procure-to-Pay”.
Learning about P2P as a process
As mentioned about P2P is an integrated and coordinated process that fulfils the supply requirements of an organisation in the most apt manner based on the right choice of vendors, in the right time with the right price paid for the transaction. Given below are the nine progressive steps that a P2P process would comprise usually.
1. Identify the company’s needs
The managers must carefully analyse the company’s demand to purchase supplies to make sure there will be no excess, or insufficient resources or services ordered. The business requirement can be identified with the collaboration of cross-functional stakeholders. The valid need for requirements is then rectified and specified in documentation such as Terms Of Reference (TOR) and Statements Of Work (SOW).
2. Propose solicitation
After documenting the business requirements, an official statement is formed to request a solicitation by the company’s financial decision-makers. A purchase requisition form will be submitted by the requester while ensuring that all administrative requirements are sufficed.
3. The approval of Requisition
Procurement Officers or department heads will assess and approve the purchase requisition after checking its relevancy and financial feasibility. Once the request is perceived to be valid, the particular authority will approve the documentation. If the requisition form is incomplete or cannot be relatable, it will be disapproved and end the P2P process.
4. Creating a Purchase Order (PO)
Purchase orders can now be made based on the business supply requirements appropriately.
5. Approving the PO request
The PO will be sent for continual approval to check for its validity, accuracy of specifications and completeness. When an officer reassures that a PO is valid, it automatically means that a legally bound contract has been made.
6. Receiving goods and receipt
The vendors will deliver the requested goods or services to the company based on the purchase order. The procurement department will thoroughly check for the completeness of the delivered stock and their quality standards. Once the delivery is validated, the company would receive a receipt based on the statements in the PO.
7. Evaluating Supplier Performance
Based on how well the supplier has met the company’s expected quality of supply service, the vendor will be evaluated for later orders. They will be compared with alternative suppliers to help the company make deals with the most negotiable and competent suppliers.
8. Invoice Approval
Three documents will be simultaneously matched in this stage; namely, PO, vendor’s invoice, and the goods’ receipt. If any anomaly is detected, the invoices will be sent back to the vendor. If no discrepancy was detected, the invoice would be sent to the company’s financial department.
9. Paying the Vendor
Based on the approved invoice, the financial team will approve the financial transfers. The payment will be made to the vendors who delivered the goods or the service enablers who provided their services. The payment made to a vendor can fall to one of the following five categories:
- Retention/ holdback Payment
- Instalment/ progress Payment
- Final Payment
- Advanced Payment
- Partial Payment
As mentioned above, P2P can be regarded as a complex process that is influenced by and to multiple entities in the company and outside the company. Therefore, to streamline the P2P process, any organisation must be conscious of five main points:
- The efficiency that they could harness by adopting a Procure-to-Pay software
- Optimising inventory data management through technology for effortless solicitation of business requirements
- Improving the role of the suppliers in the process through their active engagement
- Use competent solutions to elevate the contract management processes of the company.
- Managing transparent data streams that can be accessed by multiple corporate departments
How efficient is a Procure-to-Pay software for your organisation?
What are the main features a Procure-to-Pay software has?
Given below are some features that your Procure-to-Pay software must adopt:
Comprehensive Vendor Profile Management: Procure-to-Pay software must house tools to comprehensively update profiles about various suppliers to assess their performances appropriately. This way, the company can use vendors’ historical data to compare and choose the most advantageous deals to fulfil the business requirements. Information that can be retrieved by an integrated vendor profile manager can be contact details of the vendor, orders that were successfully completed with them, deals and offers they provide, the rate of performance, the adherence of their delivery schedules, freight and insurance costs and more.
Houses Purchase Order Management Tool: Purchase Orders can be automatically made by feeding the Procure-to-Pay software the purchase requisitions that were approved. Purchase orders can not only be created but also dispatched to place orders from vendor/s effortlessly. Multiple batches can be ordered from multiple vendors because such software allows user-friendly Purchase Order Management efforts. Also, PO reconciliation is also made easy through this tool.
Interactive Invoice Matching: Consequent documentation matches can be made using a Procure-to-Pay software to check for the validations with movable dashboards for better assurance. Once all documentation match the software connects the user to electronic payment portals or account payable systems to proceed with the financial transactions.
Generates important insights of P2P: All transactions and vendor performances can be studied by the data that has been siloed in the Procure-to-Pay systems. This feature is important to analyse and report on how competently your organisation handles procurement processes.
Modular Integration with Main IT systems: Last but not least, this feature allows your existing IT systems to house the Procure-to-Pay software. This solution is usually housed as a module in organisations’ main ERP systems since such suites promote the ability to consolidate financial and vendor data. Thus, this integration will elevate the budget control and control your company has on its procurement procedures.
