Blog | July 15, 2015 | by Kate Freer

Procure-to-Pay 101: Defining Transaction Efficiency

Procure-to-Pay 101: Defining Transaction Efficiency Everyone talks about P2P, but what is the procure-to-pay process, really? What is Procure to Pay? When searching for a definition of the Procure-to-Pay (P2P) process, I found this in businessdictionary.com, “Procure-to-pay is the process of buying goods which includes the initial decision to make the purchase, the process of selecting the goods, and the transaction made to pay for the goods purchased.”

Meanwhile, the Chartered Institute of Purchasing and Supply defines P2P as a “seamless process enabled by technology designed to speed up the process from point of order to payment.” Seems straightforward enough…essentially every B2B transaction that involves a buyer and a seller is a procure-to-pay process (aka, purchase-to-pay).

But technology has transformed this process, starting with the tearing down of inefficient and time-consuming silos. In the past (and in the present for many companies), Procurement (those who order the goods) and Accounts Payable (those who pay the suppliers for those goods) rarely collaborated with one another. Each had their appointed tasks and their individual processes. By digitizing and automating processes for AP and Procurement, this has helped to create an automatic communication between the departments.

Automating the Procure-to-Pay Process, Step by Step

  • When an electronic PO is generated by procurement, all the parties involved (procurement, AP, and supplier) have visibility into that PO and the subsequent actions (receipt of goods and invoices).
  • Suppliers then send invoices, either as e-invoices which automatically appear in the system, or as paper, fax, or other format which are scanned and the appropriate data is extracted and normalized. At this point, the invoices go through the accounts payable processes.
  • Matching the invoice to the PO and receipt of goods takes place within the system.
  • If matches are confirmed (within tolerances pre-set by procurement), the invoice is sent straight through to the company’s ERP system to process a payment.
  • Rules may have been stipulated that certain invoice amounts require higher level approvals. That approver would be automatically notified and, upon approval, the invoice would go into the ERP to process a payment.
  • Many P2P solutions also offer a payment component which can deliver electronic payments to suppliers once they’ve been approved.
  • Since all documentation and information are captured and stored within the system, AP has visibility into invoice status, allowing them to get better control of outgoing cash flow; procurement has visibility into supplier history, allowing them to negotiate contracts more effectively; and suppliers are able to see where their invoices are in the payment cycle.

Finding the right solution will enable you to streamline your entire procure-to-pay process flow for easier purchasing and faster processing of supplier invoices. Learn more about the Procure-to-Pay process and how automating it can help you optimize your cash flow.