Procure-to-pay: Everything you need to know

Imagine sprinting a 100m race with tied shoelaces. An outdated P2P process can slow you down just as much. While your team is busy with manual tasks like like invoicing and generating purchase orders for goods, your competitors are racing ahead with streamlined operations, leaving you in their dust.

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The good news is that the P2P processes have evolved significantly over the past few years. AI, ML, and automated workflows are now being integrated to increase efficiency. These advancements reduce processing times, mitigate errors, and let your teams concentrate on important tasks rather than data entry and reconciliation.

This article offers a comprehensive guide to optimizing P2P process management. Learn how automation can streamline operations and position your business at the forefront of procurement innovation.

What is procure-to-pay?

Streamlining the path from procurement to payment is critical for business efficiency. Procure-to-pay (P2P) covers all the necessary stages — from identifying your business needs to ensuring suppliers are paid. 

It is a subset of the larger source-to-pay cycle. It involves four key stakeholders: the department that initiates the request, suppliers, procurement, and accounts payable (or an external agency in case of outsourcing). 

P2P should be as smooth as a relay race handoff. If you're fumbling the baton with manual, outdated systems, it's a race you won't win.

The procure-to-pay cycle

Efficient procurement performance, cost control, and strong supplier relationships depend heavily on a streamlined procure-to-pay (P2P) cycle.

Unfortunately, manual processes still hamper teams during critical stages such as invoice processing, payment, goods receipt verification, and utilization of supplier portals. Even in today's technological landscape, it's surprising that 31% of organizations rely on manual systems to manage these stages.

Let's explore each step of the P2P cycle and examine how automation can assist you in streamlining the process.

1. Identify the need

When a department requires raw materials or services, they will send a purchase request to the procurement department. The request will include the quantity, quality, and timeline required.

Traditionally, this process involved emails and paperwork. However, with Nanonets AP automation, the request can trigger a requisition process within a unified system, which improves speed and accuracy.

2. Generate requisitions

Once all the necessary details have been discussed and finalized, the next step is to input the order information into your procure-to-pay processing software and create a purchase requisition form. This form will then be sent to the procurement department for further processing.

Nanonets' AI-powered OCR capabilities can extract data from request forms automatically. The data can then be validated against predefined parameters to ensure all requirements are met before proceeding. This helps prevent potential procurement errors.

3. Evaluate the requisition

The procurement department will analyze the form and look for inaccuracies, incomplete information, budgetary limits, and logistical constraints. Then, they will take a call on whether to approve or reject the request.

Modern P2P automation systems like Nanonets offer a range of benefits that streamline the approval process and improve procurement decision-making. With automated approval workflows, reminders, and status updates, stakeholders are always in the loop, and approvals are significantly faster.

This is further complemented by integrating real-time financial data from existing ERP systems, which supports account integration and ensures procurement activities are aligned with the company's overall financial strategy. The result is reduced risk of overspending and improved budget management.

4. Issue the purchase order

Approved requisitions result in the creation of purchase orders (POs) by the procurement or purchase department. Using their P2P software, the department selects a suitable vendor and generates the PO. It is then shared with all relevant stakeholders for final approval before being dispatched to the supplier.

Nanonets can convert requisitions to POs and route them for electronic approval, significantly reducing time.

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5. Collect the receipt of the goods

When goods or services are delivered, it is necessary to crosscheck the goods receipt, the quantity and quality of goods, with the PO to verify their accuracy. After the verification process, the receipt of goods is either approved or rejected based on the outcome.

Nanonets can assist in this process by automatically extracting data from the goods receipt and matching it with the corresponding PO. Any discrepancies found during this matching process are flagged for review, allowing for prompt resolution.

6. Verify the invoice

The supplier sends an invoice to accounts payable after the goods are approved. It goes through a three-way matching with the PO and the receipt of the goods. It will be approved if the items and corresponding values remain consistent across the board. If not, it is rejected and returned to the supplier with a note on the inaccuracies.

Nanonets can automate invoice matching, extracting data from invoices and comparing it with PO and goods receipts. It can automatically approve consistent invoices and flag those with discrepancies for manual review, leading to faster processing times and reducing the risk of payment errors.

7. Pay the vendor

Finally, the accounts payable team will release the payment to the supplier when the invoice is approved. The terms of the contract usually dictate the mode of payment.

Nanonets offers seamless integration with Stripe and other payment processing systems, making electronic payments quick and easy. This helps to speed up the settlement process, ensuring that payments are made on time.

Additionally, it provides a clear audit trail for all transactions, improving financial transparency and compliance with internal policies and regulatory standards. You can even schedule payments beforehand — allowing you to get early-payment discounts and manage cash flow more effectively.

This 7-step process must be followed every time a new purchase request is placed by any department in an organization.

Tips for efficient procure-to-pay management

The procure-to-pay process flow may seem complicated since it involves multiple stakeholders, dependencies, compliance regulations, and a lot of document management workflows. But there are ways you can make your P2P processes more cost-effective and streamlined.

The following tips will help you eliminate or minimize some of the biggest challenges associated with your procure-to-payment process:

1. Create a systematic framework

The P2P process is not as simple as buying a laptop from an e-commerce website. The best way forward is to break down the procure-to-pay process flow and standardize each step along the way. Then, make sure everyone involved knows their responsibilities, duties, and how and when to communicate.

2. Measure your effectiveness

Be sure to select and track key metrics that measure the efficiency of your P2P processes. You could look at metrics such as inventory level, working capital level, number of errors and inaccuracies, processing time, labor hours, operational disruptions, and additional expenditure, among other things.

3. Strive to build better supplier relationships

Slow turnaround times for approvals and delayed payments often make it hard to have a smooth relationship with your suppliers. To ensure smooth collaboration and efficient spend management, procurement and accounts payable teams must mitigate disagreements, improve visibility, reduce inaccuracies, and prevent unexpected delays.

4. Deploy a powerful procure-to-pay solution

As multiple stakeholders are involved in the procure-to-pay cycle, you often see each one using different tools and techniques to complete their tasks. This makes it hard to capture, compile, analyze, and audit the data and monitor the status of critical tasks.

Work with a procurement cloud provider that supports robust P2P automation and offers seamless data flow with integrations and predefined and custom workflows. Learn more about this in the next section.

What is procure-to-pay software?

Procure-to-pay software automates the full spectrum of purchasing activities, streamlining the journey from order to payment. Procurement automation replaces outdated, manual methods with a cohesive and efficient digital workflow, providing unmatched visibility and speed.

Clunky spreadsheets, file cabinets, and paper piles often lead to more manual work, slow processing times, and poor visibility. For all their merits, ERP systems don’t offer enough integrations and automation options to deal with the complexities posed by modern-day procurement flows.

Instead, embrace a dedicated, paperless procure-to-pay solution. It simplifies data capture, raises purchase requests, performs three-way matching, and ensures on-time payments.

The benefits of procure-to-pay software

Switching to a robust procure-to-pay system isn't just about adopting new software; it's about achieving measurable improvements across key performance areas:

1. Improved visibility: An effective procure-to-payment process solution enables timely status updates, reminders, and notifications, giving all stakeholders real-time visibility of their orders. This assists every department in planning activities, making informed decisions, and ensuring crucial business operations are not disrupted.
2. Maintain compliance: As all the data is accessible from a central location, audit trails will be easier to follow and verify. The finance team and auditors will be able to complete their jobs quickly. More importantly, as the trails are automated, the chances of being slapped with fines and penalties will be much lower.
3. Automate routine tasks: Processing purchase requisitions, entering invoice data, and cross-checking purchase orders, goods receipts, and invoices can be time-consuming, expensive, and error-prone. Not only does it slow down your team, but it also adds to operational costs. With robust P2P solutions, you can automate invoice capture, approval workflows, report generation, and electronic routing/archiving.
4. Cash flow clarity: Get a clear picture of your spend management with detailed analytics, positively impacting your cash flow control and working capital optimization.
5. Speed up processes: Automate and accelerate the entire P2P cycle, from requisitions to payment release, reducing the cycle time. This sharpens your process efficiency, directly improving procurement KPIs like cost-per-invoice and order-to-cash.
6. Expense reduction: The cost of manually processing invoices can climb from $15 to $40 per invoice. You can slash these costs by digitizing and automating workflows, which can reduce manual processing costs and translate to direct savings. Also, robust P2P solutions ensure that every decision taken by your procurement department is consistent with your purchase policy and is strictly based on available inventory and operational data. Thus, minimizing the chances of maverick spending.
7. Seamless data flow: Connect with existing ERP, accounting, and financial systems, minimizing integration headaches and ensuring all your data flows to the right place at the right time to support informed decision-making.
8. Better supplier relations: Strengthen supplier relationships with consistent and prompt payments, which can lead to negotiated discounts and improved terms, thanks to reliable transaction histories.

Challenges in the procure-to-pay process

Even the most finely tuned procurement processes can face hurdles. Let's examine these challenges and how procurement software can help you overcome them.

1. Manual workload: The repetitive data entry task wastes valuable time and is prone to errors. Automation significantly reduces manual touchpoints, streamlines processes, and sharpens accuracy.
2. Regulatory compliance: Keeping up with the ever-changing landscape of regulatory requirements can be daunting. Procure-to-pay software ensures compliance through automatic updates and embedding controls into the procurement process.
3. Data discrepancies: Inconsistent or incomplete data can lead to incorrect decision-making. Procure-to-pay platforms offer centralized data management, aligning information across departments for unified, reliable reporting.
4. Cost attribution: Tracking and correctly attributing costs can become complex and often opaque. The right software provides clear visibility into spending, helping to allocate costs accurately and maintain budget discipline.

By addressing these challenges head-on with advanced procure-to-pay solutions, businesses can avoid common pitfalls and elevate their procurement operations to new levels of excellence.

Procure-to-pay best practices

In today's procurement landscape, where manual data entry and inefficient processes are still common, adopting best practices in procure-to-pay operations is essential for organizations to optimize their spend management.

Let's explore the strategies that are setting industry leaders apart.

1. Adopt centralized procurement

Leveraging centralized data management in the cloud can enhance the speed of your procurement process, significantly improving cost efficiency and reducing maverick spending. This means having a single department responsible for all purchasing decisions, thus ensuring consistency in procurement policies across the organization.

For example, a centralized procurement department can negotiate bulk purchase discounts from suppliers, resulting in significant cost savings. This department can also ensure that all purchases are made based on the organization's strategic objectives and not just immediate departmental needs.

2. Automate the P2P process

Automation can significantly reduce the time and effort involved in the procure-to-pay process. This includes automating tasks such as purchase requisitions, invoice processing, vendor onboarding, and payment processing.

For instance, automation can help in capturing and extracting invoice details, dispatching documents for approvals, generating automatic reports, and electronic routing/archiving. These automated processes can significantly reduce errors and enhance productivity.

Tools like Nanonets and ProcureDesk are great for automating the P2P process. They offer features like automatic data capture, workflow automation, and real-time reporting, which can greatly improve the efficiency of your procure-to-pay process.

3. Implement strict controls and approvals

Implementing strict controls and approval processes can ensure that all purchases are necessary and within budget. This can involve setting up approval hierarchies, where larger purchases require sign-off from higher-level managers.

An example of this could be implementing a rule where any purchase above a certain amount must be approved by a department head or even the CEO. This not only helps maintain budgetary control but also provides a clear audit trail for every transaction.

Questions to consider:

• Do we have a clear approval process in place for different levels of expenditure?
• Are there checks and balances to prevent unauthorized purchases?

4. Leverage data analytics

Utilizing data analytics can provide valuable insights into your procurement process. It can help identify trends, patterns, and potential issues, allowing for more strategic decision-making.

For instance, data analytics can reveal which suppliers provide the best value for money, which departments are overspending, and where inefficiencies are occurring in the P2P process.

Expert tip: Begin by identifying key metrics that are important for your procurement process. These could include things like total spend, savings achieved, supplier performance, and procurement cycle time. Use tools like Tableau, Microsoft Power BI, or Oracle Procurement Cloud to analyze and visualize your procurement data.

5. Invest in supplier relationship management

SRM involves strategies to effectively manage interactions with vendors that supply goods and services to the organization.

For example, maintaining a good relationship with suppliers can lead to more favorable terms, such as bulk discounts or extended payment terms. It can also allow you to collaborate with suppliers to identify and rectify inefficiencies in the procurement process.

Tips for effective SRM:

• Regularly communicate with suppliers to build a strong relationship.
• Provide clear and concise feedback to suppliers.
• Collaborate with suppliers to improve procurement process.
• Regularly evaluate supplier performance and provide constructive feedback.
• Consider using SRM tools like SAP SRM, Oracle SRM, or Zycus for better supplier management.

6. Standardize your procurement process

Standardizing your procurement process can reduce confusion and increase efficiency. This means having a uniform process across all departments for tasks like raising purchase orders, receiving goods, and making payments.

For instance, you could create a standard purchase order form that all departments must use. This ensures that all necessary information is included, reducing the chance of errors and miscommunication.

Checklist for standardization:

• Do we have a standardized purchase order form?
• Are there clear guidelines for receiving and checking goods?
• Is there a standard process for making payments to suppliers?

Leading P2P solutions

Now, if you are thinking about getting a procure-to-pay solution for your organization, here are a few top ones for you to consider:

• Nanonets AP automation
• SAP Ariba
• SAP Fieldglass
• Coupa BSM Platform
• Jaggaer One
• Basware Purchase to Pay solution

Final thoughts

Running a successful business is like managing pit stops for a Formula 1 team. You have to constantly optimize your processes so that you can eke out every last bit of performance. Your P2P cycle is certainly one area that you shouldn’t overlook. Seamless procurement is the way forward. Those who embrace P2P technologies will have an advantage in expenditure incurred, user experience, and avoiding business disruptions.

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