What Is Procure-To-Pay? A Definitive Guide to P2P in 2023
Procure-to-Pay (P2P) is the dematerialisation of purchasing and accounts payable systems to increase their efficiency. In other words, the Procure to Pay process goes from the acquisition of the necessary raw materials to their payment. A strategic and financial issue in its own right.
What is the P2P payment process?
P2P meaning in finance
To understand the Procurement to Pay concept, first we need to properly define "procure" in the business sense. To procure something is to obtain or get it. Therefore, the term "Procure to Pay" (P2P in procurement) refers to the set of technical and software architectures from product search to payment in a business/supplier relationship. It is also known as Purchase to Pay.
By definition, the P2P process encompasses the major processes in the purchasing cycle:
- Demand: search for products, request for quotation then purchase, negotiation with suppliers;
- Procurement: sending the purchase order, receiving the order;
- Payment: receipt, reconciliation and processing of the invoice, payment, accounting.
For each of these cycles, Procure-to-Pay solutions will seek to automate as many processes and functions as possible. For example, they will enable companies to use optical character recognition (via OCR) for reading and entering invoices into accounting software. A Procure to pay software also includes verification and tracing features, such as reliable audit trails and payment fraud prevention.
By implementing a P2P system in their procurement process, companies can gain visibility and transparency on their spending. In addition, it frees up the time and resources allocated to low-value-added tasks that are necessary for effective operation. All these processes contribute to productivity being at the heart of the company's operations.
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In small structures such as VSEs and SMEs, managers often manage invoices themselves at night or on weekends. In addition to affecting business productivity, this increases the risk of input and payment errors.
To streamline purchasing processes, human intervention needs to be eliminated as much as possible. The solution: digitised and automated processes.
- The P2P systems enable the integration of the purchasing department with the accounts payable department.
- The P2P systems allow organisations to automate accounting processes and consolidate supplier data, which then helps to better manage purchasing cycles and the company's cash flow, supplier relationships and profits.
The goal is not to replace humans with machines but to use digital technology in low-value-added processes, such as the processing of supplier invoices and the updating of accounting entries.
Moreover, the process of dematerializing paper invoicing is now a priority for administrative and financial departments, which represents a major opportunity for P2P lenders. In the long term, the aim is to :
- Reduce processing times;
- Better manage business expenses;
- Strengthen checks on manual business processes;
- Automate as many tasks as possible;
- Improve the company/supplier relationship;
- And finally, to save money on processes that are usually long and costly
Procure-to-Pay process overview
From the identification of the requirement to the posting of the corresponding supplier account, the procurement to pay process consists of 4 main steps, grouped in the 3 cycles mentioned at the beginning of the article: requisitioning, purchasing, receiving and paying for goods and services:
The P2P process starts with planning the goods or services required: What? What? When? How much? At what price? These considerations are led by the purchasing departments, which must take into account the company's budget. Once the need has been identified, which will result in the future purchase of goods and/or services, the company must choose a supplier.
If the company already works with a supplier, it can go straight to the purchase requisition form.
If the need is not yet present in the company, the purchasing department should draw up a list of potential suppliers. Then comes the negotiation phase. To do this, the company first asks each supplier to submit an quotation including :
- The price,
- The delivery conditions,
- The quality of the material,
- Any other information necessary to make a decision.
This is also when negotiations with suppliers take place (if at all) to obtain the best purchasing conditions.
3. Purchasing order
Once a supplier has been selected, buyers create a purchase requisition form in the P2P system that includes:
- Order description ;
- Account number;
- Required signatures;
- Delivery instructions;
The purchase request form has been completed and sent. The next step is the purchase order , which should be sent to control the purchase of products and services from external suppliers.
Validation of the purchase order by the supplier means that he agrees to deliver on the terms and conditions of sale specified in the company's general terms and conditions of sale. The purchase order is a sales commitment from both parties: The supplier commits to deliver the goods, and the company commits to accept delivery and pay for them.
4. Delivery and reception
The supplier prepares the order and it is then delivered to the customer. Upon receipt, the buyer must draw up a receipt. This document will be used to check that the goods received correspond to the order.
To simplify, purchasing departments will highlight the receipt and purchase orders and compare them. If the match is positive, the order has been delivered.
If the match is confirmed, the order has been delivered. If not, the company should contact its supplier and make a claim. The same applies if goods are damaged or missing. Upon receipt of the goods, some final checks are required:
- Are the goods usable?
- The correct quantity has been delivered?
- All goods meet the specifications requested?
- Is the price as specified on the order form?
⇒ What changes with P2P: The company's use of a management interface customized to meet the needs of each supplier has made exchanges and order management more effective.
Upon receiving goods, the supplier issues an invoice, which is validated by the purchasing department and sent to the company. In contrast to what one might think, payment is a crucial step. The invoice must be sent on time, contain all the compulsory information, and match the order.
⇒ What changes with P2P: To keep delays and payment errors to a minimum, Procure-to-Pay solutions rely on a fully paperless approach to invoicing. Manual processing must be reduced to a strict minimum, as this is the best way to avoid input errors, payment errors, duplicates and supplier reminders.
Libeo provides features for collecting, processing, dematerializing and paying invoices. You won't have to deal with duplicate invoices or lose paper copies or emails. Centralised invoices are collected and processed in a few clicks thanks to a collection solution.
Increase the efficiency of your purchasing function : request your personalized demo today to discover Libeo and its benefits for your organization!
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What is Purchase to Pay?
Purchase to Pay, aka Purchase 2 Pay, is the process of tracking and managing supplier payments for goods and services acquired throughout the year. The Purchase to Payment process is a computerised version of a company's purchasing cycle.
What is a Source-to-Pay system?
Source to pay is a variant of procure to pay that includes supplier sourcing among its functionalities.
What is the difference between accounts Payable and Procure-to-Pay?
Procure to Pay refers to a specific subdivision of the procurement process in software companies. Procurement-to-pay systems integrate the purchasing department with the accounts payable (AP) department.
Is Procure-to-pay part of supply chain?
Procure to Pay process is a vital part of supply chain management, as it provides the materials and services that manufacturing needs to meet production targets and customer demand.
What is the difference between Procure-to-pay and Purchase-to-pay?
Procure to pay is the same as purchase to pay. They are simply different names for the same process. Both are commonly referred to as the P2P process.