Everything in life comes at a cost. From your pens and pencils that are constantly lost at your desk to the subscription services that help you keep your life organized and full of entertainment, every good or service has value. Companies have to charge for the raw materials and services they use to create their final product with a little bit extra so that they can ensure a return on investment. In the B2B world, this process is procure-to-pay.
What is Procure to Pay?
The procure-to-pay process, also known as the purchase-to-pay cycle is the process that businesses use to inquire and request then receive and pay for any services and raw Goods they use throughout the course of creating their product or service. The purchase-to-pay process involves several tedious steps to complete a single order.
How the Procure-to-Pay Process Works
The majority of procure-to-pay processes include these steps:
- Supply management: This is the method you use to connect to your current suppliers and manage those relationships for ordering purposes
- Supplier selection: This involves researching and selecting the preferred suppliers to purchase goods and services from.
- Purchase requisition/Requisitioning: This internal process involves getting the necessary approval to order a product or service from a vendor.
- Purchase order: In this stage of the process, you are creating a formal document which once accepted by the vendor becomes a legally binding contract. this is where you provide the specifics of the goods and services to be ordered including quantities and vendor requirements.
- Receiving: At this point, you are handling goods receipt. You’re accepting the physical shipment of goods from the vendor and entering what you have received into your inventory, tracking, and accounting systems.
- Invoice reconciliation: At this phase, you are comparing the invoice to the purchase order to ensure that you are only paying for the items you ordered and received. You are also checking to ensure all charges and costs are what they should be based on pricing and vendor contract terms.
- Accounts payable: In the final step of the process, you handle the purchase order for payment, send the payment, and enter the amount into your accounting systems.
In most companies, the procure-to-pay process goes like this:
If you need more office supplies your procurement team will research various vendors and request quotes with official RFQ documents. Based on the quotes, they will negotiate a better deal with the vendor they are most interested in working with. After the details are agreed upon the order is placed the supplies are sent and an invoice is sent. The finance department does their job to process the invoice and pay the vendor for supplies.
Take a second to think about how many vendors you’re actually working with and how many goods and services you order on a regular basis. If you’re handling all of these steps manually for each vendor you’re working with, you could have handfuls of requisitions and orders in various stages of the procure-to-pay process making it difficult to keep up with what is where.
When you consider that the steps outlined above don’t include other important parts of the procure-to-pay process such as inventory management, contract management, or vendor performance management it’s easy to see why many businesses struggle until they implement a procurement system on automation.
Without a streamline procure-to-pay process there is potential for a wide variety of issues throughout the organization. Ultimately all of these issues impact the bottom line due to damage supplier relationships, damaged customer relationships, and labor costs.
Modern Procure-to-Pay Processes
Today’s procurement processes have come a long way since the early days of technology. But, the majority of companies still aren’t up to speed on current procurement trends. Procure-to-pay is a process not a technology. However, software is available to handle the entire procure-to-pay process or various components of it such as invoicing Inventory management and accounting.
A recent report indicates that 56% of businesses surveyed have a centralized procurement department with standard processes for the organization. However, that doesn’t mean the current processes are controlled. The majority of centralized processes end up being a mix of manual steps and electronic systems.
Companies that are relying on this mix Lac full visibility into previous purchases and don’t have the ability to track their spending in real-time. As such, they suffer from maverick spending which negatively affects the budget and cash flow. And when you look at all these procure-to-pay problems, you’ll see that they affect both the auditing and reporting processes.
Cloud-Based Procurement Solutions
If you haven’t yet made the switch to cloud-based procurement solutions, it’s likely due to the fact that what you have in place now is working for your company. If you’re trusting internal tools or accounts payable automation software, it may suit your needs now, but if your business needs to modify processes for any reason, it could require a large amount of time and resources to change the tools for your needs. Your customization and update options may also be incredibly Limited. After years of change, your system will become outdated causing your business to use an inefficient procure-to-pay process.
Using a cloud-based Procure-to-Pay software or e-procurement system gives your company better visibility and flexibility and removes the need to address updates over time. investing in cloud-based e-procurement allows your company to manage and streamline your procure-to-pay process and a centralized system that allows you to manage orders, invoices, reporting, and payments from a central location that can be accessed from any device with an internet connection.
With this approach, you can set up permissions for each person in the company based on their role. Department heads can have the ability to approve orders while you can set up multi-step approval workflows for larger purchases. You can track departmental budgets, place limits on spending, and so on.
Three-way matching makes it easy for you to make sure you’re only spending money on what you’ve ordered and received. Contract management is easier because the contracts can be stored digitally with each vendor making them easily accessible for compliance and monitoring purposes. Ultimately, you’ll have stronger supplier relationships throughout the supply chain because you’ll be able to pay them faster which allows you to negotiate better payment terms and discounts.