April 03, 2023 | Procurement Software Blogs
Procure-to-pay (P2P) process is a procurement model that involves requisitioning, procuring, receiving and paying for goods and services. In other words, it includes all activities that businesses engage in when they purchase goods or services from external suppliers.
As the name suggests, it begins with the procurement of goods and services and concludes with making a payment for them. While this may seem to be a simple process, there are hidden complexities involved. For example, when a payment to a supplier is delayed, who is responsible for it? Who takes ownership of the entire P2P process?
The process, which involves procurement and accounts payable teams, has long relied on manual, time-consuming tasks. Not only is this process riddled with inefficiencies and errors, but it also keeps valuable resources engaged in paperwork and non-value adding activities.
Additionally, procurement and accounts payable teams often find themselves in conflict, particularly in regard to invoice processing and unpaid invoices.
Here are some of the key challenges of P2P:
1. Absence of consolidated data: Different business functions in large organizations often work with different processes and tools and maintain their own data. When procurement and accounts payable work in silos, processes are fragmented and there isn’t clarity about which data is accurate. In other words, there isn’t an enterprise-wide single source of truth for all teams. This creates confusion and leads to process inefficiencies and errors.
2. Lack of spend visibility: There is no clear visibility about who is spending on what and with whom. Lack of visibility enhances the possibility of overspending. And it makes it difficult to trace errors and discrepancies. At times, different functions may be buying from the same supplier without being aware of it.
3. Slow approvals: Manual processes often delay invoice processing and approval, resulting in late payments and slowing down the P2P cycle. They also rule out the possibility of cashing in on early payment discounts. Additionally, paper invoices are difficult to store and retrieve. Suppliers are frustrated when they have to repeatedly chase and enquire about their payment. Repeated instances of delayed payments can hurt relationships with suppliers and discourage them from making timely deliveries of goods and services.
4. Non-PO invoices: At times, suppliers may send invoices that aren’t linked to a purchase order. As these invoices cannot be matched to a PO, they can be difficult to process for accounts payable and cause a holdup.
5. Supplier management: When procurement works with manual processes, it becomes difficult to effectively manage suppliers and maintain strong working relationships. Monitoring supplier performance and managing contracts can be overwhelming. Onboarding new suppliers can also pose challenges and take up a lot of time.
6. Compliance: Not every purchase is made via a purchase order. In fact, employees often purchase products outside a company’s procurement guidelines. Such purchases expose gaps in internal controls that can lead to misuse of funds and compliance risks.
7. Inter-functional conflicts: The P2P process requires procurement and accounts payable teams to work closely with each other. However, when one team does not have visibility into what the other is doing, there is a high probability of internal conflicts. These can again impact relationships with suppliers.
Today, many businesses are leveraging technology to automate the P2P process, or at least some part of it such as invoicing. A P2P solution is designed to streamline the end-to-end process that starts with product requisitioning and concludes with payments to suppliers.
The use of technology automates repetitive tasks, boosts process efficiency and enhances spend visibility and control. It also increases data accuracy and eliminates the possibility of human error or rework. Additionally, it analyzes data and provides actionable insights to improve procurement processes.
Organizations today understand the vital role procurement plays in maintaining business continuity. Unforeseen events in recent times have highlighted the need to look at things holistically and bring strategic sourcing into the equation. In other words, it is important to assess what happens before procurement and revisit sourcing and supplier selection to identify areas of improvement in the end-to-end process.
Procure to pay is therefore giving way to a much larger source-to-pay process that looks at the end-to-end function from strategic sourcing and supplier selection to contract management, supplier relationship management as well as payment processing. By integrating sourcing, procurement and accounts payable, source-to-pay enhances transparency in the entire process and enables different teams to work seamlessly.