Learn how automation of the procure-to-pay process and other snipping technology is giving businesses a competitive advantage.
The success of a business is significantly influenced by procurement. Nearly every area of a business is addressed by managing the flow of materials and services, planning expenses, and negotiating the best prices, from manufacturing to customer satisfaction. Organizations now have a way to track this complex activity from the moment of need to the last payment thanks to the procure-to-pay procedure. Its goal is to seamlessly integrate the functions of purchasing, supply chain management, and accounts payable.
The procure-to-pay cycle is susceptible to backlogs and inefficiencies because it is so complicated and affects so many areas of the business. Businesses want procure-to-pay software that can locate bottlenecks, improve workflows, and meet all procurement requirements. In an era with unstable supply chains, this includes improving the procure-to-pay process with real-time information and flexible decision-making.
In this article, we’ll look more closely at the procure-to-pay process and how cloud-based procure-to-pay solutions improve productivity and the bottom line.
What is the procure-to-pay process flow?
The cycle of acquiring and accounting for the goods or services required to run a business in a timely way and at an affordable price is known as procure-to-pay, also known as purchase-to-pay or P2P.
For businesses to improve their purchasing decisions and realize cost benefits, such as early payment discounts, a P2P solution aims to document the procurement process and provide a framework for accountability.
Stages of the procure-to-pay process
Depending on a wide range of factors, including cost, availability, sustainability, and many more, various companies adopt various ways of the procurement process. Based on its business plan, each organization will create its procurement strategy. Here is an example of a typical enterprise purchasing procedure:
Source-to-pay process
The source-to-pay process, which is usually confused with procure-to-pay, focuses on the first steps of identifying a need and choosing the appropriate items or services to meet that need. These steps include the following:
- Identifying a need: Stakeholders look at business needs and decide what products or services are needed, whether an outside vendor must provide them, and which departments will benefit.
- Selecting goods and services: The manager or department creates a formal purchase requisition that specifies the goods, services, and suppliers they want to work with. This begins the vetting process used by the finance team to place the correct order, choose the best vendor, and look into potential cost savings.
Procurement process
- Purchase order: The finance team issues a purchase order approval and places an order with the vendor for the products and services after analyzing the purchase request’s details and finalizing a contract with the vendor.
- Receiving: Receiving goods and services includes checking to make sure the correct order was given, as well as putting them into the workflow of the department making the request. Examples include onboarding software or delivering components to the appropriate manufacturing department. The accounts payable team receives a goods receipt, which attests that the order was received exactly as it had been.
- Invoice processing and payment: Payment is given to the vendor when the invoice is compared to the order that was placed. Using invoice matching, such as two-way matching, which compares the vendor’s invoice to the specifics of the purchase order, or three-way matching, which compares the specifics of the purchase order, the invoice, and the delivery receipt to ensure they are all in a contract before the vendor payment is made, can be used to accomplish this.
Benefits of an efficient P2P process
There are lots of benefits to a procurement solution that connects the accounting system, the organization workflows, and the procurement department:
- Better supplier relationship: Good relationships are the foundation on which business is built. Being a good customer increases the likelihood that a supplier will go above and beyond in times of need and helps to ensure that products are high quality and delivered on schedule. Keeping a supplier happy requires a system that not only ensures that invoices are paid on time but also provides visibility into the status of the invoice.
- Visibility: Organizations have a complete understanding of their cash flow and financial commitments due to internal control and visibility across the whole P2P cycle. They are simpler to track when all transactions are being captured. Additionally, the data may provide areas for optimization.
- Fraud prevention: While having strong business connections is helpful, it can also provide opportunities for fraud and favoritism. Strict invoice matching and many points of review in a P2P system guard against fraud, such as granting a contract to an unqualified vendor who is personally connected to a customer or making purchases at a lower price than was originally agreed.
- Efficiency: When a system is extremely complex or segregated between a few departments, human error happens. The supply chain accounts payable, and procurement processes can all be centralized to assist businesses to find methods to simplify their operations and pay their bills more quickly.
- Cost saving: The P2P approach helps businesses in finding preferred suppliers, develop good relationships with them, and ultimately secure the best costs. P2P automation and software solutions improve spending management while saving time. Better forecasting is made possible as a result, helping to avoid making an urgent purchase to meet a need as output demand rises.
- Speed: Automation and e-procurement tools help companies to react more quickly to supply chain issues. The procurement process can be improved to save time, free up resources, and accelerate the approval process for a new supplier.
- Predictive modeling: Additional chances for process optimization can be found using data analytics, process mining, and other digital tools. Emerging platforms simulate changes in advance to make sure they have no unexpected consequences.
Addressing the challenges of the P2P process
The procurement process has five key challenges, according to IBM:
- Maverick buying: Spot buying, poor contract management, and unauthorized purchases increase the cost of products and services. Prices are higher during periods of great demand or when purchases are made in lower amounts.
- Deviations: Deviations, such as unexpected changes in the capital markets, technical advances, and spikes or drops in customer demand, are typical parts of corporate processes. Examining data on these deviations can show where the P2P cycle may need to modify, even though deviations are a problem that can increase costs.
- Rework: In the P2P process, manual and repetitive processes are prone to mistakes and eventually slow down a workflow. Reworks take a lot of time, taking the procurement team’s attention away from more important tasks.
- Enabling automation: With outdated or semi-manual P2P systems that do not support automation, organizations may be missing out on a chance for efficiency and cost savings.
- Cash discount losses: Early payment plans provide cash discounts that have been negotiated with suppliers who also help the organization’s supply chain. Organizations miss out on significant cash discounts and run the risk of losing the supplier’s trust if payments are not managed regularly and deadlines are not met.
The role P2P software plays in solving challenges
There are still some businesses today that manage to purchase accounts payable through manual or semi-manual processes, despite the trend toward cloud solutions. Others make use of purchasing software that is integrated with an accounts payable or enterprise resource planning (ERP) system. This may work, however, an ERP system may lack deeper key performance indicator insights (KPIs).
In addition to enhancing compliance and control, a cloud-based P2P software solution with analytics and process mining capabilities can offer deeper insights into global spending and process inefficiencies. A few of the ways it can enhance the process are as follows:
- Automation: Send purchase orders, verify payments, and start costs automatically to get an invoice paid more quickly.
- Track KPIs: KPIs, like lead time, average invoice approval time, and the average cost to process an invoice, offer data about how to improve operations, and hold teams responsible.
- Deeper insights: A P2P system can assist businesses in making informed decisions at a low cost, such as working out which supplier discounts offer genuine value or identifying common approval process bottlenecks.
- Root cause analysis: Within P2P networks, process mining can go further into the root factors of issues to identify where inefficiencies are present.
- Process optimization: It takes time and comes with some uncertainty to modify processes. Changes may be opposed by organizations because they could result in unanticipated issues elsewhere. To find the optimum course of action and protect against unexpected consequences of process changes, an advanced software system can simulate processes.
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