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Procure to Pay isn’t a mere concept any longer; it has become a niche market that is experiencing stellar growth. In 2021, the market for Procure to Pay software was valued at $6.1 billion and is projected to rise to $10.9 billion by the end of 2030 – that is a compounded annual growth rate of 9.1% between 2022 and 2030.
Needless to say, the procurement processes in every business have started down the path toward improvement. With each new concept, the workflows in the procurement process experience evolution and better efficiencies.
This has led to the creation of an end-to-end procurement solution, known better as Procure to Pay, that knits everything together seamlessly.
Right from initiating a requirement to paying off vendors, Procure to Pay works to reduce the turnaround times and streamline inventory management for businesses.
In this article, you will learn everything there is to know about Procure to Pay.
The process in a business that stitches together workflows, connecting needs-generation, procurement, invoicing and accounts payable in their natural, logical order, is called Procure to Pay.
Every business needs some kind of raw material to produce its end product. To procure this raw material, the business establishes a network of vendors to source it from and in return, puts in place a payment mechanism that closes all the invoices raised by the vendors in a timely manner.
The Procure to Pay process begins when a business initiates a requirement of goods. This requirement is then forwarded to the procurement department, which then raises orders with the respective vendors.
The vendors then proceed to ship the order to the business and raise their invoices. It is here that the accounts payable section gets involved in clearing these invoices. This loop makes up the entire Procure to Pay process.
In other words, the execution of integrated, orchestrated activities that result in the fulfillment of the requirements of a business is called Procure to Pay. There is a set sequence of activities that flow according to protocol, and logic and must be followed in a specific order.
Let’s now understand various stages involved in the Procure to Pay process in a little more detail and how each stage interacts with the previous and next one.
Every business is unique, and so is its Procure to Pay process. Here are 9 steps every business takes in a procure to pay process. Based on the niche your business operates in, you can add to, combine, separate or eliminate steps from this list of commonly accepted P2P touchpoints:
The Procure to Pay process is customizable; therefore, you can make modifications that suit your own workflows.
Let's now discuss each of these processes in detail and outline which ones are relevant for your business.
Every procurement process begins with a need.
A well-coordinated ecosystem with effective communication across departments helps the business identify and justify business requirements and validates their utility in accordance with business goals and objectives.
Once a need is validated, it can be furthered to concerned departments for determining the requisite specification/configuration/quantities (or any other details) before forwarding it to the procurements department.
For example, identifying the need for a laptop overhaul at your company would need you to justify why old laptops aren't good anymore (with the latest software, the hardware must be upgraded too).
The procurement department is responsible for creating requisition forms that carry the details of the order that needs to be placed with the vendor. This form contains every little detail of the order.
A business can create requisition forms for any kind of requirement – subcontracts, consignments, or others. It is important this form conforms to all the administrative requirements that are necessary for the records.
When this is done, the form is submitted for approval.
Here, the requisition would contain which configuration and specification would be best for the laptops considering the software your business uses.
It normally falls under the ambit of a Procurement Officer or department head to approve or reject requisitions forms.
Various aspects that determine approval or rejection of a form are:
In case the department head or concerned officer spots any discrepancies, the form is sent back for corrections/revisions before it can be approved.
Now, your laptop overhaul request would be scrutinized in detail here, including what budget would be required and if your company can spare it.
Depending on the scale of the consignment ordered, the procurement department must now proceed to create a purchase order.
Usually, purchase orders are created toward vendors for large quantities, special equipment, or larger goods that take time to be delivered.
In this stage, your request for new laptops would get your business searching for the right vendors and creating purchase orders.
Items that can be bought on the spot do not need purchase orders – for such items, a “Spot Buy” (an emergency or one-time buy that is completed instantaneously and doesn't need the long purchase cycle that involves vendors or bidding) is initiated to fulfill the need without getting into the loop of POs.
In case a spot buy wasn’t initiated, the purchase order would then need to be sent for approval. This is the last chance for a business to rectify the information contained in the PO; therefore, the approval is performed diligently.
Any changes, modifications, corrections, etc., to be made must be done now. Additionally, the legitimacy of the purchase order is checked in this step, making it that much more important.
This is where you would take a last look at the POs created for new laptops like whether any changes or upgrades to the software in use would need to be reflected on your new hardware as well.
Once approved, the purchase order is sent to the vendor.
Upon receipt of the consignment, the procurement department must check whether the received goods conform to the specifications and requirements as raised and negotiated in the purchase orders.
The concerned officer must then accept or reject the consignment and sign the goods receipt based on the tolerance protocols.
Upon the delivery of these laptops, each one is checked against the PO.
The procurements department can function optimally only if the vendors live up to expectations. For this purpose, the vendors are evaluated based on the following pointers:
Based on the ratings provided to a vendor under the categories above, performance insights are generated (for those who use procurement software), and a quality identifier is attributed to the concerned vendor.
Here you would check whether the laptops arrived on time, whether they were nicked or damaged, whether all of them were in prime condition, etc.
To approve a vendor’s invoice, the information contained in the purchase order, the goods receipt, and the invoice should tally perfectly. Therefore, the procurement officer performs a thorough check and validates each document filed before an invoice is approved to be paid.
After ensuring all the numbers are correct, the laptop vendor's invoice is now sent to your accounts payable.
After the procurement department approves an invoice, it is forwarded to the accounts payable department to initiate financial processes.
Accounts payable will record the receipt and queue it to be paid according to the financial cycle that the business follows. The payment shall follow the terms agreed to in the contracts.
This is when your laptop vendor gets paid for all the goods they delivered.
Here are the main challenges in the procure-to-pay process:
During P2P processes, management of many purchasing channels and their control becomes rigid. The fundamental procedure of pre-approval of expenditures is occasionally seen as excessive bureaucracy, which leads to impromptu purchases and non-contracted spending.
Without the proper tools to provide visibility into procurement expenditure, departments might easily overpay on their requirements.
The whole decision-making process is greatly hampered and spending leakages occur as a result of the lack of adequate records to track each department's spending.
Combining data is complex and tedious because large departments inside corporations have their own methods and tools to manage procurement.
Accounts payable, sourcing, and procurement are all managed by separate departments, and these divisions often optimize the process especially for their role.
Businesses frequently employ many ERP systems, which makes it challenging to have a solitary, integrated source of correct supplier and business data.
The organization ends up spending more money on additional labour costs as a result of the silos' inefficient, manual operations, which include managing all invoices on paper.
Manual entry, processing, and sign-off processes slow down the P2P cycle, leading to lengthy approval processes for invoices, late payment fines, and perhaps even the risk of damaged supplier relationships.
Additionally, any system that calls for manual data entry on paper carries the potential of error. The cost of fixing the issue increases with each invoice and staff productivity decreases.
The Procure to Pay process is inherently laced with multiple touchpoints and is cross-departmental. As such, it is difficult to efficiently govern the workflow without inculcating certain best practices that help iron out the creases.
Simple steps help mobilize great efficiencies in Procure to Pay ecosystems. The software can assist you to a great extent in keeping things neat and tidy. Let’s see how.
Here are the main benefits of procure-to-pay automation:
You can easily identify chances to bargain with a vendor for better terms or pricing, or make thorough and accurate budgets and financial reports.
It is possible to replace underperforming vendors while giving priority to those who present the possibility of developing lasting, mutually beneficial relationships.
By talking about contracts that offer improved terms, conditions, and advantageous price, it is simple to demonstrate significant ROI increases.
By becoming paperless, businesses may spend less money and time on administrative activities and more on strategic projects.
Automation is a better way to achieve this. An indirect but important part of improving ROI is lowering a company's risk exposure.
By automating the procurement and accounting processes, you may lower or even eliminate human error, cash flow concerns, hidden expenses, and inadequate supply chain management.
With a procure-to-pay software, everything is digital, so invoices flow easily. Purchases, products, and services can all be quickly verified by purchasing managers. Additionally, they can email documents to accounting and rapidly issue payments.
No more obstructions.
Additionally, in some circumstances, your company might even be able to benefit from early payment savings.
There is great potential in deploying software for your P2P operations. In fact, Gartner predicts that by 2025, organizations that employ P2P software would save 30% YoY on goods and services costs. Let’s see how a procurement solution like hubler can improve your P2P process:
Procurement is the first step in optimizing your businesses in terms of production costs, operational efficiencies, and quality of the end product. It is essential that this process be as free of clutter as possible.
Hubler makes it possible for your business to de-clutter your P2P with key features like one-click document generation (create invoices, POs, requisitions, etc. instantly), custom workflows (create your own P2P), analytics (focus on business-specific KPIs), budget control (create procurement budget caps and flag unauthorized spending), purchase audits (automate PO checking and rejection workflows, track shipment, etc.) and more.
Incorporating best practices and implementing P2P software helps the procurement department of your organization deliver on its promises.
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