Procure-to-Pay Course of & the right way to optimize P2P Cycle

Companies at this time buy numerous sorts of products and providers for various functions.

The procure-to-pay course of encompasses all processes concerned in your entire lifecycle of buying items and providers.

From preliminary requisition to last fee, this course of includes a number of stakeholders with complicated 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 reaching operational effectivity and decreasing prices. All this goes in the direction of transferring the needle in the 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 at this time 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 providers. It contains of all steps proper from ordering the products/providers 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 accepted 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 in opposition to the order. The bill from the provider is then acquired, checked in opposition to the order, accepted, 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 usually are 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,
• choosing the right provider,
• and finalizing provider contracts.

The above steps usually are not a part of the procure-to-pay course of. As an alternative, 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.

Actually! 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 referred to as XYZ Corp. They’re working low on uncooked supplies for his or her manufacturing. So, the manufacturing staff takes a have a look at their upcoming orders and realizes they want 500 items of high-quality metal sheets.

To verify the whole lot runs easily, the manufacturing supervisor and procurement staff 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 staff 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, after they want them by, and any particular dealing with directions.

They fill out the requisition type and submit it electronically by means of the corporate’s procurement system, ensuring they have all the mandatory 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 great have a look at the requisition, checks the funds, and makes certain they actually do want these supplies. If the whole lot checks out, they provide it the inexperienced mild and go it on to the procurement staff for the subsequent steps. If there are any points or adjustments wanted, they will ship it again for revisions.

Step 4: Create a Buy Order

The procurement staff places collectively an in depth PO based mostly on the accepted requisition. It consists of issues just like the title of the seller, how they will ship the products, and the fee phrases.

Step 5: Buy Order Approval

The procurement supervisor takes a have a look at the newly created PO to double-check the whole lot. They wish to be sure that it is all correct and follows the corporate’s insurance policies. As soon as they’re glad, they provide 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 staff fastidiously 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 executed a radical inspection and the whole lot 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 judge 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 information will get logged into the corporate’s provider administration system. It helps them make smarter buying choices 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 staff does a three-way match, evaluating the bill to the PO and the products receipt. If the whole lot traces up and there aren’t any discrepancies, they approve the bill for fee. But when they discover any mismatches or points, they will ship it again to the provider to get issues sorted out.

Step 9: Vendor Cost

Lastly, the finance staff takes care of processing the accepted bill in response to the agreed fee phrases. XYZ Corp has a web 30 fee time period with the provider. What does that imply? Properly, it implies that the fee will likely be made 30 days after the bill has been given the thumbs up. The finance staff is up to the mark, ensuring to schedule the fee and settle the provider’s dues precisely and on time.

As we’ve 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 isn’t with out its challenges.

As we’ve 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 widespread challenges confronted within the P2P course of:

1. Handbook Processes and Errors: Many companies nonetheless depend on guide processes for numerous phases of the P2P cycle, resembling bill processing, approval workflows, and information entry. This reliance on guide duties can result in human errors, delays, and inconsistencies.
2. Lack of Visibility and Management: With no centralized system to handle procurement actions, companies typically wrestle 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 means of the cracks.
3. Advanced Approval Workflows: Approval workflows within the P2P course of might 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.
4. Compliance and Regulatory Points: Adhering to procurement insurance policies, business rules, and compliance requirements is important for avoiding authorized and monetary dangers. Nevertheless, managing compliance manually might be difficult, resulting in potential breaches, penalties, and reputational harm.
5. Information Administration and Integration: The P2P course of generates huge quantities of knowledge, from buy requisitions to provider invoices. Effectively managing and integrating this information throughout completely different techniques, resembling ERP and accounting software program, is essential for correct reporting and knowledgeable decision-making. Poor information administration may end up in information silos, duplication, and discrepancies.

An outdated P2P course of can gradual a enterprise down tremendously.

The following part will discover how these challenges might be mitigated and the P2P course of optimized by means of automation.

The way to Optimize the Procure-to-Pay Course of?

Environment friendly procurement efficiency, value management, and robust provider relationships rely closely on a streamlined procure-to-pay (P2P) cycle.

We all know that guide processes nonetheless hamper groups throughout vital phases resembling bill processing, fee, items receipt verification, and utilization of provider portals.

Even in at this time’s technological panorama, it is stunning 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 think about essential duties moderately than information 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 answer on your group, listed below are a couple of prime ones so that you can contemplate:

• Nanonets
• SAP Ariba
• Coupa BSM Platform
• Jaggaer One
• Basware Buy to Pay answer

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 may set predefined guidelines and situations to make sure consistency throughout procurement actions, minimizing errors and stopping unauthorized expenditures.

Approval notifications are despatched and managed simply by means of standard communication instruments like Slack and Microsoft Groups, that includes direct Name To Actions (CTAs) for fast decision-making.

4. Buy Order Dispatch:

As soon as accepted, the system mechanically sends the PO to the provider through built-in e mail or provider portals resembling SAP Ariba or Coupa.

5. Items or Companies 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 information from invoices, buy orders, and supply notes, decreasing guide entry and errors.

Automated three-way matching ensures accuracy by verifying the alignment of invoices, buy orders, and supply notes earlier than fee processing.

7. Cost Processing:

Nanonets streamlines the fee course of, guaranteeing all transactions are accomplished effectively and on time. 

This helps preserve good relationships with suppliers and keep away from late fee penalties.

8. Integration with ERP/Accounting Software program:

Nanonets integrates seamlessly with numerous ERP and accounting techniques, offering a unified expertise for procurement and monetary information administration.

It’s clear that procure-to-pay automation streamlines the acquisition course of and enhances the efficiency of your corporation operate.

Listed here are some generally seen advantages of automating the procure-to-pay course of:

• Price Discount: Automate repetitive duties to cut back labor prices and reduce errors.
• Effectivity Good points: Streamline approval and bill processing workflows to hurry up the procurement course of.
• Compliance Enchancment: Guarantee adherence to procurement insurance policies and requirements by means of automated checks and balances.
• Provider Relationship Administration: Improve communication and coordination with suppliers by means of automated techniques.

Last ideas

Operating a profitable enterprise is like managing pit stops for a System 1 staff. You must always optimize your processes so that you could eke out each final little bit of efficiency.

Your P2P cycle is actually one space that you simply shouldn’t overlook. Seamless procurement is the best way ahead. Those that embrace P2P applied sciences could have a bonus in expenditure incurred, consumer expertise, and avoiding enterprise disruptions.