â€In today’s fast-paced business environment, companies are constantly seeking ways to optimize their processes to stay competitive. One area that often causes headaches for organizations is the procure-to-pay process. The traditional accounts payable and purchasing workflows can be clunky, time-consuming, and prone to errors. This is where procure to pay automation comes in. By integrating accounts payable and purchasing into a single cohesive process, businesses can streamline their operations, improve efficiency, and build stronger vendor relationships.
What is Procure to Pay Automation?
Procure to pay automation is a system that integrates purchasing and accounts payable workflows to speed up and simplify the procurement process. Traditionally, accounts payable workflows involved manual steps and approvals that could delay vendor payments. The procure-to-pay process eliminates these superfluous steps by leveraging software solutions. The result is a smoother, faster, and more transparent procurement process.
The Steps in Procure to Pay (P2P)
The procure-to-pay process consists of several key steps that are common to most procurement processes:
- Requisition Order: An employee or department requests a product or service they need, such as office supplies or equipment.
- Approval: The request goes through an approval process, typically involving a procurement manager or another authorized individual.
- Vendor Selection: The procurement team evaluates different vendor options and selects the best one based on factors such as price, quality, and delivery time.
- Purchase Order Creation: Once a vendor is selected, a purchase order is created, specifying the quantity, price, and other relevant details.
- Order Approval & Dispatch: The purchase order is reviewed and approved by the appropriate individuals before being sent to the vendor.
- Receiving: Upon delivery, someone on the company’s team receives the goods and verifies the order against the purchase order.
- Invoice Processing & Approval: The company’s accounting team compares the received goods to the vendor’s invoice and the original purchase order, ensuring accuracy and resolving any discrepancies.
- Payment: With a procure-to-pay system, the vendor is paid automatically as soon as the invoice approval is granted.
While this may seem like a complex and lengthy process, with procure to pay automation, software works behind the scenes to streamline and automate many of these steps. For example, the software can automatically approve requisition orders below a certain amount or for specific items, reducing the need for manual intervention. It can also route each requisition and purchase order to the appropriate decision-maker based on factors such as product type and total cost.
The Benefits of Procure to Pay Automation
Implementing procure to pay automation offers numerous benefits for businesses, from faster turnaround times to improved visibility of purchasing expenses and reduced risk of fraud. Let’s explore these benefits in more detail:
Drastically Speed Up Turnaround Times
One of the significant advantages of procure to pay automation is its ability to speed up the procurement process. By eliminating manual steps and automating approvals, businesses can significantly reduce turnaround times. For example, Operation PAR, a provider of addiction and mental health services, saw a 50% improvement in turnaround time for mission-critical supplies by implementing a smart procure-to-pay software solution. The automation allowed them to create a standardized workflow for handling purchase orders, ensuring that all purchase requests automatically reached the appropriate manager for approval, regardless of the office location.
By integrating purchasing and accounts payable into a single system, businesses can eliminate bottlenecks and streamline workflows. Additionally, automation can help companies take advantage of early payment discounts offered by vendors, resulting in cost savings.
100% Visibility of Purchasing Expenses & Accounts Payable
Manual processes, such as requesting purchases through email or using outdated enterprise resource planning (ERP) software, can hinder visibility into purchasing expenses. Implementing a procure-to-pay system provides businesses with complete visibility of every purchase order, from pending approvals to awaiting delivery. With real-time access to this information, companies can better manage their cash flow, identify upcoming expenses, and make more informed budgeting decisions.
By centralizing purchasing and accounts payable data, businesses can gain insights into their spending patterns, identify cost-saving opportunities, and negotiate better terms with vendors. This visibility is crucial for financial reporting, auditing, and ensuring compliance with internal and external regulations.
Another benefit of procure to pay automation is the ability to streamline auditing processes. With improved visibility and centralized data, the accounting team can easily track and audit expenses. By integrating double-checks and audits into the process, businesses can ensure that every purchase is legitimate, and they are receiving the agreed-upon price and products from vendors.
Automation also provides an audit trail of every transaction, making it easier to investigate and resolve any discrepancies. This not only saves time but also strengthens financial controls and reduces the risk of errors and fraud.
Reduce Risk of Procurement Fraud
Procurement fraud is a significant concern for businesses, with experts estimating annual losses of around $2 trillion. Procure to pay automation can help minimize the risk of fraud by implementing preventative measures. For example, the software can flag excessive or frequent purchases and identify any anomalies in the procurement process. This makes it easier to detect and confront fraudulent activities before they cause significant financial harm to the company.
By having all procurement data in one system, businesses can monitor and analyze purchasing patterns, ensuring that purchases align with business needs and budgets. This level of oversight is essential for maintaining the integrity of the procurement process and protecting the company’s financial interests.
Procure to Pay Process Example
To better understand how procure to pay works, let’s walk through an example:
Imagine a battery production manager who needs to procure more lithium for the factory due to an unexpected increase in demand.
- The manager sends a request for more lithium to the purchasing department.
- The purchasing department evaluates different suppliers and selects the one offering the best value.
- A purchase order is created, specifying the quantity of lithium needed and the agreed-upon price.
- The purchase order is approved by the accounts payable team and sent to the supplier.
- The goods are received at the plant, and a receipt of goods is signed.
- The supplier sends an invoice to the accounts payable team.
- The accounts payable team uses software to match the receipt, purchase order, and invoice, ensuring accuracy and resolving any discrepancies.
- Once the invoice is approved, the software automatically pays the vendor using the preferred payment method.
In a traditional workflow, each of these steps would involve multiple manual interactions and approvals. However, with procure to pay automation, many of these steps can be automated, significantly reducing the time and effort required to complete the process.
How to Streamline Your Procure-to-Pay Process
Implementing procure to pay automation requires careful planning and consideration. Here are some steps to help you streamline your procure-to-pay process:
Invest in the Right Procure-to-Pay Automation Solution
The first step is to find a procure-to-pay solution that meets your business’s specific needs. Consider factors such as integration with your existing ERP system, ease of use for employees, setup complexity, and the ability to create a vendor portal. DocuPhase is an intuitive platform that offers end-to-end accounting automation, making it an excellent choice for businesses looking to streamline their procure-to-pay processes.
Map Out Workflows and Identify Potential Bottlenecks
Once you have selected a procure-to-pay automation solution, you need to map out your existing purchasing and accounts payable workflows. Process mapping, which involves visually representing each step of the process, can help identify potential bottlenecks and areas for improvement. By involving key stakeholders, such as procurement managers and accounts payable personnel, you can gain a comprehensive understanding of the current process and identify areas where automation can bring the most significant benefits.
Use Conditional Routing to Streamline Approvals
Conditional routing is a powerful feature of procure-to-pay automation systems. Instead of manually routing purchase requests to specific individuals, conditional routing automates this process based on predefined rules. For example, requests below a certain threshold can be automatically approved, while those above the threshold can be routed to the appropriate decision-makers. This not only speeds up the approval process but also ensures consistency and reduces the risk of errors.
Automate Tedious Tasks
Procure to pay automation solutions can handle various tedious tasks, such as three-way matching and invoice data entry. Three-way matching, which involves comparing the purchase order, receipt of goods, and invoice, can be time-consuming and prone to errors. Automation simplifies this process by automatically matching the relevant documents, reducing the workload on the accounts payable team and ensuring accuracy.
Optical Character Recognition (OCR) invoice processing is another valuable feature offered by some automation solutions. OCR software can digitize data from physical invoices or digital files, such as PDFs. This automation eliminates the need for manual data entry, reducing the risk of errors and accelerating the invoice processing time.
Automatically Pay Accepted Invoices
The ultimate goal of the procure-to-pay process is to ensure timely and accurate payments to vendors. With procure to pay automation, you can set up the system to automatically pay vendors after invoice approval, using their preferred method of payment. This not only saves time but also improves supplier relationships and provides a more accurate picture of your cash flow.
Procure to pay automation offers businesses a powerful tool for streamlining their operations, improving efficiency, and strengthening vendor relationships. By integrating accounts payable and purchasing workflows into a single cohesive process, companies can reduce turnaround times, gain visibility into purchasing expenses, streamline auditing, and minimize the risk of procurement fraud. Implementing the right procure-to-pay automation solution, mapping out workflows, and automating tedious tasks are crucial steps in optimizing the procure-to-pay process.