The procure-to-pay process is all about purchases — from making order requests to purchasing material and everything in between.
This process might seem standard, but less than 50% of businesses follow the procure-to-pay process. Failing to do so could open the door to issues like human error, double payments, and even fraud. Instead, businesses could better spend their resources by employing the P2P process to decrease employee hours while increasing profit.
If you’re one of the businesses that don’t use the P2P cycle or are looking to make a switch, let’s dive into how this process might help streamline your business for smarter resource utility.
What is the procure-to-pay (P2P) process?
The procure-to-pay cycle (also called P2P, the P2P process, or purchase-to-pay) refers to the process where businesses eliminate manual input and integrate accounts payable with purchasing software to better manage each step of the procurement process.
Procurement is the blanket term for any activity involved in obtaining goods or services for a business. So if a business needs a new office supplies vendor, the procurement process helps choose the best vendor based
The procure-to-pay process at any time is fairly straightforward, but a business will typically need at least four groups to make this transition:
- The department in need
- The procurement department
- The suppliers and vendors
- The accounts payable department
These four departments oversee the P2P process to ensure that the business runs smoothly and the profit margin stays high. Thanks to automation — which is at the core of the P2P cycle — oversight remains minimal. This frees employees to work on more critical tasks in your supply chain management.
What is the difference between S2P and P2P?
Source-to-pay (S2P) is a strategic, overarching process that occurs earlier than the procurement stages do. It includes several phases, from source-to-contract, procure-to-pay (P2P), and vendor management.
While P2P focuses on the final payment stages, S2P also includes earlier parts of the process that focus on sourcing the best-fit supplier for the company’s needs, like price, quality, availability, and location.
For example, a private preschool that outsources daily meals is searching for a new caterer. They have specific delivery, quantity, and food preferences, and after analyzing the budget, they also have a very tight price range. The preschool will use the S2P process to find a caterer that fits their needs best.
The seven steps of the procure-to-pay process
Understanding the procure-to-pay cycle helps you follow your business’s finances through various steps while setting and meeting profit targets.
You start by sourcing raw materials from the supply chain and end with payment for the goods and services—a process that once called for frequent and in-depth employee oversight but one that automation completely streamlines and simplifies.
Of course, tracking, ordering, and receiving exactly what your business needs still calls for strategy, so let’s break down each vital step of the P2P process.
Step #1: Identify your needs
Departments must keep track of their needs and inform the procurement department when they need office supplies or services. In most companies, the department in demand creates a purchase request to specify details such as:
- Item or service needed
- Due date
You can identify department needs by having an open-floor or town hall-style meeting with your employees and asking for feedback through surveys and suggestions. But sometimes, your needs are obvious: For example, if you run a daycare, you’ll need to work with a vendor who can supply kid-friendly meals.
Step #2: Create a purchase requisition form
After you’ve identified your needs, use the data from the formal purchase request to generate a detailed requisition form.
Instead of submitting a paper form or emailing the information, it stays within the P2P program to keep the records in a central location.
Step #3: Source the materials
After you submit the requisition form to your purchasing department, they’ll source the materials.
But within this step are substeps vital to a business’s core operations: timeliness and cost.
The purchasing department will vet vendors to find one that can deliver quality goods within the necessary timeframe and who can perform the service while meeting the budget.
Step #4: Create the purchase order
After the procurement department sources the materials or providers, they create a purchase order (PO) for that specific vendor or supplier. This happens within the procure-to-pay software as a follow-up to the initial purchase requisition. The business keeps a record and sends a copy to the vendor as well.
Step #5: Receive the goods
When the supplier delivers, the procurement department checks the goods and the goods receipt. They verify the shipment’s contents against the initial PO through the P2P program.
If everything is correct, they approve the goods. Otherwise, they can reject the shipment and contact the vendor to clarify the problem. Learn more about how to read net terms and policies from your suppliers.
Step #6: Approve the invoice
After verifying that the goods match the purchase order, the vendor sends an invoice to the accounts payable team.
During invoice processing, the AP team checks it against the purchase order and the confirmation of the goods to ensure everything matches. AP sends any invoice issue back to the supplier for correction.
Step #7: Pay the vendor or provider
The last step in the procure-to-pay process is vendor payment. The finance team can find payment method details in the contract, so the vendor receives the amount due while the business keeps records within the P2P software.
Best practices to optimize your procurement cycle
Those seven steps may seem like a lot to go through with each request, but with some practice (and automation), it quickly becomes a streamlined process that improves recordkeeping.
And since the entire team can check the procurement software, they can collaborate easily within the procure-to-pay system.
Of course, just because you’re using software that helps you automate this process doesn’t mean you can just rid your hands of it and let it work on its own. Whether you already utilize the procure-to-pay process or are brand-new to the concept, it’s essential to keep your process streamlined, straightforward, and simple.
Here are a few procure-to-pay best practices to get you on the right track.
Tip #1: Streamline contract management
Since P2P software tracks every step of the order process, you don’t need people manually drafting and sending contracts to different suppliers. Everything goes through the program to improve record keeping and streamline contract management.
Tip #2: Keep the process transparent
P2P software keeps documents in a central location and provides transparency. Any relevant department can check the program to see the purchase order status. This oversight helps teams plan their tasks to meet deadlines.
Tip #3: Improve supplier engagement
Following the procure-to-pay cycle improves supplier engagement by speeding up the verification and payment process. The procurement team knows when the goods arrive and can inspect them promptly.
After approval, the supplier sends an invoice that accounts payable can immediately pay because records show their company has already verified the order.
Tip #4: Optimize inventory
P2P software tracks metrics you might not otherwise check in your business, like:
- Inventory levels
- Working capital status
- Processing time
- Employee hours
- Errors that lead to extra expenses
Additionally, increased visibility on situations like how long takes to get specific supplies from a vendor can make for better overall planning. In this instance, you’d gain insight into when to order inventory and accurately meet your demand without risking over-fulfillment.
Tip #5: Implement procure-to-pay software
Using P2P software means you can track orders in one system. So, instead of having one program for purchase requests and another for invoicing, P2P software keeps everything together.
Software enables the procurement process by gathering all necessary documents in one program. Automated systems and artificial intelligence (AI) reduce the need for manual input.
What does this mean for your business? It’s simple: Fewer errors and more on-time payments.
Increase your procurement efficiency with BILL
Managing vendors in the same accounting software with purchase orders helps all employees see which vendor delivers what supplies within the budget and timeframe.
Access to this data reduces the time spent on repeat orders and guarantees quality supplier performance — guaranteeing a smoother transaction every time.
BILL offers two-way and three-way matching (also known as invoice or purchase order (PO) matching) to help customers gain more control over purchase-to-pay workflows. Learn more about how BILL’s accounts payable system can cut time spent on AP by 50%, give you more insight into spend, easily ensure POs, invoices and item receipts have no discrepancies, and more.