Procure-to-Pay (P2P)

What is procure-to-pay?

Procure-to-pay (P2P), also known as purchase-to-pay, is the process organizations use to purchase raw materials, goods and services. The process encompasses identifying a need, requisitioning, sourcing suppliers, negotiating payment terms, sending purchase orders, receiving goods, processing invoices and sending payments.

PARTS

1. Why is P2P important?
2. The P2P process
3. Challenges to the P2P process
4. Opportunities in the P2P process
5. Related Reading

PART 1

Why is P2P important?

The procure-to-pay process plays a significant role in cash flow management and ultimately impacts an organization’s liquidity. Optimizing P2P helps maintain cost control by enforcing budgets and negotiating better supplier terms, ensures adherence to organization policies and regulatory requirements, and provides insights into procurement data that helps organizations make more informed decisions.

PART 2

The P2P process

The procure-to-pay timeline contains the following steps:

1. A department identifies the need for raw materials, goods or services.
2. An employee from that department submits a formal purchase requisition for approval, which the appropriate personnel reviews to ensure alignment with the organization’s budget and procurement policies.
3. If the organization does not already have a supplier for the requested raw materials, goods or services, the procurement department evaluates potential suppliers and chooses the one that best meets the organization’s needs.
4. Procurement negotiates payment terms with the supplier, assessing the organization’s standing in the market and the suppliers’ needs and preferences to reach a solution that benefits both parties.
5. Procurement sends a purchase order to the supplier.
6. The receiving department verifies that the delivered items match the specifications in the purchase order.
7. The supplier sends an invoice, which is entered into the accounting system.
8. Accounts payable (AP) checks that the invoice details match those in the purchase order and the receiving report, and identifies, investigates and resolves any discrepancies before approving the invoice.
9. AP sends payment to the supplier according to the negotiated terms and records the transaction in the accounting system.
10. Procurement and AP work together to analyze transactional data and review the P2P process to identify patterns and opportunities for improvement.

PARTS

1. Why is P2P important?
2. The P2P process
3. Challenges to the P2P process
4. Opportunities in the P2P process
5. Related Reading

PART 3

Challenges to the P2P process

Procure-to-pay is a critical business process because it involves large cash flows. It's also one of the most complex because it spans multiple systems and functions. Numerous challenges can impact the P2P process in areas such as efficiency, cost control and compliance.

• Manual processes: Forty-six percent of respondents to the 2023 PPN Survey reported that they were processing at least half of their invoices manually. Time-consuming manual tasks come with the risk of human error, which can result in noncompliance and unnecessary costs.
• Siloed systems: When various departments have separate processes or systems, gaining access to information and consolidating data becomes more difficult, hindering the ability to track spending and identify cost-saving opportunities.
• Poor supplier management: Unclear or inconsistent communication with suppliers can lead to disputes and late deliveries.
• Outdated technology: Old systems may struggle to handle increased transactions as business grows, adding more inefficiencies to the process.

PARTS

1. Why is P2P important?
2. The P2P process
3. Challenges to the P2P process
4. Opportunities in the P2P process
5. Related Reading

PART 4

Opportunities in the P2P process

Given that many procure-to-pay processes still involve manual tasks, the next big area of opportunity is unlocking efficiency and accuracy through technology. In fact, 47% of respondents to the 2023 PPN Survey said implementing new technology is a main issue facing P2P.

Automation holds the potential to minimize errors and speed up processing times. According to research by PYMNTS and Corcentric, CFOs found that AP automation streamlined the overall P2P cycle.

The following strategies can improve the P2P process:

• Implement an automation system to streamline processes. For example, automating three-way matching speeds up the process of ensuring invoices, purchase orders and receiving reports align.
• Use electronic invoicing (e-invoicing) to automatically validate compliance with policies before posting for payment.
• Establish a supplier portal so suppliers can submit invoices, track payments and update their records more efficiently.
• Set up standardized approval workflows to implement spend controls and prevent unauthorized purchases.
• Centralize invoice processing through a single system to avoid duplicates and mitigate fraud.
• Implement AI-powered tools to help flag discrepancies in invoices and detect variances that could be signs of fraud.
• Integrate P2P with ERP systems to ensure a seamless flow of data across finance, procurement and AP.
• Leverage real-time reporting to identify patterns in spending and bottlenecks for improved decision-making.

PARTS

1. Why is P2P important?
2. The P2P process
3. Challenges to the P2P process
4. Opportunities in the P2P process
5. Related Reading

PART 5

Related Reading

• Automating Accounts Payable Processing
• What Is Financial Operations?
• Making the Case for AP Automation at AFP 2024