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What is Procure-to-Pay (P2P) in Procurement?
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Procure-to-pay is a step-by-step process that companies follow when they want to purchase goods and services–from identifying a need, to getting the green light, to buying something, to paying vendors for it. It's a process, not a technology, though there is software designed to handle the entire procure-to-pay process that optimizes compliance, control, and automation and reduces errors.
In this article, we'll explore how procure-to-pay works and why it's crucial for businesses. We'll break down its stages and show how it keeps businesses efficient, returns more to the teams’ bottom lines, helps to make smart buying decisions, as well as how it can be optimized through current technology. Let’s dive in and make sense of this essential behind-the-scenes process.
*Procure-to-pay is also known as purchase-to-pay and is often abbreviated as P2P. It shouldn't be confused with peer-to-peer, however, which is also called P2P and refers to a networking technology that allows two or more computer systems to connect and share files without separate servers. For the purposes of this article, P2P refers to procure-to-pay.
Stages of procure-to-pay process
P2P has 2 stages:
- Source-to-pay process, known as S2P
- Procurement process
Source-to-pay process
Sourcing is a key function within procurement, as it makes sure the procurement team finds quality suppliers and S2P manages contracts with suppliers. These steps include the following:
- Identifying the business need: This is typically done with the help of multiple stakeholders. Once the requirements are identified, the procurement team outlines broad specifications for goods and creates a set of Terms of Reference (TOR) for services.
- Create a requisition and select a supplier: After finalizing the specifications/TOR, a purchase requisition (PR) form is created that identifies a product, service, and vendor. This marks the beginning of the finance team's evaluation process, wherein they select the most suitable vendor, and explore potential cost discounts.
- Requisition approval: Submitted purchase requisitions (PRs) are then reviewed by the department head. The approver holds the authority to either give approval or reject a PR after checking the budget availability and validating the details provided in the purchase requisition form.
Procurement process
- Create purchase order/spot buy: Once the PR is reviewed and the contract with the vendor is finalized, the 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 a spot buy can be performed.
- Purchase order approval: Purchase orders are now sent through an approval chain. Once approved, purchase orders are sent to vendors. Upon the vendor's confirmation of the purchase order, a legally binding contract is activated.
- Good receipt: At the following stage, the vendor delivers the specified goods and services, which are then inspected by the buyer to guarantee compliance with the contract terms. The acceptance or rejection of the receipt of the goods adheres to the criteria specified in the purchasing contract. Then, a receipt is sent to the accounts payable team.
- Invoice submission and approval: Accounts payable team approved the invoices by different ways of invoice matching, such as two-way matching, which checks the vendor's invoice against the details of the purchase order, or three-way matching, which compares the details of the purchase order, the invoice, and the good receipt to make sure they all match before the vendor payment is made.
- Vendor payment: Upon receiving an approved invoice, the finance team will process the payments according to the contract terms. A payment made to a vendor will fall into one of the following five types: advance, partial, installment, final, and holdback/retention payments.
Procure-to-pay vs. accounts payable: unraveling the variances
Procure-to-pay
P2P covers the entire procurement process, from the initial requisitioning of goods and services to the final payment to suppliers.
Key functions:
- Requisitioning and approval of goods or services.
- Creating and managing purchase orders.
- Receiving and inspecting goods and services.
- Matching purchase orders, goods receipts, and supplier invoices.
- Approving invoices for payment.
- Authorizing and making payments.
Accounts payable (AP)
AP specifically pertains to the payment side of the financial process. It involves managing and recording financial obligations to suppliers. In other words, AP primarily deals with the post-procurement phase, focusing on the processing and payment of invoices.
Key functions:
- Receiving and validating supplier invoices.
- Obtaining necessary approvals for payment.
- Recording the liabilities in the financial system.
- Making bills to suppliers.
Advantages of the procure-to-pay process
The P2P process offers numerous benefits to organizations, contributing to efficiency, cost savings, and improved control over procurement activities. The flexibility of this process ensures that it can be applied in a wide range of business settings. Here are some key benefits of implementing a P2P system:
Strengthen supplier relationships: By using the supplier portal, suppliers can access information regarding their payment timelines, which offers visibility of the invoice's status, enabling better decision-making on their end.
Fraud prevention: While having great relationships is helpful, it may also create opportunities for fraudulent activities. Implementing a P2P system that includes strict invoice matching and multiple review checkpoints acts as a safeguard against potential fraud.
Improved visibility: Internal control and visibility over the end-to-end P2P cycle gives organizations full insight into cash flow and financial commitments. When all transactions are captured, it becomes easier to track. Additionally, the data can reveal optimization opportunities.
Cost efficiency: Transitioning to a paperless not only decreases time and cost to 80% but also empowers companies to allocate their employees toward strategic initiatives instead of repetitive tasks that are more efficiently handled through automation.
Streamlining procurement operations: Using procurement software establishes seamless connectivity across an organization, speeding up requisition requests and approvals, enabling data-driven supplier selection, and electronically generating and dispatching purchase orders to suppliers. The electronic traceability and simple monitoring make this process more efficient.
Procure-to-pay process challenges
Procurement leaders manage an array of responsibilities, overseeing needs assessment, vendor management, and payments. Their role is dynamic and fast-paced, presenting constant challenges and complexities.
Maverick buyers: Poor contract management and unauthorized purchases make goods and services more expensive. Prices are generally high when made at low volumes or purchased during peak demand.
Effective budget management and expenditure control: Lacking proper tools for procurement expenditure visibility, departments can overspend without adequate tracking. This absence of comprehensive spending records leads to limited data transparency, impacting decision-making and causing expenditure inefficiencies.
Interdepartmental conflicts: Efficient P2P operations require close collaboration between procurement and accounts payable teams. Yet, when one team lacks visibility into the other's actions, internal conflicts can arise. These conflicts may further strain supplier relationships.
Slow approvals: Manual and repetitive tasks within the P2P process are always prone to errors and slow down a workflow. This leads to delays in payments.
Cash discount losses: Early payment programs offer to negotiate discounts with suppliers that also support the organization's supply chain. However, delays in bills can harm the relationships with suppliers.
Failure to adopt technology: Managing the procurement process manually may appear simple at first, but it becomes more complex gradually. Many companies might not realize the potential for increased efficiency and cost savings when using partially manual P2P systems that lack automation capabilities.
Example of procure-to-pay
Suppose a manager at a nonprofit needed to buy $10,000 worth of bus passes due to an event coming up.
- First, the manager submits a request to the purchasing department and awaits the delivery of the products.
- The procurement team approves the request and proceeds to assess the prices offered by various vendors.
- Identifying the best value, they generate a purchase order, sending it to the finance team for processing.
- Upon approval from the finance team, the purchase order is transmitted to the supplier.
- The supplier sends the invoice to the accounts payable team for validation, providing alignment with the receipt and purchase order.
- Following invoice approval, payment is disbursed to the supplier.
Role of automation in procure-to-pay in solving the challenges
Many companies are harnessing technology to automate various aspects of the P2P process, particularly invoicing. P2P solutions are crafted to streamline the entire end-to-end process, even consolidating AP with P2P. See the image below for a quick example on how the nonprofit from the example above could simplify and automate this P2P process through adopting a software like Ramp.
P2P software solutions such as Ramp, SAP Ariba, Coupa, and Precoro, with their analytics and process mining capabilities, can improve compliance and control. They also help provide deeper insights into global spending. The following are a few ways that software can improve the process:
Cost-saving and streamlined process: Automate the transmission of purchase orders, validate payments swiftly, and make timely payments to speed up invoice processing. Moreover, combining all data, including both P2P and AP, onto a unified platform enables effortless expense management and leads to increased savings.
Track KPIs: The following KPIs are used to evaluate the P2P process:
- Average cost and time taken to complete a purchase order
- The average cost to process an invoice
- Time it takes to approve an invoice, on average
- Outstanding days payable
- Saving realized
- Management of spending
Speed up invoicing: P2P automation gives us the power to auto-create and deliver purchase orders for approved requisition requests. With 3-way matching functionality, an automation tool verifies and processes invoices faster with less scope of error.
Unlock valuable insights: P2P automation empowers us 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.
Wrapping up the procure-to-pay journey
The P2P process plays a pivotal role in managing business purchases and payments. While it offers significant benefits like efficiency and cost savings, challenges such as budget control and slow approvals exist.
Implementing automation technologies can overcome these obstacles, simplifying processes and revealing valuable information for more intelligent decision-making. In the end, utilizing P2P automation offers more efficient operations for companies.
Get more spend under control with Ramp
With Ramp’s procurement software, you can effortlessly automate the stages of P2P, have a consolidated procurement + bill pay + vendor management solution that allows you to have real-time visibility and control over your team’s spend for faster decision-making, optimize value by reducing spend through price intelligence or other savings insights, track expenses, enforce compliance by implementing your policies into your team’s tailored procurement set up, and even automate some accounting.
Plus, you can establish employee expense permissions and barriers to guarantee your financial parameters are always met. Don't miss out on optimizing your procure-to-pay process with Ramp.
FAQs
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How 8VC resolved accounting coding challenges, increased spend visibility, and cut time to close with Ramp
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- Higher credit limit than traditional business credit cards
- Spend management tools
- Give an unlimited number of physical and virtual cards to employees
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- No elevated cashback rewards for specific categories
- You need $50,000 in your business bank account to qualify
- Cashback rewards
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- Access to over $350,000 in offers from multiple partners
- Automated expense management software
- Track vendors and receive pricing insights from one dashboard
- Automated accounts payable
- Zero fees or interest
- No interest or fees
- Cashback rewards
- No personal guarantee
- Balances do not carry over, so you must pay them by the end of each month
- Your business must be incorporated to qualify for a card
- You need at least $50,000 in a business bank account to qualify
- Average net savings of 5% due to cost-reducing features
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- Get cashback on purchases
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- Access more than $350,000 in deals from various partner
- Use automated software for expense management
- View vendor information and pricing on a single dashboard
- Automate accounts payable
- No fees or interest
- Cashback rewards on purchases
- Built-in expense management software
- No personal guarantee or credit check required
- Must be a registered business to qualify
- Must have most of your business spend in the US
- The Ramp Card is ideal for incorporated businesses
- Comes with automated expense management tools
- Provides 5% net savings on average
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- No annual fees, foreign transaction fees, or card replacement fees
- Best for businesses aiming to streamline financial operations and enhance savings
- Offers 5% net savings on average through expense-cutting features
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Not available to sole proprietors or unregistered small businesses
- Requires $50,000 in a business bank account to qualify
Card Details
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
Pros
- Cashback rewards
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
Cons
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
Ramp’s charge card program comes with the additional perk of tools designed to help your business track and reduce its spending.
- No personal guarantee
- No annual fee
- Valuable cash back
- Additional tools to track spending
- Unlimited physical and virtual employee cards with custom limits
- Not available to sole proprietors
- Must have $50,000 in liquid assets
- Unlimited free virtual and physical employee cards
- Cashback rewards on purchases
- Customizable spending limits for employees
- Real-time transaction visibility
- Connects with accounting systems like QuickBooks and NetSuite
- Automates bill payments and invoice processing
- Provides a comprehensive audit trail and expert support for negotiations
- Unlimited virtual cards
- Real-time expense tracking
- Integration with accounting software
- Automated bill payments and invoice processing
- Requires full balance payments monthly
- Limited to businesses with most of their operations in the U.S.
- Corporate card and spend management platform
- Free employee cards with custom spending limits
- Cashback rewards on all purchases with no fees
- Built-in fraud protection ensures that your organization's finances are always secure
- Offers an average savings of 5% by identifying cost-saving opportunities
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Not available to sole proprietors
- As a corporate charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Unlimited employee cards with custom spending limits
- Cashback rewards on purchases
- Offers an average savings of 5% by identifying cost-saving opportunities
- Assists with software price negiotations
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Not available to sole proprietors
- As a corporate charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Cashback rewards on purchases
- Unlimited employee cards with custom spending limits
- Accounts payable software
- Uses business revenue to determine eligibility and credit limit
- No annual fees or interest
- Custom spend and vendor controls
- High credit limits
- Automatic receipt matching and expense categorization
- Only available to corporations, LLCs, and LPs
- As a charge card, balance can't be carried monthly
- Must have $50,000 in a business bank account to qualify
- Corporate card and spend management platform
- Cashback rewards on purchases
- Unlimited employee cards with custom spending limits
- Automated receipt matching
- Accounts payable software
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Integrates with accounting platforms like NetSuite, Quickbooks, and Xero
- No credit check or personal guarantee required
- No annual fee or foreign transaction fees
- Must be a corporation, LLC, or LP to qualify
- Must have most of your operations and business spending in the US to qualify
- Corporate card with built-in spend management
- Cashback rewards on purchases
- Automated expense reports on fuel spending
- Advanced financial management features
- Unlimited free employee cards
- Requires a registered business and $50,000 in a U.S. business bank account to qualify
- Balance must be paid in full monthly
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- No personal guarantee or credit check required to qualify
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Credit limits up to 30 times higher than traditional credit cards
- Sales-based underwriting makes for an easier qualification process
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- No credit check or personal guarantee required for eligibility
- Advanced expense management automations and accounting integrations
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Advanced expense management automations and accounting integrations
- No personal guarantee or credit check required for eligibility
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
- Corporate card with customizable spending controls
- Cashback rewards on purchases
- Unlimited free physical and virtual employee cards
- Must have $50,000 in a business bank account to qualify
- Balance must be paid in full each month
- Advanced expense management automations and accounting integrations
- No personal guarantee or credit check required for eligibility
- No annual fee or foreign transaction fees
- Must be a corporation, limited liability company, or LP to qualify
- Must have most of your operations and corporate spend in the US (though international purchases are supported with no foreign transaction fees)
The Ramp Corporate Card is ideal for startups without a credit history. You just need an EIN number and $50,000 in a business bank account to qualify, and there's no credit check or personal guarantee required. Ramp's corporate card offers cashback on purchases and built-in expense management software to streamline your business finances.
Some of its features include receipt matching, subscription management, and AI-powered spending insights. Ramp is an excellent choice for startups that are aiming to earn rewards on business purchases while managing expenses.
- Ramp Corporate Card includes built-in spend management and travel-specific features
- Ability to set and enforce your company's travel spending policy on employee cards
- Features a travel dashboard displaying complete trip itineraries and flight information for each employee
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- Compatibility with 100+ applications for streamlined travel expense management
- Requires a registered business and $50,000 in a U.S. business bank account to qualify
- Balance must be paid in full monthly
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards on purchases. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
- Cashback rewards on purchases
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
- Corporate card particularly suited for LLCs
- Combines automated expense management features with cashback rewards on purchases
- Offers detailed spending insights with AI-powered recommendations for cutting costs
- Integrates seamlessly with accounting software to simplify financial tracking and reporting
- No annual fees, foreign transaction fees, or card replacement fees
- Excellent choice for businesses that want to streamline their financial operations while saving money
- Cashback rewards on purchases
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
Card Details
The Ramp Card is an innovative corporate card, particularly suited for LLCs, that combines automated expense management features with cashback rewards. It offers detailed spending insights with AI-powered recommendations for cutting costs, and integrates seamlessly with accounting software to simplify financial tracking and reporting. Cards come with no annual fees, foreign transaction fees, or card replacement fees. Ramp is an excellent choice for businesses that want to streamline their financial operations while saving money.
Pros
- Cashback rewards
- No personal guarantee or credit check required for eligibility
- Automated expense management features like spending limits and receipt-matching
- Integration with accounting platforms including NetSuite, Quickbooks, and Xero
- Offers AI-powered cost-saving insights
- Unlimited physical and virtual employee cards
Cons
- Primarily focused on cost-cutting, which might not suit all business needs
- Geared mainly towards U.S. businesses, which may limit its appeal for international transactions
- No annual fee
- Earn a $250 statement credit after spending $5,000 within the first three months of card membership
- Introductory rate of 0% APR for the first 12 months
- 2% cashback for the first $50,000 in purchases each year. Then, unlimited 1% cashback
- Expanding Buying Power lets you exceed your credit limit while still receiving rewards
- 3% balance transfer fee
- No overlimit fees
- 0% intro APR for the first 12 months
- Access to more capital
- No annual fees
- You only get 2% cashback for the first $50,000 before going down to unlimited 1% cashback
- No elevated cashback rewards for specific categories
- $39 penalty fee for late payments and returned payments
