Procure to Pay
What is Procure to pay?
Before defining procure to pay, it is important to understand the process of procurement. All types of businesses, big or small, must acquire various goods and services on an ongoing basis. These goods and services may differ from one business to the other. It involves people from both the purchase and account payables department. The number of people and the complexity of the process depends on the size of the organisation. This acquisition activity is also termed as “Procurement.”
The process of procurement encompasses various activities that range from simple to complex and includes the following:
- Identification of the best source for products and services.
- Negotiations and drawing contracts for the supply
- A purchase order for goods and services
- Delivery of goods and services
- Invoice generation
- Managing account payable
With more organisations taking their business to the cloud and increased need for automation, business houses are adapting to digital ways of doing the activity of procurement.
What is “Procure to pay”?
” Procure to pay” is the term used by software companies to label the final act of buying goods; it is called procurement. This portion includes all the activities that occur once the sources or vendors for products and services have been identified. Hence, procure to pay is the component of a more extensive process called procurement.
Why do you need “Procure to pay”?
Procure to pay, also known as P2P or purchase to pay, is the need of the hour. It has become a critical component of the customer value chain. Delivering superior value to the customer is the key to growth. To ensure superior value, a smooth flow of goods and services to produce the final offering is needed. The two important components that aid in this smooth flow are
- Correct ordering from the source
- Timely payment to the source
What are the advantages of “Procure to pay”?
Procure to pay integrates the various activities and sub-activities performed by the purchase and account payable department for managing the supply chain. Procure to pay brings increased transparency and control to the process of procurement. Some of the key advantages are as below.
- Enhanced control
- Better visibility
- Better fund management
- Enhances efficiency in account payable processes
Procure to pay involves the integration of the purchasing department with the accounts payable department. Usually, the procure to pay system involves the following steps:
- Supply management
- Cart or requisition
- Purchase order
- Invoice reconciliation
- Accounts payable
While setting up procure to pay to remember to build flexibility in the system. A good implementation of procuring to pay caters to the current needs of the organisation and is flexible enough to incorporate future changes as they arrive.
What are the steps excluded in “Procure to pay”?
Procure to pay is not directly related to supplying chain management. It has a strong connection with supply management, which is ensuring the flow of goods and services and has a limited scope. Hence the following steps are not included in the procure to pay
- Production planning
What are the challenges with “Procure to pay”?
The challenges in setting up procure to pay can be categorised as below:
- Organisation related
- Employee related
Certain organisations have systems and procedures that are difficult to integrate and pose serious challenges. Information and data quality regarding vendors, finance, etc., are essential for successful execution—an organisation’s ability to provide accurate data impacts the success of procure to pay.
Procure to pay integrates procurement and account payables and results in higher visibility and transparency in the transactions. These changes, at times, are perceived as a potential threat by the employees. Implementation of procuring to pay breaks the status quo and attracts resistance from employees. Organisations must invest time and money in managing this change from the traditional ways to Procure to pay.
Today organisations are in between shrinking margins and an aware customer with shifting loyalties. With an increase in the number of players, the landscape across the industries has become highly competitive. Creating, communicating, and delivering superior value is the only way to hedge and grow the customer base. Procure to pay system helps organisations in reducing cost, building efficiency, and creating a superior value proposition. A consistent flow of finished goods and services needs a robust and error-free procurement of essential production resources. Procure to pay helps organisations to create competitive differentiation in the market and gain market share. If you are looking for more on “Procure to pay,” you can contact us (either by filling the form attached in the footer or on the contact us page).