Purchase-to-pay/ procure-to-pay, source 2 pay process, there just seems to be more and more technical procurement lingo being added each week!

Don’t get them muddled up however because they are not interchangeable.

Understanding each term and the associated steps in each individual process will make your procurement campaigns much easier.

In this blog, we’re going to discuss the procure-to-pay process and also show you the steps that constitute this procedure. 

Ready? Let’s dive right in.

What is the Procure-to-Pay Process?

According to the Chartered Institute of Procurement & Supply (CIPS), the procure-to-pay (P2P) process is defined as:

“…the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and service.”

It is synonymous with the term purchase to pay.

Procure-to-pay and purchase-to-pay should not be confused with the source 2 pay process which is defined as:

The complete end-to-end procurement process encompassing spend management, strategic sourcing, supplier management, purchasing, performance management, and accounts payable.”

Source 2 pay process is a method that begins with locating, bargaining with, and contracting with a source of products and ends with the final payment for those goods. To increase procurement productivity, S2P software uses technology, big data, and digital networks.

Steps in the Procure-to-Pay Process

There are generally nine steps in the procure-to-pay process. Organizations sometimes further subdivide steps but essentially the following are observed as standard.

Step 1 Establish Needs

Procurement teams evaluate company requirements across departments and generate specifications for products, terms of reference (TOR) for needed services, and associated statements of work (SOW).

Step 2 Generate Requisitions

Formal purchase requisitions are then created once specifications have been finalized. The requester has to ensure that all administrative procedures have been fulfilled prior to filling out the purchase requisition form.

Step 3 Approval of Requisitions

Procurement officers and or department heads review the submitted purchase requisitions. If there is a disposable budget and the requested itinerary is approved then the requisition is accepted.

Step 4 Create Purchase Orders/Spot Buy

The next step is a generation of purchase orders for accepted purchase requisitions. For low-value entities, a spot buy can be conducted.

Step 5 Approval of Purchase Orders

Just as requisition requests must be approved, so too must purchase orders. This scrutiny is to ensure the accuracy and legitimacy of requested items. Accepted purchase orders are then sent to suppliers.

Vendors have the ability to negotiate, approve or reject a purchase order. Once a vendor approves a purchase order, both buyer and supplier enter into a legally binding contract.

Step 6 Receipt of Goods

The vendor delivers the requested goods and the buyer examines them to see if they match the specifications in the purchase order. The goods and or services are then either approved or rejected.

Step 7 Supplier Performance

The vendor is evaluated by the buyer using a set of criteria such as contract compliance, quality of products/services, responsiveness, on-time delivery, and total cost of ownership. If the supplier defaulted this is also noted.

Step 8 Approval of Invoice

A goods receipt that has been approved is then sent to the finance team for clearance and payment. The invoice is verified for authenticity and no discrepancies. Invalid invoices are rejected and returned to the vendor for rectification.

Step 9 Payment of Suppliers

An approved invoice allows the finance team to release money and pay the vendor according to the terms in the approved invoice. There are several types of payments: holdback, final, installment, partial, or advance. 

The Importance of the Procure-to-Pay Process

A strategic and well-planned P2P process has the capacity to:

· Increase spend visibility

· Improve control measures

· Cut back on costs

· Generate automation efficiency

P2P is dedicated to creating value. This is realized from:

· The improved spend visibility that ensues. This visibility enables CPOs to make better decisions and this can have a positive impact on cash flow.

· Efficient spend management that is backed by automation, data transparency, as well as spend analysis.

· Real-time data extracted from cloud-based data management systems.

· Decrease purchase order lifecycles and ameliorate invoice processing by integrating eInvoicing, 3-way matching, and internal process optimization.

The Case For Procure-to-Pay Software

As many as 80% of enterprises are still stuck using archaic procure-to-pay methods including manual and semi-digital tools. 

Not only does this set you back behind your automated peers, but it is time-consuming and highly inefficient in today’s fast-paced world. 

Automation is the way to go and has been proven to reduce marketing overheads by up to 12.2%. Companies making use of cloud automation can anticipate a 15% year-over-year revenue growth.

In fact, enterprises that offer cloud automation can secure 5x more clients than their contemporaries.

It’s clear to see that there are numerous advantages to be reaped from incorporating procure-to-pay software into your procurement efforts.

That’s not all.

Procure-to-pay software such as that provided by ProcurePort can deliver:

· A centralized portal for communication between vendors and you the buyer

· Assistance in terms of keeping suppliers compliant with their contracts

· A portal that allows electronic data capture of all transactions

· Mitigation of fraud risk and error

Conclusion

The procure-to-pay process has the innate ability to highlight operational inefficiencies, improve requisitions, purchasing, and goods and services accountability.

Furthermore, thanks to procure-to-pay software solutions, you can say goodbye to manual procurement operations once and for all.

If you’re keen to get started with our robust procurement solutions, don’t hesitate to contact us or alternatively, simply schedule a demo to review our technology.

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