Procure-to-pay (P2P), probably the term you have heard most often but wonder what it is all about? Or if you are looking to use one for your business but not sure which ones to choose? Then fear not, you are on the right platform.
In this blog, we are going to discuss:
►What Is Procure-to-pay?
►How does the procure-to-pay cycle work?
►Challenges involved in the procure-to-pay process
►How to choose a procure-to-pay software?
►Which is the best procure-to-pay software?
Procure-to-pay cycle is the process in which organizations inquire, request, receive, and then pay for goods and services. This procure-to-pay cycle involves various activities to complete just one order.
The primary purpose of the procure-to-pay system is to track the purchasing behavior of the organizations and how businesses pay for the costs incurred. Procure-to-pay includes the policies and procedures that govern such purchases & spending, and analyze the data associated with it.
How does the procure-to-pay process work?
A general outline of the process goes as follows:
- Purchase Requisition – The user raises a purchase request to procure goods or services to the organization.
- Vendor Selection – After the purchase request receives formal approval, the procurement team choose the preferred vendor based upon the criteria like quality of service, delivery timelines, credit period, etc.,
- Purchase Order – The purchasing team officially releases a purchase order consisting of specific order details such as the description of goods and services, department account number, signatures of the authorized managers, delivery instructions and quotation from the authorized vendor.
- Receival of Goods – The purchasing team accepts goods received the user for its correctness validates it. Vendors usually share the GRN consisting of the product details, delivery timelines, etc.
- Three-way Matching – The finance team compares the goods & receipt number, purchase order, and the tax invoice received.
- Accounts Payable – Once three-way matching is done, the bank details of the vendor is added as the beneficiary. Payment is processed through NEFT, IMPS, RTGS, UPI, etc.
- Reconciliation – After paying to the vendor, the details are then entered line-by-line to the accounting software, thus marking the entire process complete.
Procure to Pay has a considerable impact on the business since the process is spread across so many departments that encompass purchase, reconciliation, and accounting.
- Poor Vendor Management – Maintaining a strong relationship with your vendors is one of the critical ways for you to scale-up your business. A Hassled vendor experience, delayed payments can hamper the vendor relationship resulting in losing the preferential pricing status.
- Contract Mismanagement – Before procuring anything to your organization, you must enter into an agreement with the vendor. By not having a contract management structure, organizations may end up incurring unnecessary costs.
- Improper Communication – Often, the finance team will have to communicate with multiple stakeholders within the organization for validating the purchase request raised. Any miscommunication around the number of items that are procured, delivery timelines, invoice mismanagement, can damage the reputation of the company.
- Unethical Practices – Finance team involves doing multiple transactions every day. Numbers can be mismatched by creating a fake purchase order, falsifying information pricing, the false record of bookkeeping, invoice fraud, embezzlement, and money laundering. Vendors may lure finance team members by offering them gifts, taking them to parties, etc. so that they get the preferred vendor treatment.
An automated procurement process can eliminate the manual and repetitive tasks like releasing purchase orders, processing invoices, and data entry, etc., allowing them to focus on critical responsibilities like decision-making, budgeting and strategizing.
- Centralized Process – An automated procure-to-pay system, allows you to take control of all the purchase-related aspects through a single software or via a mobile app, helping you to formalize rate contracts with your vendor, make payments, and process invoices, etc.
- Stringent Governance Policy – Having a strict approval process increases transparency & accountability while procuring items to the organization. The automated platform can be configured in such a way that it allows you to customize multiple levels of approval-flow based on the organizational hierarchy.
- Greater Spending Visibility – The analytics provided by the automated e-procurement system helps the finance team to understand where precisely the spending is happening. Furthermore, they can streamline and curb the unnecessary expenses through the insights and analytics available in the dashboard.
- Effective Collaboration: Finance teams can witness greater efficiency and very less manual work thereby reducing employee stress. Through the automated system, vendors can get notified about the payment status, the finance team can set-up reminders to pay vendors on-time and can avoid delayed payments. In case of any confusion, vendors or finance team members can get clarifications instantly through an integrated chat system. This method keeps the entire team and the vendors in sync.
- On-time Payments – Delayed payments can result in hampering the relationship of your vendors. Automate the payment system and ensure timely payments to your vendors. Procure-to-pay software must enable you to schedule automated reminders to notify your team for payments approval and vendors receive notifications after the payments are processed. This in turn will help you receive greater benefits and goodwill from vendors.
Implementing new procure-to-pay software in the organization can be tricky as it has to be customized according to your organizational needs, should be compliant with your procurement policies & they must be flexible to be integrated with existing systems, business structures, and work with your employee culture.
- Digitizing Vendor Onboarding – Instead of the finance team running back and forth to collect and verify the documents of the vendor, a procure-to-pay software should automate the onboarding process providing your vendors with a hassle-free experience. This saves the time of the finance team, allowing them to do more productive work.
- Customized Approval Workflow – A highly flexible & configurable system allows you to customize multiple levels of approval-flow based on the organizational hierarchy. Multiple levels of approval stages can be configured involving various stakeholders like the procurement team, finance team to approve the request raised by an employee and be notified via email. The system should also be able to automate the notification reminder to approve or disapprove any pending requests.
- Paperless Records – Any paper-based storage can fade-out or gets crumpled over time. Instead of maintaining huge stacks of paper records, the e-procurement platform should store all your documents in one single place.
- Automated Payments – In a procure-to-pay software, you can do payouts to your vendors through NEFT, IMPS & RTGS by linking your bank accounts. Each banking transactions gets automatically recorded in real-time and keeps your accounting system updated so that there is no need to enter the data manually.
- Automatic Reconciliations – Any purchase order raised through the E-Procurement system, should get automatically mapped against the invoice received. Multiple other data points such as the delivery of the product, payments & E-Way Bill are auto-mapped against the purchase order helping the finance team saving tons of time in doing the manual. & repetitive work.
- Comprehensive Reporting Structure – Finance automation software helps in creating a structured report of all the accounts payable in a single dashboard. CFOs can get a combined report on the various expenses that are occurring in their organization. Based on the report generated, they can plan their budget accordingly.
Which is the best procure-to-pay software?
Procure-to-pay systems are designed to provide organizations with control and visibility over the entire life-cycle of a transaction, providing full insight into cash-flow and financial commitments. Finly is one such procure-to-pay software that automates the business processes, such as order processing, vendor payments, invoicing etc. Our cost-effective e-procurement software system helps to streamline purchasing processes eliminating paperwork, providing better control over spending and saving time and resources for your team.