Procure-to-pay process: a definition, solutions, & best practices
For most growing companies, procurement has long been and remains a thorny issue. Despite the best intentions and smart people involved, this process still leads to misunderstandings, paperwork, and stress.
It's no surprise, then, that new methodology and technology has appeared to simplify key steps.
In this post, we're going to explore the procure-to-pay process in more detail. This systematic approach to procurement should be a priority. So let's get into it!
What is the procure-to-pay process?
Procure-to-pay is the specific process used by businesses for effective procurement. It involves integrating accounts payable and purchasing software to easily manage each step of the procurement process.
At its most simple, procure-to-pay requires four key steps, each of them tracked and transparent for users:
Selecting products and services for purchase, and making an internal request
Reviewing orders and ensuring compliance with company policy
Receiving the order and matching it with the original purchase request
Processing the supplier’s invoice, and reconciling this payment within accounting systems
We’ll see shortly a flowchart that separates key points in more detail, and places them in chronological order.
Key procurement terms
As with all things business, the procure-to-pay process has its own terminology. While many of these terms are fairly common, they have their own meaning in the procurement context.
Requisitioning. An official order to request the use of something. In the procurement context, it’s the internal request from a team member - to the purchasing or finance department - for the purchase or supply of a specific good.
Approval. If the request comes from a frontline team member, their manager (or an even more senior leader) may need to validate that the purchase is necessary and should proceed.
Purchasing. The purchase of a good or service as a result of requisitioning. In the classic procurement process, this is usually done by the purchasing department at the request of an end user. Note: This doesn’t mean that payment has occurred.
Receiving. When the good or service is actually delivered. This occurs before payment in the procure-to-pay process.
Payment. In the business context, payment typically takes place after the goods or services have been received.
Accounting. Because this is a company payment with tax implications, accountants need to accurately record and reconcile the transfer of funds with the original purchase order and approval.
These terms are also loosely in order of the classic procure-to-pay timeline. But to make visualization easier, let’s look at a simple illustration.
Procure-to-pay process flow chart
The team at Frevvo have put together this relatively straightforward procure-to-pay flow chart:
Of course, “relatively straightforward” still involves nine distinct steps. That’s nine areas with the potential to create hold-ups and administrative tension.
Luckily, there are good tools that can take away some of these issues.
The key to a good procure-to-pay strategy is of course good technology. The goal is to have as many touch points automated as possible, and to save on administration.
Here are a few highly regarded procure-to-pay solutions.
For larger businesses wanting to maintain good vendor relationships, Ariba is ideal for invoicing. As the makers themselves explain, “You need technology that makes trading partner collaboration easier and more efficient. Because in a volatile global marketplace where businesses rise and fall every day, sustainable competitive advantage requires strong, mutually beneficial relationships.”
The platform lets you share your procurement process with suppliers themselves. Vendors submit invoices directly to Ariba, so you don’t have to manually them. Ariba also incorporates purchase orders, so you have a clear trail from PO, to agreement, to invoice, to payment.
And if you’re already using SAP’s other ERP tools, everything’s integrated natively.
Spendesk brings the advantage of dealing with procurement as part of your overall spend and expense management strategy. Team members submit invoices electronically, managers approve, and finance processes them for payment all in one system.
The key benefit is that this is the same system your teams already use to make debit card payments and submit expense claims. So they don’t have to learn new workflows or memorize different passwords.
This also means that all your operational spending lives in one place, and finance teams can check spend in a moment. Whether it’s Amazon purchases, supplier invoices, or card payments in the field, you always know what’s being spent.
Xelix describes itself as “the world’s first invoice intelligence platform.” It sits on top of your existing procure-to-pay and accounts payable processes, and provides insights. Most notably, it spots errors and duplicates, and prevents fraud.
As the video above shows, Xelix kicks in after payments have been approved, but before they actually occur. It’s like a final sanity check before the money leaves your account and any real issues become a big deal to fix.
Because it analyzes every payment, Xelix also provides data and procurement insights. These can be hard to extract from larger ERP platforms, and many users report an easier time monitoring payment trends with Xelix.
G2 rating: 4.8/5
Procure-to-pay best practices
Because the procurement process can be so complex, here are a few tips and best practices from those who know it best.
Kissflow - Improve supplier relationships
In most companies, purchases aren’t isolated incidents. You likely use the same vendors time and time again to supply vital business goods and services. And it’s always in your best interests to keep them happy.
“Every organization has a number of suppliers who deliver essential products, provide specialty services, perform regular maintenance, and complete one-time urgent repairs. Although calling a specific vendor to order a merchandise or repair a faulty machine sounds simple, the task of qualifying and managing a supplier is anything but.
“An organization can improve supplier engagement by:
Generating win-win situations and trust
Treating suppliers as strategic partners
Monitoring supplier performance with specific KPIs
Enabling collaboration and communication with vendors”
Happy suppliers can mean better service, smooth communication, and even discounts along the way.
Insider Pro - Look beyond the list price; think value
Obviously the price of a good will be a key determinant of whether or not you eventually make the purchase. But there’s the ticket price, and then there’s the benefits it will bring when all’s said and done.
“The price of an ingredient from supplier X may be the lowest you can possibly get, but if it requires more man-handling or storage than more ‘expensive’ alternatives, it may not prove to be the low-cost solution you need.
“Best in class procurement teams really focus on that total cost of ownership - taking account of storage, handling and other costs. They work with their colleagues in other departments to truly understand the parameters and how to arrive at economic order quantities EOQ to take account of stock-holding and other costs.”
In other words, make purchasing decisions based on the total value you’ll receive in the end, and not just on the cost today.
ProcurePort - Get wider company buy-in
Purchasing departments rely on other teams for clear purchase orders and efficient execution. So it’s in their best interests to make the process clear and enjoyable for everyone involved.
At the very least, you want to ensure that all teams understand your processes and the rationale behind them. Which starts at the top.
“Change is hard for people, and the only way your deployment of e-Procurement is going to be a success is if you are promoting its use throughout the company. Senior leaders in your business and influencers in your teams should be recruited to promote the benefits of the e-Procurement system.
“If leaders and influencers are on board with the new system, the rest of the company will start to use it.”
Enlist internal ambassadors to help bring the rest of the team along. And if they’re higher-ups in the business, even better.
Procuria - Ensure process transparency
“A transparent procurement process ensures that all the team members, as well as the qualified suppliers, have access to procurement methods, evaluation criteria, technical specifications, etc.”
As we saw in the case of Ariba above, you can give visibility and clarity not only to your own team members - which is essential - but also to suppliers themselves. When they can submit and track their own invoices, it removes a lot of the back-and-forth communication. And that takes a little pressure off everyone.
“Six benefits of procurement transparency:
No more duplication of requests;
Better record management;
Advanced strategic planning;
Increasing accountability and improved performance.”
Claritum - Add value for the organization
This is a particular message to procurement and finance teams themselves. You have a difficult and technical job, and can often end up constantly playing the bad cop. But if you’re able to reframe your work to provide the maximum value to those around you, you get more buy-in and have healthier working relationships.
“For procurement to really add value the focus needs to be on tackling what matters to your organization the most. Typically, the organization's goals include improving financial considerations (savings costs, improving cash flow, enforcing compliance), improving quality (delivering a reliable service, consistent quality of goods) and improving efficiency by utilising resources effectively.
“These goals can only be achieved by implementing the right sourcing tools such as a cloud spend management platform.”
Add invoice automation for a smooth procurement process
Serious procurement tools can be wonderful for larger organisations. But they can also be difficult to install and require good internal training. If you’re at this point, just make sure that the efficiency gains will be worth it. And of course, check the reviews.
If you’re not yet ready for the all-encompassing enterprise solution, there are still smaller steps you can take. In particular, adding automation into what is currently a very manual process.
Invoice processing tools don’t have to be heavy and hard to manage. When done right, they simply give a clear workflow for frontline teams, and more visibility for finance:
A team member uploads an invoice;
Their manager approves;
It’s sent to finance for payment.
Every step is tracked, and everyone can check the status at any time. The best part: you remove all those small, back-and-forth emails and “check-ins.” These add stress, and definitely don’t add value for anyone.
Learn more about Spendesk’s invoice automation, and talk to the team to see it in action.