The full purchase-to-pay (P2P) process: A complete guide

Is your business struggling with outdated, inefficient procurement systems? Manual and semi-digital systems can cause serious issues, including delayed processes, increased errors, and poor supplier relationships.

‍

According to a March 2024 Statista study, nearly half of C-level executives planned to improve their procurement processes with automation over the following 12 to 18 months. That’s an important move because delayed orders, lost invoices, and strained supplier relationships waste valuable time, increase costs, and reduce your overall efficiency and competitiveness.

‍

Let’s explore how the procure-to-pay (P2P) process can transform your procurement approach, enhancing efficiency, strengthening supplier relationships, and improving financial management. 

What is the procure-to-pay (P2P) process?

‍

The procure-to-pay process integrates a business’s purchasing and accounts payable systems to improve efficiency. This system is crucial in optimizing procurement activities, controlling costs, and improving supplier management.

‍

A need for goods or services triggers the procure-to-pay process. A streamlined P2P process, from purchase requisition to vendor invoice payment, is crucial. It ensures all purchases are authorized, received, and appropriately paid for.

‍

While the P2P process varies depending on company needs, fully automating procurement will reduce costs, enhance financial and procurement visibility, and improve vendor relationships. 

‍

Automated systems ensure that every step from requisition to payment is executed efficiently, making procure-to-pay a crucial strategy for your business to optimize procurement and boost your bottom line.

A breakdown of each step in the procure-to-pay process

The easiest way to clarify exactly what the procure-to-pay process is and how it works is to examine each step of the process.

1. Initiating a purchase request

‍The first step in the P2P process begins when any department within your organization identifies a need for a specific product or service. Once management approves this need, it initiates the procurement cycle.

‍

Creating a purchase requisition marks the formal request for the needed goods or services. The requester fills out and submits the requisition form, capturing all necessary details and administrative requirements.

‍

This includes defining the specifications, terms of reference (TOR), or statement of work (SOW) for the procurement. Depending on the need, requisitions could be for various purchases, from straightforward product orders to more complex arrangements like subcontracts and consignments.

‍

Let’s say your headquarters has outdated printers that malfunction regularly and need to be replaced with faster, more efficient models. In this first step, the office manager realizes how much money you could save on maintenance and how much more quickly newer printers could get the job done. 

‍

The office manager fills out and submits a purchase requisition, including details like how many printers HQ needs and what specifications they should meet. 

2. Creation and approval of the purchase order

‍Once management approves the purchase requisition, the next step in the procure-to-pay process is creating a purchase order (PO). 

‍

Continuing the example above, your procurement department reviews a list of approved office printer suppliers to find the most suitable option based on the requisition details. This involves evaluating factors like pricing, quality, delivery terms, and vendor reputation to ensure the selected supplier can effectively meet your needs.

‍

Your procurement team then generates and issues a purchase order for the printers. This document formalizes the buying request and includes crucial details like the quantity of printers, specifications, agreed-upon prices, and delivery schedules.

3. Confirmation and recording of goods or services delivery

‍The third step in the purchase-to-pay cycle involves receiving and verifying the goods or services ordered. When suppliers ship goods or complete service delivery, they typically issue an invoice to your accounts payable department.

‍

Upon the arrival of goods or the completion of services, the procurement team confirms that the delivered items match the details specified in the PO. This includes verifying quantities, quality of the products or services, and compliance with the agreed-upon terms and conditions.

‍

Back to our example of procuring printers for headquarters, your team will confirm that you received the correct quantity of printers, that the models meet all the agreed-upon specifications, and that they’re functioning properly. 

4. Invoicing

‍Suppliers can transmit your invoices via a dedicated supplier portal that integrates with your P2P solution or through email, post, or fax. The move toward e-invoicing is ideal as it facilitates faster processing, reduces errors, and enhances the efficiency of your accounts payable operations. 

‍

For our example, you would receive an invoice for the printers via one of these methods. 

5. Verification through invoice matching

‍The next step in the procure-to-pay process is invoice matching. This critical phase involves systematically comparing the electronic invoice against the original PO and the goods receipt documentation.

This verification process, often implemented as two-way or three-way matching, ensures that the details on the invoice correspond accurately with the PO and the receipt. Two-way matching confirms that the invoice matches the PO, while three-way matching adds another layer by comparing the receipt of goods or services.

‍

For our example, this is important for ensuring that the invoiced amount matches the quote on the PO, validating the transaction’s accuracy, and ensuring that the delivered printers meet the specifications and quantities.

6. Streamlining the approval process

‍Once invoices successfully pass the matching phase, they enter the approval workflow. 

‍

In an automated procure-to-pay system, this process is significantly streamlined and expedited. Invoices that meet all the verification criteria are sent directly to your AP automation software for payment processing.

‍

The automated P2P solution's approval workflow is designed to ensure compliance and control by adhering to predefined organizational rules. For instance, invoices exceeding a specified dollar threshold may require additional approvals.

‍

Continuing our example, once the system secures the approvals needed to pay the printer invoice, it automatically forwards the invoice for payment processing in your AP automation software. 

7. Finalizing the payment process

‍The last step in the purchase-to-pay process is executing the payment to suppliers. In our example, your invoice for the printers should detail the payment methods the supplier accepts, and your company will choose which of those is most convenient. 

‍

While payment methods can differ among companies, the trend toward electronic payments is becoming increasingly prevalent due to their efficiency and cost-effectiveness.

‍

Automated clearing house (ACH) transactions and virtual credit cards are popular electronic payment methods that reduce processing times and minimize the risks associated with physical checks and cash.

‍

Despite the advantages of electronic payments, some organizations continue to use traditional methods like paper checks due to existing financial practices or specific business needs. 

‍

A robust procure-to-pay solution should be versatile enough to support various payment methods, including an e-payables function. This allows the supplier to choose the payment method that best suits their operational requirements and preferences.

Best practices in the procure-to-pay process

Ensuring that the following procure-to-pay best practices are working in your business’s favor is key to an effective, efficient procurement strategy:

• Optimized tech: Implement quality procurement software that will streamline your procurement process from start to finish. Put this best practice in place, and the remaining items in this list can fall into place seamlessly. 
• Compliance: Things like established budgets and approval workflows should always be followed. Procurement software lets you customize and then automate these rules and more so nothing is ever overlooked. 
• Collaboration: Your employees can probably communicate in several ways. That can leave information on a procurement project scattered and confusing. Procurement software makes it easy to keep everyone on the same page and keep things moving.
• Vendor management: Communicating effectively with vendors and paying them on time is important to maintaining good relationships with them. Procure-to-pay software simplifies vendor management and gives your vendors visibility into the process.
• Optimized inventory: Multiple employees trying to fill the same needs or requests getting lost in the procurement process can derail your inventory. Procure-to-pay software makes it simple to get everything you need and nothing you don’t. 
• Data analysis: The procurement process is a goldmine of data your company can use to maximize your cash flow. That data can be difficult-to-impossible to visualize in a manual procurement process, but procurement software gives you easy access.   

How procure-to-pay software streamlines the procurement process

Tedious manual procurement processes can cause errors, confusion, and difficulty tracking your spending. More businesses are adopting P2P software to streamline their procurement processes and benefit from all the ways they can save time and money as a result. 

‍

Here are several ways the right procure-to-pay software can pay off big for your business:

1. Enhanced efficiency

Procurement software significantly streamlines procurement processes by automating and connecting all stages, from requisition to payment. This connectivity allows for quicker requisition requests and approvals, data-driven supplier selection, and the electronic generation and dispatch of purchase orders—all fully trackable.

2. Reduced invoice-processing costs

By eliminating paper-based systems, your company can save time, reduce expenses, and reallocate human resources to enhance productivity and strategic impact.

3. Visibility throughout the supply chain

A robust P2P system offers 100% visibility across the entire supply chain, allowing you and your suppliers to monitor invoice status in real time. 

4. Improved supplier relationships

Using a supplier portal within your P2P solution can significantly improve supplier relationships. It provides suppliers with real-time updates about payment statuses and allows for faster resolution of invoice exceptions and disputes, enabling better financial planning and decision-making. ‍

5. Increased negotiating power

When suppliers are confident about the timing and reliability of their payments, they’re often more willing to negotiate favorable terms. This can lead to cost savings and better terms for you as a buyer while ensuring your suppliers have the steady cash flow needed to sustain and grow their operations.

6. Data-driven decision-making

Advanced P2P solutions provide comprehensive, on-demand reporting capabilities, harnessing real-time and historical data. Access to this data empowers you to make informed decisions, helping you optimize your cash flow and manage your working capital more effectively.

Bring efficiency to your P2P process with Ramp

‍Ramp offers solutions that automate and simplify the entire P2P process, tailored specifically to meet your organization's unique needs. Here’s how Ramp can transform your procurement operations:

• Streamline your procurement requests: Effortlessly intake procurement requests using AI that captures every detail, document, and contract immediately
• Centralize and automate spend management: Build adaptable custom intake forms and issue purchase orders or virtual cards from those approved requests
• Enhance collaboration across teams: Centralize procurement discussions within Ramp to keep approval processes moving
• Accelerate approval cycles: Build automated approval workflows customized to fit your business processes and integrate seamlessly with the tools your team already uses
• Gain visibility into committed spend: Automatically generate POs to track upcoming invoices, code PO line items, and sync them to your accounting systems like NetSuite or QuickBooks 

‍‍

With Ramp, you're not just automating your P2P process; you're revolutionizing the way your business handles procurement and payments. 

‍

Ramp’s customers have seen impressive results. Before implementing Ramp’s procure-to-pay software, healthcare company Precision Neuroscience was using four different platforms for their procurement and AP needs. Now they only need Ramp. 

‍

Precision also slashed the time it took to send a PO to a vendor by half, reduced their month-end close to one to two days, and eliminated the errors and duplications found in manual processes. With Ramp, Precision’s team was able to significantly reduce their reliance on their outside accounting firm and gain greater visibility into their financial picture.    

‍

Do procurement the easy way. See how Ramp could transform your P2P process.