Procure-to-pay is a simple yet complex process. Leaders of all organizations are planning to automate this function to not only improve but also simplify processes. In previous articles, we discussed the benefits of automation in the accounts payable process and the effect of finance automation on an organization's overall functioning. Today, we will be looking at procure-to-pay automation, also known as P2P automation.
Purchase to pay or procure to pay is the process that covers the entire life-cycle of a product or a service, right from placing an order to the invoice payment. You can view it as the amalgamation of the procurement department and the accounts payable team. Now that you know what does procure-to-pay means, let us see what p2p automation actually means. P2P automation is a system that streamlines and digitizes the procure-to-pay workflow such that you can check the status of the transaction at all given points. The purchase-to-pay automation seeks to align the procurement and the accounts payable department in order to increase the efficiency of both departments.
Steps in the P2P Processing
For a better understanding of what is the P2P process, let us examine the procure-to-pay process steps. You can break the entire procure-to-pay process into five distinct steps.
1 . Identifying Needs
For all departments to work smoothly, they need services and raw materials. These departments identify their needs and inform the procurement department about them along with certain specifications such as the quantity, quality, and timeline. This is known as their purchase request.
2 . Purchase Requisition
Once you iron out the nitty-gritty of the requirements, it needs to receive internal approval by the procurement team after considering several factors like constraints, availability of finance, presence of inaccuracies, etc. It is done by entering all the details in the purchase-to-pay software and generating a formal document known as the requisition form.
3 . Issuing the Purchase Order
Once the procurement department has approved the request, it will search for appropriate vendors to procure these goods or services. The vendor can be selected from a predetermined list or can be one of the existing relationships. On locking the vendor, the department will create a purchase order (PO) that is sent to the supplier/vendor. A PO is a legal document that contains all the requirements along with its quantity.
4 . Invoice Processing
When the supplier or the vendors deliver the requested goods or services, they send an invoice to the company. An invoice contains several important details like date, vendor code, type of products, price, taxes (if any), the total amount due, and payment method. It can be sent by the supplier either via mail or an electronic medium. On receiving the invoice, the accounts payable team cross-checks the details of the invoice with the details of the supporting documents such as delivery receipts, purchase orders, etc., for consistency, accuracy, and errors. Once they have checked the information, they also need to be recorded into the system.
5 . Processing payment
Once all the required checks and data entry is done, the organization will schedule the vendor’s payment depending on the due date mentioned on the invoice and mark it as processed using a stamp or any other mark to avoid double entries. Most companies choose to pay near to the due date to improve their cash flow management.
This is the final stage in the life cycle of the goods or services. Once the payment is processed, the procure-to-pay cycle comes to an end.
Why Should You Integrate Automation in the P2P Process?
1 . Efficient Purchase Requisition
Given that the procure-to-pay process is a unification of two different departments, procurement and accounts payable, there is a high possibility that they work in separate corners or even floors in your organization. Running back and forth for the requirements, specifications, requisition, and approval is not only tiring but a waste of time. In such situations, procure-to-pay automation will rescue you. The purchase-to-pay software can immediately notify the procurement team about the requisition put forth by another department, and the team, post review, simply has to approve or deny it.
2 . Optimized Vendor/Supplier Selection
Organizations have several vendors at their expense who will provide the same goods or services. The catch here is varying prices and quality. Automation in p2p process flow can bring all of this information under one single umbrella for you to choose from. Moreover, the automated software or the ERP will enable you to compare data for the vendors, such as their pricing, delivery, and performance in real-time, for easier and informed vendor processing. Once the vendor is confirmed, the same system will immediately notify the required stakeholders for a faster decision. The best part about automating the process is that nobody has to answer anybody since everybody can literally track and see what is happening.
3 . Streamlined PO, Invoice Processing, and Payments
The purchase order and the requisition form carry the details of the requirements along with the vendor info. You can store this data in a single place by syncing your AP software with the ERP system. This means that you can pull out all the data for particular goods or services in one go. Furthermore, it makes invoice processing easier. You can receive invoices in all formats (mail, electronically, images), and softwares like Optical Character Recognition (OCR) makes it possible for you to extract data from printed documents as well as pictures. Moreover, these softwares can also compare and detect inaccuracies, protecting you from underpaying, overpaying, or fraud. They can also help you schedule the payments easily to ensure that the organization clears all its dues within the stipulated time.
4 . Faster Processing and More Minutes
Since the procure-to-pay process flowchart is lengthy with volumes of data that need to be processed, it is no wonder that it will take more time to complete it manually. The procure-to-pay software can perform these functions within minutes or even milliseconds. Moreover, the final data is more reliable since there are absolutely zero chances of an error.
How to Integrate Automation in P2P?
Procure-to-pay best practices for integrating automation are by breaking the P2P processing into 3 broad parts - Procurement, Invoice processing, and Payments. A single software cannot efficiently help you perform all these tasks, and hence it is wise to choose different software to automate manual tasks and then sync all of them together. Before you select software, consider the challenges you face currently or you might encounter. Consult your employees for they know better about the issues. And then ask if the software can overcome these challenges. You will also have to ensure that the software can handle volumes of data. Additionally, you will have to train your employees so that they can adapt to the new technology. While all of this seems like a lot of work to do, once you have everything in place, you can easily grow and enjoy the benefits.
FAQ’s (Frequently Asked Questions)
- What is P2P and define its steps?
Procure to pay refers to the integration of procurement and accounts payable. Requisitioning, purchasing, receiving, paying for goods and services are all part of it.
- What is P2P cycle in accounts payable?
The P2P cycle with respect to accounts payable involves receiving the invoice, cross-checking the invoice information with other related documents, and then processing the payment.
- What is P2P process in internal audit?
Despite ERP implementation, the P2P process in internal audit is one aspect of the finance department that is susceptible to fraud, financial leak, and shortfalls.
The P2P life cycle involves the following process with respect to goods/ services - Procurement, purchase, and payment. It unifies the functions of 2 departments - procurement and accounts payable.