In today’s dynamic marketplace, finance departments need to continually revamp and optimize their processes to fulfil the growing expectations from the business. The procure-to-pay function (also known as purchase-to-pay), in particular, is often muddled with inefficient processes and several bottlenecks.
Inefficiency, lack of proper processes, and outdated technology are the usual culprits behind unnecessary delays, loss of customers, and damaged vendor relationships. Before we get into what you can do to optimize the procure-to-pay process, let’s take a quick look at what the P2P process comprises.
What is procure-to-pay/purchase-to-pay?
In a nutshell, the procure-to-pay function comprises the entire purchase system for a business. It begins with identifying and purchasing a product or service required by the business, and ends with processing the payment for that purchase.
The P2P function can be divided into seven steps, namely:
Identifying what is needed
Creating a purchase order
Receiving the materials
Approving the invoice
Paying the vendor
It’s vital that businesses work towards optimizing their P2P function in order to boost growth and improve customer relationships. We’ve compiled a list of 10 best practices to help you better manage the procure-to-pay function.
Best Practices for P2P Management
1) Work towards standardization: This is a critical step for any business function. It’s vital that you have a precise set of policies and guidelines that are both standardized and documented. It’s equally important to document and standardize processes in order to avoid any confusion or deviation during implementation.
2) Encourage collaboration & Positive relationships: There is a lot of collaboration and cross-functioning involved in the P2P process. Therefore, it’s crucial that all departments and individuals involved in the process be aware of their respective roles and responsibilities. Furthermore, it’s extremely important that you maintain a positive relationship with vendors.
Always maintain clear and open communication regarding requirements, purchase orders, and invoices. Don’t forget to establish clear expectations with your vendors right at the start. Regularly monitor their performance, evaluate the quality of goods and services delivered, and ensure you pay them on time.
3) Set measurable goals: When deciding your goals, focus on what you want to accomplish from the procurement process. Do you want to increase accountability, reduce costs, improve efficiency, or speed-up delivery? Early identification and prioritization of goals that are both achievable and measurable should be at the top of your agenda. You could also invest in software that enables you to keep track of crucial KPIs, collect data, and provide insights.
4) Maximize visibility and control: One of the key factors behind the success of a P2P cycle is visibility. How much inventory do you have? What products do you need to source? How many purchases have been made? Real-time availability of records, purchase orders, and technical specifications can ensure more transparency for everyone involved in the procurement process. You can also utilise a single platform to monitor purchases, invoices, and vendor management. This will also enable your business to gain detailed insights, better manage records, shift towards strategic purchasing, and lower costs.
5) Say YES to Automation: It’s a known fact that manual processing is prone to errors. Automation on the other hand offers precision, cost savings, and frees up time for more strategic tasks. It’s a good idea to start with automating your purchase orders and switching to electronic invoices. Automation also leads to streamlined workflows and processes, thereby improving staff morale and overall execution of tasks.
6) Optimize inventory management: If the inventory is not managed efficiently during the procurement process it can be challenging to control expenditures and maintain bottom lines. Properly optimizing your inventory management will enable your business to plan purchases, minimize waste, and deliver customer expectations. Remember, it can get costly to hold inventory while paying warehouse fees, taxes, insurance and more.
7) Streamline and integrate procurement processes: It’s a well-known fact that the P2P cycle has several approval processes in place, especially for mid-to-large businesses, which can often paralyze the entire cycle. Often, the biggest hurdle is the continued use of manual processing and transfer of data. When you further add checks and authorizations to this process, you are left with several bottlenecks that can cost you both time and money.
A streamlined, automated system will enable various processes in the P2P cycle to move in a smooth and efficient manner. It will also speed up the entire process and help you save on additional costs. So, consider streamlining the workflow and integrating the various procurement processes into one single system so that your data moves from point A to point B in a seamless fashion.
8) On-time payment: Another key factor to an efficient procure-to-pay cycle is timely payment of invoices. It shows that your accounts payable processes are streamlined and you’ve managed to negotiate good terms for your business, which further strengthens long-term management of vendor relationships.
9) Keep track of purchase order first-time match rate: If your invoices match with your purchase orders as expected, it is a strong indicator of an efficient and compliant process. In order to have a high first-time match rate, your internal buyers and external vendors need to thoroughly follow process requirements. You can identify your first-time match rate by finding out how many invoices go straight through to accounts payable in the first instance without any delays or manual interventions.
10) Reduce the number of days it takes to approve an invoice: Timely payment, as mentioned earlier, is a crucial factor in the P2P process. It strengthens your vendor relationship and could even fetch you great discounts or rebates. To accomplish this, focus on speeding up the approval process. You can utilize a digital workflow to quicken your invoice approvals, make early payments, and gain discounts.
Transform Your Procure-To-Pay Function with QX
QX offers a wide range of outsourced P2P services for businesses across industries. Our P2P solutions include accounts payable, invoice management, PO management, and vendor master management amongst others. Our unique partnership approach allows us to work closely with our clients and customize our offerings according to their needs. Speak with our experts to know more about our P2P services.