Purchase to Pay system, also commonly designated as Procure to Pay (P2P), entails a range of stages that essentially make up the procedure of which a company orders products and/or services from contractors, through to completing the consequent payment for those products or services ordered.
The main phases of this process include ordering the product, supplier requisitions, authorization of a budget, receipt of delivery, and the process of invoices.
This automated system greatly facilitates payment processes for businesses, particularly those with great numbers of invoices. It is crucial that your business has an optimal procure to pay system in place.
In this article, we will discuss what a business’ procure to pay system is and how you can optimize it.
- Does My Business Require P2P?
- The Procure-to-pay Process
- How to Improve Your Procure to Pay System?
Does My Business Require P2P?
In this day and age, businesses have to find new ways to serve their customers better, especially when it comes to the transaction itself. There are many benefits to using a procure to pay system for your business, however, this must be effective in order to function properly.
It is imperative that you understand whether you need this system to be put into place. Below there are a few factors to help you make this decision:
- Your business deals with frequent duplicate payments
- Some payments may be made without internal approval
- Expenses are turned away from preferred suppliers
- You have a range of new suppliers being added regularly
- You have backdated orders to cover invoices received
If any of the points described above apply to you, you should consider putting a P2P system in place and review this to ensure it facilitates you to the maximum.
The Procure-to-pay Process
Depending on the company’s practice and what is required, procurement leaders often opt to achieve the most appropriate phases of a procure-to-pay system. Below we discuss a few logical stages of an ideal procure-to-pay process.
The very first thing you will need to do in order to put an effective procure to pay system in place is to ensure that you determine and define your company’s requirements. You can do this with the help of cross-functional shareholders.
When the requirement is acknowledged, procurement teams can then devise high-level conditions for goods/products and terms of reference for services, as well as statements of work.
Once you have completed the step discussed above, you will need to create a purchase requisition. These requisitions can be devised for any kind of procurement and from common purchases to consignments as well as subcontracts.
These purchase requisitions will need to be reviewed by a manager of a department or even a procurement officer before they can be accepted or rejected.
Purchase order approval
Once the purchase order is requested, it is forwarded to sellers for them to approve, reject or initiate a negotiation. Once the purchase order is accepted a legally binding contract is activated between you and the vendor.
A receipt is a massive part of the exchange, as it obviously provides evidence that it has taken place. Once you receive the goods you will need to obtain the receipt.
How to Improve Your Procure to Pay System?
Create a SpecificProgram for Your Business’s Needs
Procurement can be an overwhelming and time-consuming process, but once you have done it a few times, you will see that it is majorly repeating the same tasks over and over again.
A good way to start doing this is to combine your purchase orders, invoices as well as packing slips in order to facilitate the process.
One of the best ways to improve your procure to pay system is to stop using paperwork. It can be very overwhelming having a number of different papers and files to organize that can easily get lost and disorganized. Technology has greatly benefitted and facilitated many aspects of our lives and you can also use this to optimize your business procurement process.
There are platforms available that support you with different aspects of the financial management of your company, including inventory management as well. This will help you massively, as you will be able to control the inventory you have available for example, and exactly what requires your attention.
Use Data Analysis Tools
By following this method, you will be able to assess, select and track the performance of your suppliers. You can assess how accurate an item is, how timely the liver is and whether it complies with your business’s code of conduct as well as compare prices against potential competitors.
Always Be Prepared
In the business world, there will come a time where contracts may be disputed, there may be errors with deliveries and even unexpected audits. Do not wait until you make a mistake to learn from the situation, and make sure that you are always prepared for these scenarios to happen.
You should always have your documentation ready, such as packing slips and invoices. If you are not using technology in order to capture this data, as we previously discussed, you could as an alternative develop a checklist to make sure that you account for all appropriate documents during the procure-to-pay process in an efficient manner.
It should also keep them electronically so that you can easily retrieve them as necessary.
Manage Your People
As a business owner, it is imperative that you know what the people involved with your company are doing. With this, we do not mean that you should be controlling over your employees, but rather working closely to ensure that no mistakes are being made. This also applies to those in higher positions who are responsible for running things and auditing the books.
Additionally, you can devise a database with approved vendors that meet your criteria and pricing and offer the best deals, in order to minimize any mistakes.
An effective procure to pay system is essential for businesses as this helps them save money, minimizes risk and fraud, and helps save money. It is vital that this process is as transparent as possible from purchase requests to the approval of invoices.
The page above should provide you with a clear perspective on what a procure to pay system entails and how you can improve this.