In a world where every dollar counts, having a streamlined and efficient procure-to-pay (P2P) process is a game-changer — especially for industries like manufacturing, where supply chains are complex and costs can quickly spiral out of control.
But what exactly is the P2P process — and how can it benefit your business?
Whether you're new to the concept or you've already had experience with it, let's break down the basics of procure-to-pay, including common challenges, smart solutions, and why it matters for your business.
What is the Procure-to-Pay Process?
The procure-to-pay process is an integrated solution that covers all aspects of purchasing goods and services, from procurement to payment.
Essentially, the P2P process is a way to create a seamless workflow and connect the dots between sourcing or ordering supplies and the accounts payable (AP) process. When managed properly, it creates an end-to-end system for tracking, managing, and optimizing the entire purchasing cycle.
Why Is Procure-to-Pay Important?
Companies are under constant pressure to reduce costs, improve efficiency, and maintain smooth operations. An effective procure-to-pay process ensures that each of these goals is met — so that organizations can control spending, mitigate risks, and build strong supplier relationships with ease.
At its core, the P2P process is about reducing friction. It minimizes manual work, reduces errors, and speeds up the purchasing and payment cycle. For accounts payable departments, the procure-to-pay process works hand-in-hand with AP automation. When combined, P2P with AP automation helps ensure faster invoice processing, reduces the risk of costly delays, and helps prevent issues like data entry errors, missed payments, or slow approval routing.
Let's break down the standard steps in the procure-to-pay process:
- Purchase Requisition: A company or client identifies the need for a product or service.
- Purchase Order (PO) Creation: The company or client then creates and approves a purchase order, which outlines the goods or services requested.
- Goods/Services Delivered: The supplier delivers the goods, and the company confirms that everything matches the PO.
- Invoice Processing: The supplier sends an invoice, which is verified against — or matched with — the PO and items or services received.
- Payment: The company processes the invoice and releases payment to the supplier.
- Receipt Issued: The service provider issues a receipt to confirm that they've received the correct payment.
6 Steps in the Procure-to-Pay Process
To get a better understanding of the procure-to-pay process, it’s helpful to break it down into its core components:
1. Procurement
This is the first step in the P2P process, where goods and services are sourced, suppliers are selected, and purchase orders are created.
Some AP automation solutions help source the best suppliers by offering robust reporting, detailed analytics, and price tracking systems to ensure you're getting the best deal.
2. Purchase Orders
A purchase order, or PO, is an official document sent to a supplier that details the items a company wishes to purchase, including price, quantity, and terms. POs help ensure accurate and smooth transactions by keeping both the buyer and the supplier on the same page.
3. Distributing Goods
Once a supplier fulfills an order, the receiving customer needs to confirm receipt of the goods.
This is where a three-way match process comes into play. Three-way matching compares the purchase order, goods received, and the supplier's invoice to ensure everything is aligned and accurate.
While three-way matching can be done manually, it's not the most efficient approach. By investing in an AP automation system, you can streamline the three-way match process, reduce the risk of discrepancies, and speed up the verification process.
4. Invoice Processing
After the goods or services are received, the supplier or provider sends an invoice. The invoice is then matched with the purchase order and receipt confirmation before being approved for payment.
AP automation systems can significantly speed up invoice processing, while also reducing errors and ensuring up to 99% accuracy during this step.
5. Payment
Once goods or services are received and an invoice is issued, payment needs to be made. This can be done using various payment methods — like direct deposit, checks, or credit cards — based on the terms agreed-upon by the supplier and customer.
Most AP automation providers offer payment automation solutions, which allow you to schedule payments directly from your AP automation platform.
6. Receipts
The final step happens after payment has been received by the supplier or service provider. Once they have the payment in hand, the supplier or provider can issue a receipt, confirming the transaction is complete.
Common Challenges in the P2P Process
Despite its many advantages, the procure-to-pay process does have its challenges. Luckily, many of these obstacles can be overcome through AP automation and strategic management.
- Manual Work: Traditional P2P processes typically rely on manual data entry, which can lead to mistakes and inefficiencies. Errors in POs, invoices, and payment terms can slow everything down and cost your company money.
- Lack of Visibility: Many businesses struggle to get a clear view of their spending. When different departments manage procurement and accounts payable separately, it can be difficult to track spending or identify areas for improvement.
- Compliance Risks: Without a unified system, it’s hard to ensure compliance with company policies or industry regulations. Automation tools help enforce rules and standards across all transactions, reducing the risk of fines or legal issues.
- Late Payments: Manually handling invoices often leads to missed deadlines, resulting in late payment fees or damaged relationships with suppliers. Automated systems ensure that payments are made on time, keeping suppliers happy and avoiding late fees.
How Automation Improves P2P Accounts Payable
AP automation is a game-changer when it comes to P2P.
With a robust automation solution, like Nimbello, you can automate everything from PO creation and invoice processing to payment scheduling and distribution.
But the benefits of AP automation go beyond procure-to-pay:
- Increased Efficiency: Automation eliminates manual data entry, reducing human error and speeding up the entire invoice lifecycle.
- Better Visibility: A quality AP automation software provides real-time insights into spending, making it easier to track expenses, identify cost-saving opportunities, and ensure compliance.
- Streamlined Workflow: Automation allows for faster approvals, less paperwork, and more control over every step in the process. This means fewer bottlenecks and more adaptability.
- Cost Savings: By automating key steps in your AP workflow, you can take advantage of early payment discounts, avoid late fees, and reduce unnecessary operational costs.
End-to-End for P2P
The procure-to-pay process is the backbone of an efficient supply chain. From procurement to receipt, a well-designed P2P process saves time, reduces errors, and improves cash flow.
If your current system feels disjointed or inefficient, an AP automation solution can help. With the right tools, you can transform your P2P process from a source of stress into a strategic asset.
Nimbello's AP automation solutions are specifically tailored for PO-based P2P workflows. Learn more by scheduling a demo today!