Understanding Procure-to-pay and a Breakdown of the Procure-to-pay Process

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Businesses use the term procure-to-pay (P2P) to describe the entire set of processes between sourcing, negotiating, requesting, and ordering a purchase as the customer through procurement to receiving goods or services, to processing and paying approved vendor invoices by performing accounts payable and accounting functions. 

What is Procure-to-pay?

Procure-to-pay is a business process cycle spanning from procurement functions for goods and services needed, to receiving procedures, including verification, to accounts payable and accounting functions. Payables duties include vendor invoice matching to purchase orders and receiving reports, getting invoice approvals, paying approved invoices, recording transactions, and generating reports. 

This procure-to-pay definition highlights that P2P includes many procure-to-pay process steps.

How Does Procure-to-pay Work?

Procure-to-pay works by standardizing and streamlining procurement, receiving, and accounts payable workflows and documents throughout the procure-to-payment process. Forms used in the P2P process include purchase requisitions, purchase orders, receiving reports, and vendor invoices. 

Procure-to-pay works best when processes are automated with an E-procurement system combined with AP automation software integrated with ERP or accounting software. These P2P software systems replace paper documents and manual data entry to make procurement, purchasing, payables, payments, and accounting processes much more efficient. 

What is the Procure-to-pay Process?

You can expect your P2P or procure-to-pay process to look like this: 

Supply Management– Supply management refers to your practices and habits around keeping in contact with your suppliers and managing your supplier relationships as a customer.  Supply chain management is vital for keeping your supply chain running smoothly and ensuring that your day-to-day operations run smoothly. Nothing can shut down a company’s ability to operate more quickly than a supply issue.

Vendor Selection– Vendor selection refers to all the comparative research that goes into successfully choosing the right vendors.  The best vendors will be long-term partners, so this is a crucial component of the purchase-to-pay cycle. Manual vendor selection often takes substantial amounts of company time and resources to perform successfully.    

Requisition Requisitioning refers to the process of getting internal approval from department heads or company leaders to order the necessary raw goods or services.  In many companies, this is one of the most convoluted steps in the manual P2P cycle, with signatures getting lost, department heads not being available when needed, and many other manual issues.     

Purchase Order The procurement team then creates a purchase order. The PO is a formal document that spells out the specifics of your order so your vendor can fill it properly and accurately.   

Receiving- The receiving phase of the purchase-to-pay cycle refers to the process of physically receiving the raw goods or services that have been ordered.  

Invoice Reconciliation Invoice reconciliation is the act of comparing the invoice to the purchase order to ensure that everything matches up and your vendor has charged you appropriately.  (This is often one of the most tedious aspects of the invoicing process and one of the major reasons to automate your procure-to-pay process with a pay solution.)  

Accounts Payable This is the last step in the cycle and refers to handling the purchase order for payment, making sure the payment gets sent out on time, and logging the payment into your accounting and payable systems.  (The accounts payable step is also another excellent reason to automate your procure-to-pay cycle.)

How Does E-Procurement Fit in the Procure-to-pay Process?

What is E-Procurement?

E-procurement is the use of a digital network or software platform to procure goods and services through an online supplier portal, the Internet, or your company’s Intranet. E-procurement platforms solve problems inherent in the procure-to-pay (P2P) process. 

Some specialized E-procurement platforms let employees make repetitive purchases of lower-cost items like office supplies from a pre-approved network of suppliers using a P-card. The result is better tracking of purchases for tail spend management and lower purchasing costs. 

Whether or not you’re currently benefiting from a streamlined procurement process, you can benefit massively from an e-procurement software system that leverages artificial intelligence and real-time analytics. 

What Problems in Procure-to-Pay can E-Procurement and AP Automation Solve?

A recent PayStream Advisors report indicated that only 44% of companies had a dedicated procurement department with standardized organizational processes.  Even for this well-organized minority, however, a plethora of procurement issues and complications remain. And remember, every step in the P2P cycle that a company leaves up to manual processes represents an opportunity for human error to slip in. 

Common and tedious problems that you can remedy with e-procurement and AP automation software include:

  • Lack of Centralized Contract Management-Our e-procurement solution features an effective and easy-to-use contract management interface that allows you to track all of your contracts in one convenient digital location. Nothing’s less professional than a lost contract. And if large purchases are being made, then tracking each party’s obligations becomes even more critical.
  • Poor Spend Visibility-Procurement software prioritizes easily trackable spend visibility.  You need to know your weekly and monthly costs down to the dime to optimize your business processes.  Aside from knowing your costs down to the cent, you’ll also be able to analyze spend areas and plan your resource expenditures more effectively.  
  • Disorganized Order Management-If you currently lack a centralized order management method, you’re putting yourself at heightened risk of duplicate payments, late fees, and longer-than-necessary cycle times.  All of this slows down your business and places a massive drag on your bottom line over a long time span.  

In its report Procure-to-pay (P2P) Risk Analytics, Deloitte gives a procure-to-pay process overview, citing the issues and risks associated with procure-to-pay.

The integrated combination of Procurify procurement and Tipalti payables and global mass payments automation software provides a complete procure-to-pay software solution. 

Tipalti software includes a supplier portal for onboarding and communicating with vendors, centralizing documents, providing status, and uploading vendor invoices (e-invoicing) for customer payment. Tipalti also screens with thousands of rules to avoid duplicate and fraudulent payments.  

What is the Difference Between Source-to-pay and Procure-to-pay?

Source-to-pay vs Procure-to-pay is the difference between where the process starts. Source-to-pay starts earlier with strategically identifying vendors or suppliers and negotiating deals. The procure-to-pay cycle (purchase-to-pay) begins with the purchasing process of issuing purchase orders based on purchase requisitions, through vendor invoice payment. 

These terms are often used interchangeably.

What are Best Practices in E-Procurement and AP Automation?

E-procurement and AP automation software are being adopted by more and more forward-thinking businesses every year seeking optimization.  But it’s vital that you keep a few best practices in mind when considering automating your procurement process.  

Best practices in E-Procurement and AP automation include:

Customize your solution to your needs.  Bear in mind that software solutions aren’t one-size-fits-all (especially in complicated fields like AP). ).  If you’re launching your business or are involved in an upstart venture, you should scale your payment solution accordingly.  That’s why Tipalti’s AP automation SaaS allows you to adjust your functionality to suit your actual needs and present situation accurately.

Always run the numbers.  When considering adopting an e-procurement solution for your business, always run the numbers. Budget for the various time and financial demands that accompany the setup process of any new business tool.  When adding an e-procurement solution to your daily operations, you’ll need to budget for factors like implementation and integration, compare costs between competing systems, and also compare costs between your current status-quo and the software you’re considering onboarding.  

Make your incentives compelling.  What do we mean by this tip, precisely?  In a nutshell, it means that you need to believe deeply and genuinely in the incentives that are guiding your company’s actions.  So what are some of the deeper motivations you might have for adopting an e-procurement and AP automation solution? Sure, the savings and increased convenience and efficiency are wonderful.  But think beyond that. Once your company is leaner and more agile, you’ll be able to develop better products more quickly, help more people overall, and become a better version of your current business.  When transitioning to an automated system, it’s important to remember the larger incentives that motivated you to make the change in the first place.

Why Should You Implement E-Procurement?

E-procurement automates and streamlines the procurement and purchasing stages of the procure-to-payment process and provides benefits. Using integrated procure-to-pay software that covers the entire P2P process offers the most advantages. 

Here are a few of the major reasons that have caused many business leaders, CFOs, and company presidents to adopt an e-procurement solution for their companies.  

Improved Accountability– E-procurement promotes accountability among all employees and departments.  Record-keeping is made seamless, all records are centrally accessible, and spend analysis becomes easier than ever.  

Automated purchasing controls-Stop wasting time on complicated approval hierarchies, physical signature trails, and all the other pitfalls of manual P2P processes.  E-procurement software allows you to put purchasing controls in place with automated approvals when you need them. You’ll even be able to create approval thresholds for specific dollar amounts, giving you centralized control over your company’s spending practices. 

Seamless tax assistance-E-procurement software allows you to ensure all your bases are covered when tax season rolls around. You’ll have access to automated purchase reporting, electronic audit trails, and many other incredibly useful features.  

An e-procurement solution helps make sure that your procurement department runs smoothly, effectively, and in a way that cuts department costs, improves cash flow, and contributes to company-wide profitability.  

The odds are high that your purchasing director is currently struggling with a plethora of challenges to overcome.  Whether it’s cutting costs, improving your P2P solution effectiveness, ensuring everything’s aboveboard in tax season, or any of the other countless tasks involved in P2P, an e-procurement solution can help you improve your purchasing department drastically.  Other key benefits that businesses report from using e-procurement solutions have been increased spend visibility and heightened security and control. 

Why not make your life simpler, and give yourself the gift of more time and resources to pursue your company’s broader success?  We’ve created a fully functional, real-time, multi-tiered e-procurement procure-to-pay software platform that’s equipped to face and overcome even the toughest procurement challenges.  

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