What is procure-to-pay: A full guide on how it works in procurement

Procure-to-pay (P2P) is the step-by-step process that companies follow when they want to purchase goods and services. Let’s explore how procure-to-pay works and why it's crucial for your business. We'll break it down into stages and explain how it keeps businesses efficient, boosts your team’s bottom line, and helps you make smart buying decisions.

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Then, we’ll look at how you can use technology to optimize your company’s procurement process, reduce errors, and capitalize on opportunities.

What is procure-to-pay (P2P) in procurement?

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The P2P process is part of the larger source-to-pay (S2P) process, which covers the stages of sourcing, vetting, and negotiating with potential vendors. P2P kicks off after these stages have been completed and typically begins once you’ve signed a contract with your chosen vendor to purchase goods or services from them.

Why is procure-to-pay important?

An increasing number of businesses are exploring how they can improve the efficiency of their P2P processes with automation to save significant time and money and glean more insight into their finances. 

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P2P accomplishes this by keeping everyone on the same page in terms of what has already been received, what still needs to be purchased, and where everything is in the process. This structure and alignment across teams benefits your company in a variety of ways, from avoiding errors, wasted time, and late fees to allowing you to take advantage of discounts. 

What are the stages of the procure-to-pay process?

Breaking down P2P into its basic steps can make it much easier to envision the order management process:

1. Create purchase order/spot buy: Once the purchase request is reviewed and the contract with the vendor is finalized, your finance team issues a purchase order (PO) for goods and services. If the requested goods and services have characteristics such as one-time unique purchases and low-value commodities, then your team can perform a spot buy.
2. Purchase order approval: Purchase orders are now sent through an approval chain. Upon the vendor's confirmation of the purchase order, a legally binding contract is activated. 
3. Receipt of goods: Next, the vendor delivers the specified goods and services, which are then inspected by your buyer. The acceptance or rejection of the receipt of goods adheres to the criteria specified in the purchasing contract. Then, a ‌receipt is sent to your accounts payable team.
4. Invoice submission and approval: Your AP team approves the invoices using your preferred invoice matching method. This might be 2-way matching, which checks the vendor's invoice against the details of the purchase order, or 3-way matching, which compares the details of the purchase order, the invoice, and the goods receipt before making the vendor payment.
5. Vendor payment: Upon receiving an approved invoice, your finance team will process the payment. A payment made to a vendor will fall into one of the following five types: advance, partial, installment, final, or holdback/retention payments.

What is an example of procure-to-pay?

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A manager at nonprofit Nevada Partnership for Homeless Youth (NPHY) needed to buy hundreds of bus passes for an upcoming event. Here’s a look at their procure-to-pay process:

• Request submitted: The manager submits their request to the purchasing department and awaits product delivery.
• Request approved: The procurement team approves the manager’s request and compares prices from various vendors.
• PO created: Identifying the best value, the procurement team generates a purchase order and sends it to the finance team for processing.
• PO sent to supplier: Upon approval from the finance team, the purchase order is transmitted to the supplier.
• Receipt of goods: The supplier provides the bus passes, and the manager ensures that they meet the required specifications and sends the receipt to accounts payable.
• Receipt of invoice: The supplier sends the invoice to the accounts payable team for validation, providing alignment with the receipt and purchase order.
• Vendor payment: Following invoice approval, payment is disbursed to the supplier.

Procure-to-pay vs. accounts payable: What's the difference?

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P2P covers the entire procurement process, from the initial requisitioning of goods and services to the final payment to suppliers. Accounts payable, on the other hand, is focused specifically on the payment side of the financial management process. It involves managing and recording financial obligations to suppliers. 

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In other words, AP primarily deals with the post-procurement phase, focusing on the processing and payment of invoices, while P2P encompasses the procurement process from start to finish. Using procure-to-pay software to integrate purchasing and AP systems streamlines this process for your business, allowing one process to flow seamlessly into the next.

What are the challenges of procure-to-pay?

Procurement leaders handle several responsibilities, including overseeing needs assessment, vendor management, and payments. Let’s look at some of the challenges they face in the purchasing process and see how partially manual P2P systems are costing them time and money:

• Maverick buyers: Poor contract management and randomly timed purchases make goods and services more expensive.
• Ineffective budget management and expenditure control: Inadequate tracking and limited data transparency make it easy to overspend.
• Interdepartmental conflicts: Manual P2P processes make close collaboration and transparency between procurement and accounts payable teams difficult at best.
• Slow approvals: Time-consuming manual processes and repetitive tasks can lead to errors and delayed payments.
• Cash discount losses: Delayed bill payments can harm your relationships with suppliers and make your company ineligible for discounts.

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‍By automating with the right P2P software solution, your business can eliminate many of these challenges and reclaim wasted resources.

How can automation solve procure-to-pay challenges?

An increasing number of companies are harnessing technology to automate various manual tasks within the P2P process, particularly invoicing. These P2P solutions streamline the entire end-to-end process, even consolidating AP with P2P.

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P2P software like Ramp automates manual processes with enterprise resource planning (ERP) integrations, resulting in synced transactions and support for multiple ERP entities. The image below demonstrates how the nonprofit from the example above, NPHY, was able to simplify and automate their P2P process through adopting Ramp’s software:

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P2P software solutions like Ramp use analytics and process-mining capabilities to improve compliance and control. They also help provide deeper insights into global spending. Here are a few ways P2P software like Ramp can improve your business’s P2P process:

1. Cost savings and a streamlined process

Automate purchase order transmission, validate payments swiftly, and make timely payments to speed up invoice processing. Combining all data, including both P2P and AP, on a unified platform enables effortless expense management and increased savings.

2. KPIs to evaluate your P2P process

Ramp’s software tracks the following KPIs for maximum visibility into the process and improved decision-making:

• Average cost and time taken to complete a purchase order
• Average cost to process an invoice
• Average time to invoice approval
• Outstanding days payable
• Savings realized
• Spend management 

3. Accelerated invoicing

With P2P automation, you can auto-create and deliver purchase orders for approved requisition requests. And with 3-way matching, an automation tool verifies and processes invoices faster with less room for error. 

4. Valuable insights unlocked

P2P automation empowers your team to automatically generate and dispatch purchase orders for approved requisition requests. Leveraging the 3-way matching feature, this automation tool accelerates invoice verification and processing, minimizing the potential for errors.

How can Ramp save my company time and money?

Ramp’s procurement software helps you effortlessly automate manual tasks at all stages of the P2P process. The result? A consolidated procurement, bill pay, and vendor management solution that gives you real-time visibility and control over your business expenses for faster decision-making. 

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With Ramp, you can reduce spend through price intelligence and other savings insights, track expenses, and enforce compliance by building your team’s policies into tailored procurement workflows. Plus, you can set up custom spend controls to guarantee employees always stay within budget.

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But how does that look in terms of actual numbers? Let’s look at how med tech company Precision Neuroscience is saving time by switching from a labor-intensive P2P process and automating manual tasks with Ramp:

• Time for PO to be sent to vendor: Reduced by 50%
• Data entry time saved per PO: A couple of minutes each, times 20 to 30 weekly
• Month-end close: Reduced to 1 to 2 days
• Platforms used: Reduced from 4 to 1

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Additional benefits Precision Neuroscience has experienced working with Ramp include greater visibility into their financial picture, significantly reduced reliance on their outside accounting firm, and elimination of the errors and duplications that are so common with manual P2P processes. 

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Explore the benefits your company could experience by optimizing your procure-to-pay process with Ramp Procurement.