In recent years, the popularity of Procure-to-Pay (P2P) has rapidly grown among various small and big companies. This procedure helps a company become more efficient by eliminating manual operations, which leads to fewer errors. It helps a company to optimise its operational procedures and procurement policies.
This article is the ultimate guide that will vividly discuss the procure-to-pay meaning, various steps related to the P2P procedure, its availability, etc. It would be helpful for finance aspirants who want to commence or improve their career in finance. Keep on reading to learn more about Procure-to-Pay (P2P)!
What is Procure to Pay (P2P)?
The end-to-end procedure of acquiring, purchasing, paying, receiving, and accounting for a company’s goods and services is known as Procure-to-Pay (P2P). This procedure ensures a company has effective procurement operations, cost control, supplier management, and policy compliance.
The Procure-to-pay procedure is operated with the help of software, even though it is not a technology. This software ensures that various operations like invoicing, accounting, or inventory management are executed smoothly. This end-to-end process is also addressed as purchase-to-pay.
What are the different Steps in the Procure to Pay Process?
There are different steps that a company needs to follow to get an effective Procure-to-pay (P2P). Here is the Procure-to-pay process a company must follow:
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Identification of Needs
In the first step of the Procure-to-pay process, a company must identify its requirements for either goods or services. After identifying the requirements, the company must set a standard quality for its goods or services. Apart from that, a company also needs to decide its statements of work (SOW) and terms of reference (TOR)
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Creation and Approval of Requisitions
In the next step, a company must decide and build a formal purchase requisition. After creating the formal purchase requisite, it is then sent for approval from the higher authorities. This process ensures that the formal requisition has been thoroughly re-checked and reviewed according to the budget decided by the company.
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Sourcing
The next step after creating a formal requisition is sourcing. In this step, the company has to decide from which vendor or supplier they wil source their raw materials. The final supplier is chosen after considering certain parameters like quality, price, trustability, and time of delivery. These parameters help a company choose the best supplier according to its budget.
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Creating and Approving a Purchase Order (PO)
The next step after sourcing is to create and approve the purchase order (PO). This is a legal contract between the company and the supplier that states all the terms and conditions regarding the future purchases that would take place. After the formal purchase requisite gets approved by the higher authority, a purchase order is created.
After the creation of the purchase order, it is sent to the higher authority for further review and approval. After receiving approval from the higher officers, the PO is sent to the supplier and becomes operational until it expires.
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Goods Receipt
The next step is the delivery of the final product. After the delivery of the final products, the company inspects the quality of the product. The goods receipt is accepted only when the suppliers provide the company with the desired quality otherwise it is rejected.
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Performance and Invoicing
After approving the receipt of the goods, the performance of the supplier is determined. The evaluation of the supplier’s performance lies in certain parameters like quality of the products, service, time of delivery, etc. If there is any disparity in the outcome it is noted in the company’s data for future reference.
After the performance is evaluated, the invoice for the goods is then analysed with the help of the three-way match method. The product order (PO), goods receipt, and goods invoice are evaluated to find any discrepancies in this method. If there is no disparity then the invoice is accepted or else it gets rejected.
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Payment
In the last step, the payment of the supplier gets cleared by the company’s finance team. There are five payment methods through which a company can clear the supplier’s payment. These methods are advance payment, partial payment, instalment payment, final payment, and retention payment.
This is the final step after which the procurement procedure is completed. In a company, a finance analyst needs to know about this procurement cycle in extreme detail. Therefore, many companies are encouraging their employees to enrol themselves in a financial accounting course to gain more knowledge.
Benefits of Procure to Pay (P2P)
There are numerous benefits a company receives by adopting the procure-to-pay (P2P) procedure. These benefits are vividly elucidated below:
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Enhanced Operations
The Procure-to-pay (P2P) method is an automatic method hence it reduces the time and effort that was previously required to perform various tasks like making a purchase order, checking the invoices, making vendor payments, etc. The introduction of this procedure enhances the pace of the procurement process and eliminates human errors which result in accurate transaction sheets. Hence, with the help of procure-to-pay (P2P) a company can become more efficient with its operations.
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Cost Effective
One of the most important benefits of the procure-to-pay (P2P) process is that it is extremely cost-effective. This is because the procedure is entirely automated and reduces the operational cost.
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Prevents and Reduces Fraud
The Procure-to-pay (P2P) procedure safeguards a company against various frauds. This is possible because this procedure uses invoice-matching and numerous review matching, This reduces any malpractice among the
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Predictive Nature
Procure-to-pay (P2P) is a modern procedure therefore it uses modern technologies like data analytics and other tools to ease out the entire process. The usage of such advanced technologies helps it to predict certain future events that can be avoided by simply taking advanced measures.
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Better Relationships with the Suppliers
Procure-to-pay (P2P) procedure enhances the relationship between the company and its suppliers. This takes place as P2P ensures transparency, accuracy, and timely payments.
What are the various Procure to Pay (P2P) Platforms?
Getting access to procure-to-pay (P2P) has become extremely easy as it is available on various platforms. Initially, this procedure was entirely handled using the traditional pen and paper method. Later, technology took over and now companies can easily access P2P on certain platforms.
Platforms like SAP Ariba, Coupa, Oracle ERP, etc. are certain procurement software from which P2P can be accessible. These platforms are often made up of numerous modules that ensure that a company’s procurement cycle is working efficiently and on time.
How does P2P Enhance Efficiency?
Most companies adopt P2P because it enhances the efficiency of purchasing. Here are a few ways how Procure-to-Pay (P2P) can increase efficiency:
- Purchase Order Management: Procure-to-Pay (P2P) helps a company create automatic purchase order management by analysing the previous purchase orders. This reduces operation time and enhances efficiency.
- Replacing Tradition Vendor Management: Procure-to-Pay (P2P) assists a company in replacing its traditional vendor management with a digital one. This technology allows a company to choose a vendor according to its requirements. A company can also set rates for the products, delivery time, discounts, etc.
- Matching all Invoices: Lastly, it helps a company to keep track of its invoices and match them so that the purchase proof is always ready with them.
Conclusion
Procure-to-pay (P2P) is expected to experience more success in the future. More companies are going to adopt it and will create more Procure-to-pay jobs for plenty of employees. Therefore, a finance aspirant or personnel who wants to experience more success must enrol in some online financial certification courses.
Imarticus Learning has launched its new Financial Accounting and Management Program. This is a 6-month post-graduate programme for fresh graduates. Here individuals have to attend offline and online classes.
Thus the programme will help one to learn more knowledge and enhance their skills according to the market requirements. Imarticus Learning has a top-notch team of instructors who will take these classes. Finally, after completing this course, each individual will get a guaranteed placement.
If you are a financial personnel or aspirant and want to enhance your career trajectory then enrol yourself in this course without any further delay!
Frequently Asked Questions
- What is Procure-to-Pay?
Procure-to-pay is an end-to-end procedure that manages a company's goods and services. Its main job is to supervise procurement operations, cost control, supplier management, and policy compliance.
- What are the Procure-to-pay jobs?
There are numerous Procure-to-pay jobs in the finance sector like assistant procurement manager, senior finance analyst, purchasing manager, etc.
- What are the various steps in a Procure-to-pay process?
There are a few main steps in a procure-to-pay process: identification of needs, creation and approval of requisitions, creation and approval of purchase orders, good receipt, performance, invoicing, and payment.
- Which real-life company uses Procure-to-pay (P2P)?
Recently, many small and big companies have been working with procure-to-pay. Big companies like Siemens and Unilever use Procure-to-Pay (P2P) daily for better results.
