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Procure to Pay » The Complete Guide to a Best-in-Class Procure-to-Pay Process

The Complete Guide to a Best-in-Class Procure-to-Pay Process

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by Arnaud Malardé

Everything you need to know about optimizing your Procure-to-Pay Process

What is Procure-to-Pay (P2P)?

To put it simply, Procure-to-Pay is a standardized business process that allows a business to efficiently buy goods and services from their suppliers and pay them. The process typically contains five steps (purchase requisition, purchase order, receipt, invoice and payment) and several related approval workflows. Procure-to-Pay is the downstream part of a larger process, Source-to-Pay. This upstream process comprises spend analysis, sourcing, selection, contracting and overall supplier information, risk and performance management. If Source-to-Contract answers the question “which supplier should I do business with?”, Procure-to-Pay responses to “how should I engage with that supplier and buy from that contract?”.

What is the Objective of a Procure-to-Pay Process? 

Procure-to-pay is primarily meant to introduce a streamlined and efficient process, prevent employees from buying from non-contracted suppliers and finally protect a company from liabilities by ensuring that any transaction is supported by a budget and a legal framework that is compliant with internal policies and regulation. But it provides better visibility and structure to ensure that any purchased product or service is delivered on time and according to the agreed price and quality before payment is made to the supplier. 

Why is Procure-to-Pay Important?

Procure-to-Pay is increasingly an essential business process to automate in order to effectively capture the value that has been created in upstream processes. It serves as a way to standardize the P2P process across an organization, improving overall efficiency, visibility and reducing the cost of the process while putting in place the appropriate controls (e.g., available budget, internal policies, compliance to regulations, etc). In many organizations, often the person who purchases or creates a purchase requisition for a product or a service is typically not the person who owns the budget or the person who is eventually paying a supplier for this product or service. Therefore, a digital business process with varying levels of control is made possible through an automated procure-to-pay process. This ensures every stakeholder agrees and approves, in a seamless and efficient manner, the transaction prior to the money being spent.

What are the Main Challenges with Procure-to-Pay? 

Typically, the main P2P Procurement challenges are related to inefficiency, lost savings, visibility into spend and a high processing cost. The procure-to-pay process involves several stakeholders, all with varying roles and expectations:

The challenge of the P2P process is to reconcile all these stakeholders’ needs and ensure they collaborate efficiently so that control does not impair the spend of business. When this process is conducted manually or with inefficient tools, time and information are lost. As a result, controls are satisfactory and business expectations are not met. 

Here are some symptoms of a poor procure-to-pay process. While there are many, they usually come down to four categories:

The above are some symptoms of an inefficient and ineffective P2P process. Measuring how well (or bad) a Procure-to-Pay process is doing requires Key Performance Indicators (KPIs).

Key metrics of Procure-to-Pay process:

Although Procure-to-Pay KPIs can slightly vary from one company to another, these 10 metrics are the most common ones and a good baseline to start with.

An effective way of improving the overall Procure-to-Pay process and the metrics is to adopt an Procure-to-Pay solution.

Difference between Procure-to-Pay and eprocurement

Procure-to-Pay is the sequential process we described earlier. Eprocurement or e-procurement comes from electronic procurement. It relates to the digitization of this process through specialized tools. Cloud-based Purchase Order Software is a must-have for any company that wants to become best-class in P2P Procurement.

Benefits of a Procure-to-Pay Solution

A Procure-to-pay software solution unlocks a tremendous amount of value for any organization. Some of the benefits are:

Obviously, not all the Procure-to-Pay solutions offer the same capabilities or value proposition, that is why choosing the right one for your business is critical.

What to Look for In a Procure-to-Pay Solution

Selecting the right Procure-to-Pay software is one thing but first you need to build your business case to get that budget from Finance

Building the business case for Procure-to-Pay Software Automation:

Your business case comes down to one question – What Return On Investment (ROI) should I expect? As we have seen earlier, there are two sources of hard benefits: increased savings from more compliant purchasing and process cost reduction, with additional soft benefits.

On the latter, a report from The Hackett Group gives us some benchmark about where improvements can be made and ultimately the potential for the business case:

1. Significantly higher purchasing operations efficiency:

Significantly higher purchasing operations efficiency

2. Huge improvements in Accounts Payable efficiency:

Huge improvements in Accounts Payable efficiency

3. Ultimately a much lower cost per invoice:

Ultimately a much lower cost per invoice

Ivalua was recently recognized as a leader in the Gartner Magic Quadrant for Procure-to-Pay Suites 2020.  If you are interested in knowing more about the Ivalua’s Procure-to-Pay solution, please visit our Procure-to-Pay page or request a demo of our Procure to Pay software.

Arnaud Malarde Headshot

Author

Arnaud Malardé

Senior Product Marketing Manager

Arnaud Malardé, Senior Product Marketing Manager, joined Ivalua with over 10 years of experience in several procurement positions. An accomplished industry and procurement expert, Arnaud has worked alongside prestigious international Financial Services, Retail, IT and Media organizations. A product thought leader, blog contributor, and webinar host, Arnaud offers valuable and innovative insight into advanced digital procurement solutions. He holds a Master in Finance from ESCP Europe, one of the top French business schools, and a European Master of Science in Management from London’s City University.

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