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The global source-to-pay and procure-to-pay outsourcing market is expanding rapidly and is expected to reach $55.8 billion by 2028. If you run a business, you should know about the procure-to-pay process and the digital tools available to manage it efficiently. Your SaaS procurement and accounts payable teams need to be able to track a transaction from the purchase of a product or service to the payment of the invoice.

According to InfosysBPM, 80% of enterprises still use manual or semi-digital tools to manage their procure-to-pay cycle. Most organizations use the procurement module integrated with their ERP or accounting software. This approach can be likened to using a flashlight to crack a nut: it might work, but there are more effective tools.

According to a Gartner report, by 2025, more than 50% of organizations worldwide will have a cloud-based procure-to-pay suite. Most companies use the SaaS procurement module with their ERP or accounting software. 

Refraining from using outdated SaaS procurement software, or even worse, not using any digital solution, can cause serious problems. In this blog post, we'll discuss procure to pay, understand its process, and how it can help modern businesses.

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What is procure-to-pay? 

The procure to pay process describes an organization's method to acquire the goods and services necessary for its operations. Often referred to as purchase-to-pay or P2P, this process combines the purchasing and accounts payable systems to improve efficiency. It's a part of the broader procurement management process and includes four main steps:

• Selecting goods and services
• Enforcing compliance and order
• Receiving and reconciliation
• Invoicing and payment

It is a process, not a technology, though the SaaS purchase software is expressly designed to handle the entire procure to pay process or its components, such as invoicing or related processes, financial accounting, and inventory management.

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For example, suppose a digital marketing agency is looking to buy new laptops for its team. Here’s how the procure-to-pay process will work:

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• The procurement team will evaluate different laptop models, compare pricing and features, and select a vendor offering best value.
• A purchase order (PO) will be created and approved by the finance department, ensuring it meets the company’s budget policies.
• Once the laptops are delivered, the team will verify if they match the details outlined in the PO.
• Finally, the vendor will submit a PO which will be verified and processed by the finance department.

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What is P2P software? 

P2P or procure-to-pay software automates the entire P2P cycle by allowing efficient control of each process stage. Intake-to-procure-to-pay software enables fluid data flow from the purchasing department to the account payables department and vice versa. Modern-day P2P software systems can be integrated with enterprise ERP systems to extract invoice and payment information and notify relevant users of pending and completed processes.

 Using procure to pay software makes the process digital and helps track deals and rules with suppliers, contracts, buyers, and the accounts payable team, avoiding the hassle of paperwork and spreadsheets.

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Why is P2P Important?

If you don’t have a defined P2P process for your business, it might be time to create one. A robust process can help you streamline your procurement workflow, ensuring seamless operations. Here’s why P2P is a must-have for businesses:

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1. Greater Transparency and Control

The P2P process gives you end-to-end visibility into your procurement activities. This makes it easier to track every transaction, monitor budgets, and prevent unauthorized spending.

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2. Compliance with External Regulations and Internal Policies

A systematized process ensures your procurement activities follow all necessary industry standards and internal policies. You can further use advanced procurement tools to automate workflows and ensure compliance through purchase order approvals, proper documentation, and audit trails.

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3. Boost Operational Efficiency

Another significant importance of implementing a P2P process is better operational efficiency. You see, manual processes can be time-consuming and prone to errors. A P2P system can help you automate repetitive tasks like invoice matching, order tracking, etc., reducing errors and accelerating the purchase cycle.

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4. Better Supplier Relationship Management
A streamlined P2P process reduces the risk of disputes and ensures consistency in communication. This helps build trust and foster stronger supplier relationships.

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P2P Benefits

Here are some key benefits of a well-defined procure-to-pay process:

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1. Streamlined Procurement Process: A P2P system eliminates manual inefficiencies, accelerating requisitions, approvals, and order processing.

2. Cost Savings: P2P helps businesses cut costs on invoice processing and maximize savings through strategies like bulk ordering, early payment discounts, etc.

3. Better Cash  Flow Management: P2P gives you real-time visibility into outstanding payments and due dates, helping you predict and manage cash flow effectively.

4. Fraud Prevention: With better visibility and control over the entire procurement cycle, you can easily identify and detect fraud at various levels.

5. Data-Based Decision Making: Sophisticated P2P systems provide valuable data on spending patterns, vendor performance, and cost-saving opportunities, allowing you to make informed decisions.

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Understanding the procure to pay process 

The procure to pay process flow (sometimes called the procure to pay cycle) includes several different steps, including:

1. Identification

The P2P process begins with realizing the need to purchase from external vendors. This step includes making a detailed list of what's needed, the timeline, and possible vendors and checking that these details are correct. The procurement team gathers specific documents, like terms of reference and statements of work, for the needed goods/services. The department requesting the items must provide this information.

2. Requisition creation and approval

After confirming the need, the department fills out a purchase requisition form to officially request what they need. A leader or the procurement team checks this form to approve or deny it, focusing on whether there's enough budget and whether the purchase is justified. If yes, the procurement team invites bids from chosen vendors through a request for proposal (RFP). Vendors submit their proposals, including timelines, costs, and other details.

3. Issuing purchase order 

The procurement team compares offers from different vendors based on factors like delivery time, product quality, cost over time, and compliance to select a vendor and start price negotiations. After settling on a vendor and price, the requesting department issues a purchase order (PO), which becomes a contract once the vendor acknowledges it. The procurement team checks the PO for its correctness. Direct buying without a PO is allowed for one-time or minor purchases.

4. Goods receipt

When the vendor delivers, the requesting department checks the goods/services against the contract to ensure everything matches and is defect-free. The department then accepts or rejects the delivery.

5. Supplier performance assessment

The team evaluates the vendor's performance, looking at delivery timeliness, quality, compliance, communication, service level, and total cost of ownership, keeping records for future reference.

6. Invoice submission and processing

Managing invoices, including e-invoicing, is a key and detailed task. Teams compare the PO, the vendor's invoice, and the delivery note to spot any discrepancies and confirm the invoice's accuracy. After this verification, payment approval is the next step.

7. Accounts payable

Lastly, the finance department processes payments based on the approved invoice. The P2P cycle concludes once payments are complete and the accounts are updated.

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How can procure to pay help modern businesses? 

Businesses can effectively bring all their purchases in one place, collaborate effectively and accelerate procurements. Here’s how:

1. Transparency and visibility into expenses

Modern businesses use real-time spending analytics from P2P platforms to achieve an eagle-eyed view of financial operations. Integrating seamlessly with ERP systems, these platforms offer dynamic dashboards that dissect procurement data into actionable insights. Such precision in financial oversight enables targeted budget management and spending adjustments on the fly based on live data from procurement activities. The capability to scrutinize spending patterns and supplier performance in real-time revolutionizes negotiation strategies and procurement planning, steering companies toward more informed financial decisions.

2. Complete spend control

Organizations use P2P tools to make sure everyone is buying smart. By following the rules set up in these systems, companies avoid unnecessary purchases and stick to buying from suppliers who give the best deals. This careful approach helps businesses save money by buying in bulk or negotiating better prices, all thanks to a system that keeps track of how much is being spent and where.

3. On-time-payments

Streamlining the invoice-to-payment journey, businesses establish themselves as valued customers in the eyes of their suppliers, thanks to the reliability and accuracy of automated payments. This operational efficiency fosters strong supplier partnerships and introduces opportunities for dynamic discounting, where early payments are rewarded with reduced costs. Such practices improve the supplier's cash flow and offer tangible financial benefits to the purchasing organization, creating a symbiotic business environment.

4. Adherence to compliance standards

P2P systems make it easy for companies to follow important rules without making it hard on anyone. These systems automatically check each purchase to ensure it fits the company's rules and the law. This helps companies avoid trouble, simplifies audits, and keeps the business running smoothly. This proactive approach ensures everything is in order, giving peace of mind to everyone involved.

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How Does e-Procurement Fit in the Procure-to-Pay Process?

E-procurement refers to using digital platforms or tools for managing your procurement process. It helps you streamline the cycle by:

• Automating workflows
• Centralizing vendor management
• Enabling real-time vendor collaboration

But where exactly does it come in the P2P process?

You see, while P2P outlines everything from procurement to payment, e-procurement automates procurement-specific steps, such as:

• Selecting goods and services
• Ensuring compliance
• Verifying deliveries and streamlining reconciliations
• Managing repeat purchases

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Challenges in procure to pay

Here are some of the key challenges in procure to pay:

1. No shared data

In big companies, different departments use their methods and tools and keep their records. When the procurement and accounts payable teams need to share information properly, their work needs to be better connected and clarified to correct the information. This means there is more than one set of data that everyone uses, causing mix-ups and mistakes in how things are done.

2. Low spend visibility and lack of transparency

Without a good tool, departments might overspend on procurement without clearly seeing their buying expenses. Not having clear records for how much each department spends makes it hard to understand and use data well. This makes it challenging to make good decisions and causes spending leakages.

3. Slow approvals

When people handle invoices by hand, processing and approving them takes longer. This causes late payments and slows the P2P (purchase-to-pay) cycle. It also means businesses miss the chance to save money by paying early. Paper invoices are hard to keep and find again. Suppliers get upset if they have to keep asking about their payment. Suppliers might only want to deliver things on time if payments are timely because it damages the relationship.

4. Non-PO invoices

Sometimes, suppliers send bills without a purchase order attached. Since these bills can't be paired with a PO, they are difficult for the accounts payable team to deal with and can slow things down.

5. Poor supplier management

Many teams find it challenging to start working with a new supplier and maintain good communication if they need software to help manage everything. Buyers often aren't clear about what they expect to buy, which can cause problems and harm the relationship between the two groups.

6. Compliance

Sometimes, employees purchase without a purchase order, which goes against the company's buying rules. This can show weaknesses in the company's controls, leading to possible misuse of money and risks of not following rules.

7. Inter-functional conflicts

The P2P process needs the buying team and the team responsible for paying bills to work together. But if one team doesn't know what the other is doing, they might often disagree. This can hurt the company's relationship with its suppliers.

8. Non-adherence to compliance and policy

Employees sometimes need to comply more with procurement policies to avoid multiple rounds of approval for every request. Also, different teams involved, like procurement and accounts payable, often do not follow the contract rules because they do not communicate clearly or quickly.

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Best Practices in the Procure-to-Pay Process

Here are some best practices every business must follow to ensure their P2P processes run smoothly and deliver the maximum value:

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1. Leverage a P2P Software

An advanced P2P software can help you automate repetitive tasks, get better visibility and control over the process, and reduce errors. The best tools also come with features like automated purchase orders, invoice matching, spend analytics, and more, saving valuable time and resources.

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2. Document the Process Clearly

Just creating a P2P process isn’t enough. You must clearly document the workflow to ensure all stakeholders understand their roles and are on the same page. Clear documentation can also help you identify gaps and maintain internal and external compliances.

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3. Standardize Approval Processes

Standardizing approval workflows can help you eliminate bottlenecks in the P2P process and ensure all purchases are evaluated on the same parameters. You can also automate the approval process to save time and accelerate the P2P process.

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4. Streamline Contract Management

When it comes to procurement, contracts are inevitable. However, these are critical documents that must be dealt with carefully, as even a minor error or oversight can lead to serious legal trouble later. You can easily prevent this risk by centralizing and organizing all procurement contracts within a P2P system. This will also help you stay on top of renewal deadlines and maintain strong vendor relationships.

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5. Track KPIs Regularly

KPIs, such as purchase cycle time, invoice processing time, etc. give you access to valuable insights into the P2P process. Monitoring them regularly can help you identify inefficiencies early and make timely adjustments to optimize the system.

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6. Ensure Seamless Cross-Department Collaboration

A P2P process typically involves multiple departments, including procurement, finance, legal, and operations. Therefore, it’s important to ensure these departments are aligned through seamless communication to avoid any misunderstandings and delays.

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How Spendflo can eliminate procure to pay inefficiencies with slack-first workflows

The procure to pay process is packed with data and insights that can be leveraged. It helps with everything from picking the right suppliers and managing how much money is spent to figuring out risks and finding areas where money is wasted or could be used better. This process is very important for planning strategies. 

If you set up and use the procure to pay process well, it can significantly enhance the efficiency and quality of your procurement activities in a way that grows with your business. 

When you want to manage your finance department and the whole procure to pay process, thinking about the overall goals, Spendflo is a great choice. Spendflo makes things easier by effectively bringing all your 

• SaaS purchases in one place
• Automating tedious, repetitive jobs 
• Improving how teams, departments, and different steps talk to each other and work together

It combines everything by working well with the software you like, making the procure to pay process smooth, accurate, and safe—all from one place with slack-first workflows. 

To learn more about the SaaS procurement software, book your demo.

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FAQs

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1. What is the difference between source-to-pay and procure-to-pay?

Source-to-pay covers the end-to-end procurement process, starting right from sourcing suppliers to making the final payment. On the other hand, procure-to-pay typically starts with purchasing goods and ends at vendor payment.

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2. What is the procure-to-pay process?

The procure-to-pay (P2P) process outlines how businesses purchase goods and services. It includes the following steps:

• Identifying the requirement
• Requisition creation and approval
• Issuing purchase order
• Goods receipt
• Supplier performance assessment
• Invoice submission and processing
• Accounts payable

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3. Is procure-to-pay the same as procurement?

No, procurement is an end-to-end function that deals with the strategic and operational aspects of sourcing, vendor negotiations, and contracts. However, procure-to-pay deals only with the operational aspect, focusing on the steps from purchasing to payment.

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