Companies as we speak buy numerous varieties of products and companies for various functions.
The procure-to-pay course of encompasses all processes concerned in the whole lifecycle of buying items and companies.
From preliminary requisition to closing fee, this course of includes a number of stakeholders with advanced workflows and necessitates important monetary checks and management over itself.
Having a well-defined procure-to-pay course of for all procurement actions is essential for attaining operational effectivity and decreasing prices. All this goes in direction of transferring the needle in direction of extra revenue for the enterprise.
With that being mentioned, allow us to outline the procure-to-pay course of, perceive the steps concerned in finishing it, and find out how it may be optimized as we speak with the assistance of automation.
What’s Procure-to-Pay?
Procure-to-Pay (P2P) is the whole course of carried out by a enterprise when buying items or companies. It includes of all steps proper from ordering the products/companies to paying the provider.
An instance of P2P could be a enterprise needing to buy workplace chairs. First, a purchase order requisition is created. It’s then authorised based mostly on sure standards. The corporate would then select a provider and place an order. When the chairs are delivered, the supply is checked towards the order. The bill from the provider is then acquired, checked towards the order, authorised, and paid. This whole course of, from figuring out the necessity to making the fee, is the P2P course of.
Steps of the Procure-to-Pay course of
The procure-to-pay course of is a subset of the bigger source-to-pay course of.
The preliminary Supply-to-Pay (S2P) steps should not concerned within the procure-to-pay course of. These are particularly –
- figuring out a brand new want,
- discovering and evaluating suppliers,
- sending out requests for proposals,
- selecting the right provider,
- and finalizing provider contracts.
The above steps should not a part of the procure-to-pay course of. As a substitute, the P2P course of begins as soon as the above steps are full.
Allow us to now undergo the steps of the P2P course of itself.
Definitely! Let’s proceed with the steps of the procure-to-pay (P2P) course of, utilizing a sensible instance for example every step.
Step 1: Determine Wants
Think about this mid-sized manufacturing firm known as XYZ Corp. They’re operating low on uncooked supplies for his or her manufacturing. So, the manufacturing workforce takes a take a look at their upcoming orders and realizes they want 500 items of high-quality metal sheets.
To verify all the things runs easily, the manufacturing supervisor and procurement workforce work collectively to nail down the precise specs and portions wanted.
Step 2: Create Requisitions
As soon as they’ve discovered the specifics for the metal sheets, the procurement workforce will get to work creating a proper buy requisition. This requisition consists of all of the essential particulars like the kind of metal, what number of they want, once they want them by, and any particular dealing with directions.
They fill out the requisition kind and submit it electronically by the corporate’s procurement system, ensuring they have all the required approvals in place.
Step 3: Buy Requisition Approval
Now the acquisition requisition will get despatched to the division head for approval. The division head takes a superb take a look at the requisition, checks the price range, and makes positive they actually do want these supplies. If all the things checks out, they offer it the inexperienced mild and move it on to the procurement workforce for the subsequent steps. If there are any points or modifications wanted, they’re going to ship it again for revisions.
Step 4: Create a Buy Order
The procurement workforce places collectively an in depth PO based mostly on the authorised requisition. It consists of issues just like the title of the seller, how they’re going to ship the products, and the fee phrases.
Step 5: Buy Order Approval
The procurement supervisor takes a take a look at the newly created PO to double-check all the things. They need to be certain that it is all correct and follows the corporate’s insurance policies. As soon as they’re happy, they offer it the thumbs up and ship it off to the chosen vendor. The seller critiques the PO, agrees to the phrases, and confirms the order. This makes it a legally binding contract.
Step 6: Items Receipt
When the metal sheets arrive at XYZ Corp’s warehouse, the receiving workforce rigorously inspects the supply to ensure it matches the specs within the PO. They verify for issues like high quality, amount, and any damages. As soon as they’ve achieved a radical inspection and all the things meets the required requirements, they file the products receipt within the system.
Step 7: Provider Efficiency
After a profitable supply, XYZ Corp takes a second to guage how the provider carried out. They contemplate issues like whether or not the supplies had been delivered on time, the standard of the supplies, and whether or not the provider caught to the contract phrases. This efficiency knowledge will get logged into the corporate’s provider administration system. It helps them make smarter buying selections sooner or later and preserve excessive requirements for his or her suppliers.
Step 8: Bill Approval
The provider sends over an bill for the metal sheets that had been delivered. The finance workforce does a three-way match, evaluating the bill to the PO and the products receipt. If all the things traces up and there are not any discrepancies, they approve the bill for fee. But when they discover any mismatches or points, they’re going to ship it again to the provider to get issues sorted out.
Step 9: Vendor Cost
Lastly, the finance workforce takes care of processing the authorised bill in keeping with the agreed fee phrases. XYZ Corp has a internet 30 fee time period with the provider. What does that imply? Properly, it signifies that the fee will probably be made 30 days after the bill has been given the thumbs up. The finance workforce is up to the mark, ensuring to schedule the fee and settle the provider’s dues precisely and on time.
As we’ve got seen above, the P2P course of includes 4 key stakeholders: the division that initiates the request, suppliers, procurement, and accounts payable (or an exterior company in case of outsourcing).
Challenges within the P2P Course of
Implementing the procure-to-pay (P2P) course of just isn’t with out its challenges.
As we’ve got seen above, P2P is a relay race – each the execution of every job and the pace of transition to every subsequent job determines the effectivity of a enterprise’ P2P course of.
Let’s delve into some frequent challenges confronted within the P2P course of:
- Guide Processes and Errors: Many companies nonetheless depend on guide processes for numerous phases of the P2P cycle, equivalent to bill processing, approval workflows, and knowledge entry. This reliance on guide duties can result in human errors, delays, and inconsistencies.
- Lack of Visibility and Management: With out a centralized system to handle procurement actions, companies typically battle with restricted visibility into the P2P course of. This lack of transparency makes it troublesome to trace spending and leads to unauthorized purchases slipping by the cracks.
- Advanced Approval Workflows: Approval workflows within the P2P course of will be cumbersome and time-consuming, particularly in bigger organizations. A number of ranges of approval, unclear approval hierarchies, and delayed responses can decelerate the procurement course of, affecting general productiveness and operational effectivity.
- Compliance and Regulatory Points: Adhering to procurement insurance policies, trade rules, and compliance requirements is important for avoiding authorized and monetary dangers. Nevertheless, managing compliance manually will be difficult, resulting in potential breaches, penalties, and reputational harm.
- Information Administration and Integration: The P2P course of generates huge quantities of knowledge, from buy requisitions to provider invoices. Effectively managing and integrating this knowledge throughout totally different techniques, equivalent to ERP and accounting software program, is essential for correct reporting and knowledgeable decision-making. Poor knowledge administration can lead to knowledge silos, duplication, and discrepancies.
An outdated P2P course of can sluggish a enterprise down tremendously.
The subsequent part will discover how these challenges will be mitigated and the P2P course of optimized by automation.
How one can Optimize the Procure-to-Pay Course of?
Environment friendly procurement efficiency, value management, and powerful provider relationships rely closely on a streamlined procure-to-pay (P2P) cycle.
We all know that guide processes nonetheless hamper groups throughout crucial phases equivalent to bill processing, fee, items receipt verification, and utilization of supplier portals.
Even in as we speak’s technological panorama, it is shocking that 31% of organizations depend on guide techniques to handle these phases.
The excellent news is that the P2P processes have advanced considerably over the previous few years. AI, ML, and automatic workflows can now be built-in to extend effectivity. These developments cut back processing instances, mitigate errors, and let your groups focus on essential duties moderately than knowledge entry, operational duties and guide reconciliation.
Lately, numerous P2P automation software program can be found which automate and streamline majority of the procure to pay course of.
if you’re occupied with getting a procure-to-pay resolution in your group, listed here are a number of prime ones so that you can contemplate:
- Nanonets
- SAP Ariba
- Coupa BSM Platform
- Jaggaer One
- Basware Buy to Pay resolution
However let’s dig deeper into how a P2P automation software program like Nanonets optimizes P2P.
Right here is how a typical P2P course of automated utilizing Nanonets seems like –
The workflow begins with the necessity of a brand new buy.
1. Buy Request:
An worker logs into the Nanonets portal to submit a purchase order request digitally.
2. Buy Order Creation:
Nanonets mechanically creates a Buy Order (PO) based mostly on the small print supplied within the request.
3. Buy Order Approval:
The PO undergoes an automatic approval course of inside Nanonets.
You’ll be able to set predefined guidelines and circumstances to make sure consistency throughout procurement actions, minimizing errors and stopping unauthorized expenditures.
![](https://assets-global.website-files.com/602f5459a0b1d84458c84d64/653bb952a6c34d5e72aafea1_647f3fcb83e2061e4ea5b791_smart_financial_controls.png)
Approval notifications are despatched and managed simply by standard communication instruments like Slack and Microsoft Groups, that includes direct Name To Actions (CTAs) for fast decision-making.
![](https://assets-global.website-files.com/602f5459a0b1d84458c84d64/6363953dffbd5364b29e08b0_Img1.png)
4. Buy Order Dispatch:
As soon as authorised, the system mechanically sends the PO to the provider by way of built-in electronic mail or provider portals equivalent to SAP Ariba or Coupa.
![Supply Chain & Operations Automation with AI](https://assets-global.website-files.com/602f5459a0b1d84458c84d64/664648c60e437bfdecff7930_6644d497a8acf9b6a3551ce6_Frame%25201000001779%2520(16).png)
5. Items or Providers Supply:
The provider processes the order and updates the supply standing within the provider portal, which syncs with Nanonets.
6. Bill Information Seize and Matching:
Nanonets mechanically extracts knowledge from invoices, buy orders, and supply notes, decreasing guide entry and errors.
![](https://nanonets.com/blog/content/images/2023/03/image-45.png)
Automated three-way matching ensures accuracy by verifying the alignment of invoices, buy orders, and supply notes earlier than fee processing.
![](https://nanonets.com/blog/content/images/2024/01/image-42.png)
7. Cost Processing:
Nanonets streamlines the fee course of, making certain all transactions are accomplished effectively and on time.
This helps preserve good relationships with suppliers and keep away from late fee penalties.
![](https://nanonets.com/blog/content/images/2024/01/image-44.png)
8. Integration with ERP/Accounting Software program:
Nanonets integrates seamlessly with numerous ERP and accounting techniques, offering a unified expertise for procurement and monetary knowledge administration.
![](https://assets-global.website-files.com/602f5459a0b1d84458c84d64/653bb82a88756f8574541d8e_647f3f255b177315d915566d_connect_accounting_software.webp)
It’s clear that procure-to-pay automation streamlines the acquisition course of and enhances the efficiency of what you are promoting operate.
Listed below are some generally seen advantages of automating the procure-to-pay course of:
- Value Discount: Automate repetitive duties to scale back labor prices and decrease errors.
- Effectivity Features: Streamline approval and bill processing workflows to hurry up the procurement course of.
- Compliance Enchancment: Guarantee adherence to procurement insurance policies and requirements by automated checks and balances.
- Provider Relationship Administration: Improve communication and coordination with suppliers by automated techniques.
Ultimate ideas
Operating a profitable enterprise is like managing pit stops for a System 1 workforce. It’s important to always optimize your processes to be able to eke out each final little bit of efficiency.
Your P2P cycle is actually one space that you just shouldn’t overlook. Seamless procurement is the best way ahead. Those that embrace P2P applied sciences could have a bonus in expenditure incurred, person expertise, and avoiding enterprise disruptions.