As a company engages in business, it is essential to make buying decisions – one of the basic functions of procurement. Procurement has various subdivisions that are important to ensure a complete process, one of which is the procure to pay process. In order to effectively perform through this process, it’s important to understand the full extent of procure to pay and its solutions.
What Is Procure to Pay?
Procure to pay implies the business process of inquiring, requesting, acquiring, and paying for needed goods and services. Every business, no matter the scale, would require either goods or services. An efficient procure-to-pay process can make this more natural while the best goods or services are obtained from suppliers. Procure to pay also ensures that the company’s budget is better managed and profit is maximized.
With the ever-evolving digitalized world today, which requires internet connectivity, modern procure-to-pay processes point towards e-procurement. Companies take a different approach as to what is e-procurement in the procure-to-pay process. Some utilize e-business portals, websites, ERP systems, and/or emails.
E-procurement offers several benefits. Statistics show that about 80 percent of inbound inquiries are eliminated by using supplier portals and that about 90 percent of suppliers prefer electronic payment.
The Procure to Pay Process
The procurement department has to identify the goods and services needed within an organization as the first step in the procure-to-pay process. Feedback should be gotten from all sections of the organization. These needs should be valid, so after identification, they should be reviewed to ensure that.
- Purchase Requisition
With the needs identified, purchase requisitions are to be sent to vendors. A list of possible vendors that can deliver the required goods and services should have already been drawn and accessed. When the vendors receive the PR, they are to send in price quotations if they are interested in supplying the goods and services.
- Approval of Purchase Requisition
The price quotations received from vendors are to be reviewed by the head of the procurement department or any authorized staff. Not just price should be examined, but other factors like quality and vendor reputation should be considered. Vendor negotiation also has a role to play here. When the ideal vendor has been selected for all goods and services, the purchase requisition is then approved.
- Purchase Order
A formal purchase order will be created and sent to the approved vendor. This is an order that states that the purchase terms have been agreed upon, and the vendor can proceed with delivering the goods or services. It is the purchase order that makes the business between the company and vendor legal.
- Supply of Goods
Having gotten the go-ahead order, the vendor delivers the goods or services at the specified destination. The delivery will be inspected to ensure that the goods or services provided are following the contract agreement. If so, a purchase receipt from the vendor will be signed for validation. It is right to reject the purchase receipt if the delivery falls short of the agreement.
- Invoice Approval
The vendor’s invoice gets approved for payment at the agreed time frame after delivery. For the invoice to get approved, the vendor submits the purchase order and purchase receipt for evaluation and also for record-keeping. Any error within the three documents can lead to invoice disapproval. If so, the reason is stated for the vendor so the correction can be made.
When the vendor’s payment invoice is approved, the company has to pay for the delivered goods or services. A copy of the invoice is sent to the finance department for payment to be processed. The method or duration of payment should be following the agreement with the vendor. Not keeping up with payment could be detrimental to not only supplier relations but for the company as a whole.
Every company that needs to procure goods and services should engage in a proper procure-to-pay process. In this modern tech age, it will be time-wasting to engage a manual procure-to-pay process when there are several automated solutions. Procure to pay software has made the procure-to-pay process more efficient and easier to manage. Large volumes of data can be better processed with visibility.