Procure To Pay Best Practices

Most startups would probably not even bother to implement a procure-to-pay process or P2P since they are probably using a cash method of accounting. However, the P2P process becomes crucial when a company must use accrual methods of accounting to keep track of all their spending. Using P2P makes it easier to integrate purchases into financial and accounting systems.

While the P2P process may be confusing at first, the procedure is pretty standard. However, as with most things in business and life, some companies do it better than others. Here are some procure-to-pay best practices you should know.

What is the Procure-to-Pay (P2P) Process?

Before delving into best practices, it might be wise to define procure-to-pay. In simplest terms, the procure-to-pay process comes with steps a company takes to keep records of purchases for the business. These steps are fundamental to effective procurement and include:

• Submitting a request (requisition)
• Making a purchase order (purchasing)
• Receiving the purchase
• Receiving the invoice (invoicing)
• Making the payment (paying)

Your company’s procurement or purchasing department typically goes through the procurement process for purchasing things as mundane as pencils or paper. While this might seem like a lot of work for a simple purchase, you should understand that the purchase-to-pay process promotes transparency and accountability in business purchasing. The P2P process allows the company to trace the history of any purchase.
As you can probably imagine, the P2P process involved a lot of paperwork and filing back in the days of physical paper and files. While some companies continue with manual procurement, others have adopted this practice digitally.

The Process Flow of Procure-to-Pay

Each company may have variations of the P2P process and may call the steps by different names. However, below is the most common procure-to-pay process flow.

Identify Needs

The first step is to identify the needs of a company and meet them. It also means finding out where to get the goods or services needed. For example, the human resources department might say that they need HR software to keep track of a growing number of employees or the IT department wants more workstations for data entry. The person or team identifying the need will also estimate the cost, timeline, and a list of potential suppliers.

Create Purchase Requisition

After identifying the need, cost, timeline, and suppliers, the next step is for the person or group wanting the purchase to make a formal request via a purchase requisition and submit it to accounting. The requisition form is an internal document that does not go to the vendor.

Generate Purchase Order

Once the finance team receives the request and approves it, they generate a purchase order or PO. This document contains a statement of work that goes to the selected vendor. Both the vendor and buyer must approve the PO.

Receive Purchase Order Approval

After both vendor and buyer approve the PO, it goes to the various stakeholders who must also approve it. It has to go to the accounting department first before anyone else in most cases. When all issues are resolved and the information is correct, all relevant stakeholders must sign off on the PO before going back to the vendor. In return, the vendor must agree with the revisions made on the original PO, if any.

Seeking approval from different stakeholders is crucial in the P2P process because it is prone to many errors. As a result, the approval step often takes the longest due to several backs and forth among stakeholders to address issues with the PO. It will even take longer in a manual process because it has to go through several people who may not always be physically present to approve the PO.

Issue Goods Receipt

Once the PO is approved, the vendor will deliver the products or services requested. The next step will be to see if everything is in order. Did the vendor provide the correct item in the right quantities? Meanwhile, was the work carried out as agreed for a service-based agreement?

If there are no issues, the buyer will issue a goods receipt. This document would have significance to the supply chain department if the purchase were a product because it would trigger an adjustment in the inventory. The goods receipt will also signal that the company can approve the invoice once the vendor sends it.

Receive and Review Vendor Invoice

The vendor sends the invoice, which will go to the accounting department for review. It will check if the information in the invoice matches with the PO and goods receipt or three-way matching.

Approve Vendor Invoice

If everything lines up, the accounting department will send it to the designated person for official approval. This process can cause a delay in a manual P2P process because approval depends on the availability of the approver. In an automated process, the system can reroute the invoice to a secondary designated approver if the first one is not available.

Pay Vendors through Accounts Payable

Once approved, the invoice must go back to the accounting department for encoding into the system, so the vendor gets paid. Payment goes through the accounts payable team, who manually inputs the payable in the accounting books. Payments automation makes the process shorter as the account payable is recorded straight into the accounting software. Once approved, the invoice goes straight into the system without passing through the accounts payable team and is free of errors.

Track Supplier and Vendor Performance

You might think that the P2P process is complete when the company pays its vendor. However, it’s common for procurement teams to look for one or two vendors to get the best deals, so you want to ensure they are doing a good job. You should track vendor performance metrics such as accuracy in invoicing and timely delivery so you can decide if that vendor is worth keeping or if it is time to look at other vendors.

Best Practices for the Procure-to-Pay Process

Now that you have a good idea of the P2P process and the typical flow of the steps, you can think about what you can do to make the process go faster and produce fewer errors. You can use the following best practices to get you started.

Keep it Transparent

Good supplier management requires transparency. Implement a self-service portal where vendors can track the invoice status at any time. Keeping your P2P process accessible to vendors can eliminate confusion and the need for constant communication about invoices and payments.

Improve Supplier Relationships

It is crucial to maintain good relations with vendors that meet a company’s unique needs. You can accomplish good relationship management by giving vendors access to your P2P process, minimising delays in processing POs and approving invoices, and paying correctly and on time. However, the effort must be reciprocal. The vendors must also pull their weight in the relationship by delivering on time and submitting error-free invoices, which is why you should also track their performance.

Integrate with Your ERP

A manual procure-to-pay process might work for a while with a small business, but as it grows, you need to start thinking about integrating it into an ERP or enterprise resource planning system. When you do that, you make all the documents and data in your P2P process instantly accessible from one platform for anyone who needs them at any time.

Get Better Buy-in by Streamlining Workflows

Find ways to automate as many steps of the P2P process as possible. Automation will help streamline the work for everyone involved in the process to do their jobs better. Think about automating PO approval, invoice routing, and payment processing. Automating the P2P process makes it less complicated and tedious, making it more likely for concerned parties to follow the workflow.

Use the Right Procure-to-Pay Software

The best way to make your P2P process more systematic and efficient is to procure-to-pay software. It will minimise delays and errors, cut costs, create more transparency, and improve communication between buyers and vendors. Look for all-in-one software with invoice processing, vendor portals, automated bill uploads, real-time update of payments, and instant reconciliation of invoices and payments. Such software will reduce the need for manual tasks in the P2P process.