What is Procure to Pay (P2P)? Process, Cycle, Benefits, Best Practices

The procure-to-pay (P2P) process is a set of integrated activities that helps a company obtain the required goods or services from a supplier. The process is called so because of the ordered sequence of different activities, from the first steps of procuring goods to the final step of paying for them. 

Read along as we discuss the procure-to-pay process, including the different stages, importance, and best practices.

What Is Procure-to-Pay?

Procure-to-pay is the process of requisitioning, purchasing, receiving, and paying for products and services. 

It helps companies streamline procurement, control costs, and improve vendor management.

By automating this process — integrating it with accounts payable, vendor payment systems, and invoice management — you can ensure compliance, accuracy, and efficiency. 

Why Is The Procure-to-Pay Process Important?

A P2P process helps organisations manage their spending and reduce costs. It can also help you save costs by reducing manual and laborious tasks. 

Besides these, here are some reasons why a P2P process is important:

• Streamlines the procurement process by clearly defining all the necessary actions.
• Allows buyers and suppliers to keep track of invoices and the payment progress. 
• Strengthens relationships with suppliers by ensuring timely payment and resolving issues promptly.
• Prevents mistakes such as duplicate orders, overpaying, and payment errors.

Procure-to-Pay (P2P) Process

Procure-to-pay includes all the stages between buying goods or services from a supplier and paying for them. Here are the six different stages of a P2P process:

1. Identifying needs: The first phase in the procure-to-pay process is determining and defining the business requirements with the assistance of cross-functional stakeholders. Once a valid need is determined, procurement teams prepare high-level specifications for goods/products, terms of reference (TOR), and statements of work (SOW).
2. Creating and Approving Requisitions: A formal purchase requisition is created once the specifications are finalised. A requester sends the completed purchase requisition form after confirming that all administrative requirements are met. After reviewing the requirement, checking the available budget, and validating the purchase request form, approvers can approve or reject a purchase requisition.
3. Creating a Purchase Order (PO): Once a vendor has been found, purchasers must negotiate with them. However, this can be time-consuming unless your company has a contract with defined conditions. At this point, the department generates a PO for the required products, records the PO as a separate record in its books, and sends the order to the vendor for fulfilment.
4. Confirming Order: The vendor receives the PO and sends a confirmation of receipt, usually with an acknowledgement that their stock levels are enough for fulfilment. They also inform the company about the expected turnaround time and shipment date. 
5. Notifying Delivery: The acquired products will arrive, and your company must send a delivery confirmation to the vendor. It is vital to compare the shipment to the PO to ensure everything arrives in good shape. It is also critical to highlight exceptions such as damaged or missing items to avoid paying for things that were not received.
6. Paying Invoice: Using your provided information, the vendor makes any required deductions and then sends an invoice to your company. This is where the P2P's three-way match and four-way match takes place. Three-way match verifies that all the information reconciles with the original PO, the delivery receipt, and the invoice. Four-way matches invoices, POs, goods received notes (GRN), and inspection reports.

Example Of Procure-to-Pay

Here’s an example of the procure-to-pay process to help you get a better understanding:

XYZ Electronics, a consumer electronics manufacturer, must procure electronic parts for a new product they are developing.

Here is what their procure-to-pay process would look like:

• Requisition: The product manager identifies the need for specific electronic components and submits a purchase requisition containing details about the parts through the company's procurement system.
• Supplier Selection: The procurement team reviews the requisition and evaluates potential suppliers based on price, quality, and delivery capabilities. After a thorough review, they decided to work with Supplier A.
• PO Creation: The procurement team generates a PO using a standardised template, specifying the quantity, price, delivery date, and terms and conditions. The PO is electronically sent to Supplier A for acknowledgement.
• Receipt and Inspection: When the parts arrive at XYZ Electronics, the receiving department checks the shipment against the PO to ensure it matches the order in terms of quantity and quality. 
• Invoice Processing: Upon successful receipt and inspection, the supplier sends an invoice to XYZ Electronics, referencing the PO number. The finance department matches the invoice to the corresponding PO and receipt documentation.
• Payment: Once the invoice is approved, it is scheduled for payment based on the agreed-upon payment terms with Supplier A.

Benefits Of Efficient Procure-to-Pay Process

The primary benefits of an efficient P2P process are:

• Cost-Savings: Streamlining the P2P process reduces operational costs associated with manual tasks, errors, and delays. 
• Time-Saving: Automating repetitive tasks, such as data entry and invoice matching, allows employees to focus on more strategic activities. 
• Strategic Decision-Making: Companies can use the data and insights gathered from the P2P process to make informed decisions about supplier selection, contract negotiations, and sourcing strategies. 
• Improved Vendor Management: An efficient P2P process streamlines a company’s vendor management processes by helping you shortlist vendors quickly, negotiate prices, and track their performance.
• Customer Satisfaction: Streamlined procurement processes ensure that goods and services are readily available, which, in turn, helps meet customer demand and improve satisfaction.
• Competitive Advantage: Companies with an efficient P2P process can respond more quickly to market changes and opportunities, gaining a competitive edge.

Best Practices For Procure-to-Pay Process

Now that you know the advantages of an efficient procure-to-pay process, here are some best practices that you can follow to streamline it:

• Establish clear P2P policies that outline roles, responsibilities, and the step-by-step process.
• Communicate with suppliers to address issues promptly.
• Negotiate payment terms with suppliers, taking advantage of early payment discounts when possible.
• Implement an automated procure-to-pay system.
• Improve collaboration between different departments, such as procurement and accounts payable.

Frequently Asked Questions

What Is Procure-to-Pay In Accounts Payable?

In accounts payable, procure-to-pay is the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services.

How Does Procure-to-Pay Work?

The P2P cycle begins with a requisition outlining a demand for goods or services, followed by supplier selection and purchase order creation. Once the supplier completes the order, the organisation acknowledges receipt of products or services. Then, the supplier's invoice is compared to the purchase order, and the organisation proceeds with the payment.

What Are The Key Stages Of The Procure-to-Pay Process?

The key stages of the procure-to-pay process are:

1. Requisition
2. Supplier identification and selection
3. Purchase order creation
4. Order fulfilment
5. Goods receipt
6. Invoice processing
7. Payment Authorisation
8. Payment execution

How Does P2P Automation Benefit Organisations?

P2P automation allows organisations to improve collaboration and reduce miscommunication between departments. It also streamlines the process from procurement to final invoice payments.

What Is The Difference Between Procure-to-Pay And Source To Pay?

Source-to-pay includes the whole sourcing lifecycle, from selecting suppliers to managing contracts, whereas procure-to-pay focuses primarily on the procurement process.

What Metrics Are Used To Measure P2P Efficiency?

Some metrics that you can use to measure your P2P process’s efficiency are:

• First-time match rate
• On-time payment rate
• Cost per invoice
• Invoice processing time
• Average payment period