What is procure-to-pay (P2P) cycle?
Without the procurement cycle, it would be nearly impossible for your business to function efficiently. Any business will need an efficient cycle to procure materials and process payments in order to ensure that their daily operations run smoothly and seamlessly. This is why it’s key for business owners and executives to ask, learn, and understand what is P2P cycle.
Understanding the importance of the P2P cycle process allows you to also grasp what steps are key in the process, as well as what can be done to ensure that you are doing as efficiently and effectively as possible.
Definition and overview of P2P
At its core, the procure to pay, or P2P, cycle process is a process that covers all the steps necessary to procure goods or services from a supplier. The process begins with identifying a need for procurement and purchase, followed by looking for the appropriate suppliers.
It also encompasses the invoice and payment processes. As it impacts an organization’s overall business operations, knowing what is P2P cycle is crucial for any business.
Key stages of procure-to-pay cycle
When trying to understand what is P2P cycle, it’s important to note some key steps in the P2P cycle process. Organizations must understand what is expected of them in each step to be able to achieve an efficient P2P cycle.
Here are the important stages to understand in a P2P cycle.
Requisition
Before making a purchase, it’s important to identify and understand the need for said purchase. Only after the request is justified should you begin the P2P cycle process. This part of the process is referred to as requisition.
During this stage, employees will identify a need and submit that request to the procurement team. A purchase requisition typically comes from departments other than the procurement department.
For example, the chef of a restaurant business will identify the need for fresh tomatoes for a new menu item. They will fill out a requisition form that must be approved by the procurement team and managers.
Supplier discovery and choice
The procurement team needs to identify and evaluate potential suppliers based on the purchase requisition. What the team will do is search for suppliers that may be able to fulfill this order.
If the chef at a restaurant needs fresh tomatoes, the procurement team is responsible for looking at vendors that sell tomatoes. The next order of business will be to compare the suppliers and evaluate which will be the best for the restaurant.
As part of the procure-to-pay process, the team will need to look at factors such as price, quality, delivery time, contract terms, and more. They will negotiate with suppliers before selecting the best fit.
Creation of purchase order (PO)
Once a supplier has been selected to fulfill the need, the procurement team must create a purchase order (PO) with all the necessary details and specifications about the product they want to buy.
This will also include the quantity to be purchased and delivered. It’s equally important to note the agreed-upon terms at this stage of the P2P cycle process.
In the case of a restaurant purchasing fresh tomatoes, the procurement team must note in the PO how many tomatoes or how many kilograms they want to purchase. They must also specify if they want red tomatoes, as well as any particular kind of it.
Fulfillment of order
After a purchase order is sent to a supplier or vendor, it must be acknowledged and approved. This signals that the supplier will fulfill the order according to the agreed-upon contract terms.
The order fulfillment step in the procure-to-pay cycle is largely the vendor’s responsibility. However, the organization still must monitor the vendor's performance to ensure that all goes smoothly.
Keep a close eye on the time taken by the vendor to complete the order. It’s also a good idea to stay in regular communication with the supplier. If there are any issues, they must be resolved as soon as possible.
Goods receipt
Receiving the goods or services sent by vendors is a fairly straightforward process. However, keep in mind that it’s unwise to just sign off the receipt without inspecting the delivered product. Any delivery made by a vendor must be thoroughly checked and verified before it is acknowledged as completed.
If a restaurant orders 20 kilograms of fresh red tomatoes, the procurement team must examine and verify that the quantity and quality of the tomatoes are as requested.
It’s important that the next step, which is invoice processing, doesn’t start until the order receipt has been acknowledged and verified.
Invoice processing
Any organization procuring goods or services from a supplier is responsible for upholding its end of the deal, which would be payment for the delivery according to the contract terms. After the delivery, the supplier will send an invoice that restates the items ordered, the price, and when payment must be made.
One reason why learning about what is P2P cycle is important is because there are steps that an organization should follow before paying for an invoice.
Once the invoice is received, the procurement team must take care to match the invoice with the corresponding purchase order and delivery receipt to verify its accuracy.
Payment authorization
To ensure that all payments are accurate, every payment that is made on behalf of an organization must be reviewed, approved, and authorized by the appropriate personnel. Typically, the verified invoice will then be routed through an approval workflow.
Company policies will dictate who the appropriate approvers are. Approvers, or personnel who are given authority to confirm the payment, will have to review the invoice. Approving and authorizing a payment means stating that it complies with company policies and can be initiated accordingly.
To encourage accountability, some companies have a multi-level workflow with several approvers who must sign off the invoice for payment.
Execution of payment
To complete the P2P cycle process, the payment of an invoice must be executed and subsequently received by the supplier. When processing a payment, keep in mind that any changes or review notes discussed in previous steps must be taken into account.
This ensures that overpayment or mismatched amounts don’t happen. Depending on what payment methods the supplier is willing to receive, an organization can go through the payment execution process in several ways.
Most vendors accept electronic funds transfer (EFT), which is convenient to do. However, there may be instances where vendors prefer cheques or other payment methods such as card payments.
Manage your procure-to-pay process seamlessly with Volopay!
Role of P2P cycle in business operations
Ensuring smooth business operations requires a lot of attention given to different related processes. The procure-to-pay process is one of these processes, as it ensures you have the right materials and services necessary.
Knowing what is P2P cycle is key to avoiding bumps in business operations.
Cost efficiency
Without an efficient procure-to-pay business process, you run into the risk of an increase in costs. Not only are delays costly because they may incur late payment fees, but you will also see an increase in processing and administrative costs.
A P2P cycle process that you can rely on will help you optimize cost savings.
Reduced manual intervention
Many businesses know what is P2P cycle, is but not how to perform it efficiently. Relying on manual work to complete the tasks is time-consuming and error-inducing.
Luckily, an efficient P2P cycle can be achieved with the help of modern technology and automation tools. It reduces manual interventions that could lead to inaccuracy and demotivation.
Compliance and risk mitigation
There’s no denying that fraud attempts are becoming increasingly common, meaning that businesses have to be more vigilant. With a procure-to-pay cycle that is designed efficiently, it’s easier to mitigate risks such as fraud attempts or unauthorized spending.
The right approval workflows also help to ensure that everyone complies with company policies and legal requirements.
Supplier relationship management
A well-designed procure-to-pay process helps to make sure that all orders and payments are made on time. As a result, communication and collaboration with suppliers are guaranteed to go more smoothly.
Suppliers will be more willing to trust you if all payments are made on time, improving your relationships with them.
Cash flow management
One of the most important reasons why businesses must have a proper P2P cycle process is to ensure that cash flow remains positive.
Always pay suppliers on time, but make sure to factor in the cash flow cycle and make payments accordingly. Optimizing cash is easier to do with a proper P2P cycle.
For better understanding, you can read: The ultimate guide on cash flow management
What is the function of the procure-to-pay cycle?
Seamless integration of procurement and payment processes
The procure-to-pay cycle is made up of several different steps, which is why it’s important that all these steps flow together seamlessly. When you know what is P2P cycle, you’ll be able to integrate different procurement and payment processes. This allows you to avoid data silos and maintain good information flow.
Initiation with needs identification and supplier selection
In the P2P cycle process, you have to look for a supplier once you have identified your purchasing needs. This ensures that once a need has been identified, there is a process to fulfill it.
It maintains that purchase requisitions are taken into consideration and starts the supplier selection process.
Acknowledgment upon goods/services receipt
One thing that you must not forget during the procure-to-pay process is to acknowledge when the goods or services you ordered have been delivered and received. This serves an important purpose, as it allows you to check if the order is complete and plan out your payment deadline accurately.
Validation and matching of supplier invoices with orders and receipts
Before you pay an invoice, it’s extremely important to make sure that all the information on your invoice is correct and matches with its corresponding purchase order and delivery receipt.
A proper P2P cycle process will require this step to be performed appropriately to ensure all invoices are accurate.
Authorization and execution of accurate payments
The last thing you want is to make unauthorized or inaccurate payments. Knowing what is P2P cycle helps to avoid this, as it ensures that there is a policy in place for payment review, approval, and authorization.
In an efficient procure-to-pay cycle, every payment is ideally made accurately.
Emphasis on effective vendor management and policy adherence
Company policies must become the driving force of the P2P cycle process. One of the key functions of the procure-to-pay cycle is also to ensure that employees, as well as suppliers, adhere to the policies in place. It puts a heavy emphasis on vendor oversight and management.
Ensures transparency, control, and operational efficiency for procurement and payment operations
The large scale of the procurement process often makes it difficult to ensure organization-wide transparency. Not to mention the same level of transparency from suppliers.
This is why it’s necessary to have an effective procure-to-pay business process that helps to maintain transparency and visibility, as well as control over business operations, procurement, and payments.
Contributes to the smooth functioning of the supply chain
Businesses need to understand what is P2P cycle to ensure that the entire supply chain functions smoothly. The more streamlined and efficient the P2P cycle process is, the more likely it is for the other processes that follow to be as smooth.
No delays procurement delays mean no delays in producing or selling your products.
Best practices to optimize the P2P cycle
Automation is one of the most powerful tools to ensure that your P2P cycle process goes smoothly. It’s much easier to standardize the process when you automate as many steps as you can and use digital tools and technology.
The perimeters you’ve set will guarantee all orders go through the same steps.
The purchase order document is key in the procure-to-pay business process. Make sure that your employees and vendors are all adhering to the details of the purchase order and its related processes.
This helps during the delivery receipt, maintaining that the purchase order has been honored and completed.
Sometimes you may run into issues such as poor quality control or drastic price increases without realizing how much negative impact they have until much later.
This is why it’s important to have procedures in place to properly oversee suppliers. Issues should be detected, assessed, and resolved as soon as possible.
Paper invoices can cause a hassle, especially when you have hundreds of them each month. Even PDF invoices sent through email can be difficult to sort through.
The ideal practice is to adopt electronic invoicing. This standardizes the document format and aids in automating the entire process, allowing you to do it faster.
Two-way matching between an invoice and its corresponding purchase order is a process that has already been adopted by many organizations, but it’s important to add the delivery receipt document to this match to perform a three-way match.
It ensures that the promised goods or services have been delivered and received before payment.
P2P automation tools often offer features that can help with reports and analytics. Make sure to take advantage of these features and get insights into patterns and other performance metrics in the P2P cycle process.
Easily generate reports and analyze specific patterns to identify pain points in the process and make smarter decisions.
Having more hands on deck can mean faster work, but it can also cause confusion. Assign each team member a task and segregate duties to maintain a flow.
Making sure that your entire team knows what is P2P cycle will also help in determining which duty is whose responsibility.
Many departments should be involved in the P2P cycle process, as cross-department collaboration is key. This is also why it’s necessary for everyone to know what is P2P cycle.
When everyone is equipped with this information, cultivating teamwork becomes easier. Promote better efficiency and transparency by encouraging teams to work together.
Allow your team to ask and answer what is P2P process, as this may help you identify what in the process is still lacking. It’s a good idea to regularly conduct evaluations.
This way, you’ll be able to formulate plans to improve your P2P cycle process. Speak with stakeholders and experts to continuously innovate.
Streamline your vendor payments with Volopay!
Challenges in the P2P cycle
Conventional paper-driven approaches
When thinking about what is P2P cycle, the traditional answer often involves manual and paper-driven approaches. Because this is the version of the P2P cycle process that many businesses know of, it’s viewed as the conventional approach, and therefore the approach that these businesses take. It’s hard to introduce change when employees are used to these approaches.
Lack of automation and integration
With paper-driven approaches, you’re bound to run into several bottlenecks due to a lack of automation and integration capabilities.
As your business grows, it will become more difficult to manage the procure-to-pay cycle manually. This is why it’s important to familiarize yourself with automation technology so you have a starting point for it.
Non-compliant procurement practices
Even with company policies and legal or industry regulations in place, enforcing these and ensuring compliance can still prove to be a challenge for many businesses.
Non-compliant procurement practices such as circumventing the appropriate approval workflow for purchase orders and invoices, for example, can cause inflated costs due to unauthorized transactions.
Inadequate supplier oversight
When a business has hundreds of suppliers, it’s difficult to keep track of all of them—especially without automation tools to aid with the process.
This can cause inadequate supplier oversight, which will breed problems such as poor quality control, unreliable suppliers, delays in the process, and even drastic price fluctuations.
Inconsistencies and disputes
During several steps in the procure-to-pay process, such as the invoice matching step, you may run into inconsistencies that you have to resolve before making a payment.
This could lead to disputes that must be settled. That’s why it’s important for businesses to have policies regarding resolving discrepancies and inconsistencies.
Restricted visibility and oversight
The sheer scale of the P2P cycle process can lead to a lack of visibility, especially for larger organizations with more purchase orders, vendors, and invoices.
Without a way to oversee and track procurement activities, new challenges will crop up. It’s important to nip this in the bud to prevent fraud attempts and an increase in errors.
Resistance to change implementation
Although manual processes are not the most efficient, you may still meet some resistance to change when you begin implementing P2P cycle tools and technology.
Employees who are already familiar and comfortable with the old processes will need to undergo training and have their concerns addressed so they’ll open up to new technology.
Concerns over data security and fraud
Understandably, trusting your data with a third-party provider is a daunting task. You or other stakeholders may have questions and concerns about how your P2P cycle process provider can ensure the utmost security.
Before you commit to any provider, make sure you know that they have industry-standard certifications and a good track record regarding data security and fraud.
Key performance indicators (KPIs) to monitor the P2P cycle
Time taken for purchase order completion
When learning about what is P2P cycle, it becomes obvious that the process begins with the purchase requisition and subsequently purchase order creation.
An efficient cycle indicates the process takes less time and is approved faster. Delays may mean bottlenecks.
Time spent on processing invoices
Steps such as invoice verification, validation, and matching are all part of the invoice process.
An important key performance indicator (KPI) that businesses should monitor in relation to the procure-to-pay cycle is the average invoice processing time.
Duration of payment cycles
Like the purchase order completion and invoice procession durations, measuring the amount of time taken to complete a payment cycle is a good way to indicate whether the P2P cycle process has seen improvements. Make sure to measure more than just one cycle.
Rate of initial match success
During the procure-to-pay business process, each invoice must be matched with its corresponding purchase order and delivery receipt.
An initial match success refers to the invoice perfectly matching with other documents prior to adjustments. A high success rate typically means a more reliable vendor.
Evaluation of vendor performance
Businesses should keep a close eye on their vendor performance. While there are several ways to measure this, factors such as product quality, communication, timeliness, and compliance can be used to measure how your vendors are performing. You can also compare vendors to one another.
What is procure-to-pay (P2P) automation?
Put simply, procure-to-pay cycle automation refers to the process of automating the P2P cycle with the help of digital tools and modern technology.
There are various tools available for businesses in the current day, many of which offer a complete package to streamline one or more steps in the process. An automation tool for the P2P cycle process will often offer ways for businesses to centralize the related tasks.
It allows different processes to flow smoothly together, such as from the invoice receipt all the way to the payment execution. You also get to minimize time-consuming administrative data entry tasks.
Use Volopay to automate your accounts payable process
What is the importance of procure-to-pay automation for a business?
Improved worldwide efficiency via automation
As more businesses move toward automation tools, the overall efficiency of business processes across multiple industries will naturally improve.
The more smoothly a particular company can do its procure-to-pay process, the better the process will also be for its customers who are looking to purchase goods or services from that company.
Resolving issues in expense management
With issues like overspending, unauthorized expenses, fraud attempts, and many more, it’s even more important to streamline the P2P cycle process. This gives businesses better visibility and transparency over their vendors and transactions.
Automation tools don’t just promote better accuracy but also open up more time for managers and executives to focus on resolving issues.
Focused on automated procurement processes
Given the number of steps involved in the procurement process, it could benefit from automation to streamline it as much as possible. This also allows businesses to centralize procurement needs, documents, and processes.
Highlighting steps that can be consolidated and automated allows employees to recenter their focus, thereby increasing the procurement department’s focus.
Automation mitigates accounting complexities
One benefit of using automation tools is that most of them offer integration capabilities. It’s easier to mitigate accounting complexities and sync data across multiple platforms, eliminating the need for dual data entry or manual matching.
Knowing what is P2P cycle automation will also help maintain better accounting accuracy.
Software substitutes manual work
There are many manual administrative tasks that must be completed to achieve a smooth P2P cycle process. These can be tedious and hamper the procurement team’s productivity.
Using automation software helps the team focus on other tasks that require attention and reduces the amount of time spent on manual work.
Factors to consider when selecting a P2P automation solution
Delays in the P2P cycle process are often caused by approvals, especially when they require a waiting period for approvers to come into the office to review a purchase requisition or invoice.
With an automation solution, businesses can centralize their processes, making it unnecessary to chase after approvers. Look for a solution that offers automated approval reminders to hasten the process.
Invoice processing and accounts payable are some key business processes that have close ties with other procedures. As a result, it’s important to ensure that all processes are in line with one another.
Pick a procure-to-pay automation software suite that has integration solutions with other systems. This helps to avoid data silos and maintain accuracy across multiple platforms and processes.
No matter how advanced a platform is, it will cause the team difficulties if the interface isn’t user-friendly and easy to understand. A user-friendly interface helps make it easier for employees to familiarize themselves with the platform and get comfortable with using it.
Employees outside of the procurement team will also find it easier to collaborate when the tools they have are easy to use.
The answer to what is P2P process and what it looks like will depend on where a company is in its growth plans.
Given that the P2P cycle process may look different now compared to three years down the road, good scalability is a must-have for a P2P automation solution. It must be able to keep up with higher volumes of purchase orders, invoices, and payments.
It’s easy to miss how much is spent on goods or services from suppliers each month. This is why businesses want tools that can analyze their spending, as this helps curb overspending.
Pick a software suite that enables spending pattern analysis. The procure-to-pay process is more likely to remain controlled when it’s easy to see where spending is inflated.
While each business will have its own workflow, one thing is clear. The most efficient workflows have rules and policies established about them. Try to look for a procure-to-pay cycle tool that allows businesses to customize and set rules for their workflows.
When a purchase requisition is routed for approval, for example, it will follow a particular rule-based workflow to maintain uniformity.
Avoid the hassle of managing procurement document storage. Knowing what is P2P cycle is helps to discover what processes can be centralized. With this information, it’s easier to pinpoint what kind of organizational and storage features are necessary.
The best automation solutions will also be able to consolidate document storage. It’s also a good idea to look for robust search functions to easily retrieve information.
Having good mobile accessibility for a particular solution makes it possible for businesses to adopt hybrid or remote work models without having to worry about delays in their tasks.
Employees will be able to access information from anywhere provided they have their mobile device and an internet connection. Reviewing and approving requests can also be done in just a few minutes.
Analytics tools provide businesses with an easy way to make sense of their data. However, doing it by hand manually often takes a lot of time and is not always feasible when there are other tasks that need to be completed.
Look for a P2P automation solution that offers analytics and reporting capabilities, such as the ability to generate reports, as this will save time.
Maximise the advantages of streamlined vendor payment with Volopay
Looking for tools to simplify the procure-to-pay process? Use Volopay to streamline your business’ vendor payments. Accounts payable, invoice processing, vendor management, and payment execution can all be done on a single platform, making it a powerful procurement software solution.
Find out how you can take advantage of Volopay’s robust features to streamline and automate vendor payments.
Capturing, matching, and processing invoices
Say goodbye to long and tedious invoice processing steps. With Volopay, your procure-to-pay cycle is guaranteed to be hassle-free. Use optical character recognition (OCR) technology to scan and capture invoices easily.
We’ll automate your invoice-matching process by automatically scanning the information from your procurement-related documents to ensure they all match. When it’s time to make a payment, you can authorize and execute the payment on the same platform.
Streamlined approval workflows
Experiencing delays during the approval process? Get streamlined approval workflows with the help of Volopay’s automation tools for your P2P cycle process. Each invoice you receive from vendors can be automatically routed through the appropriate approval workflow.
Approvers will be sent alerts and notifications when there is an invoice that requires their attention. It’s easy to review and approve invoices and payment requests through the Volopay dashboard or mobile app.
Integrations with ERP and accounting systems
Chances are your business will already have other systems in use, such as an ERP platform or accounting software. Volopay offers the integration features that any business will need to ensure all processes go smoothly.
Set up integrations with other systems in just a few clicks. You can even automatically map out your accounts to make closing your books easier. Vendor payments made through Volopay are synced directly with your accounting platform, making it an invaluable part of your procure-to-pay software toolkit.
Utilization of corporate cards
There are many different vendor payment methods available. The best for your business is dependent on many factors, such as the size of the order or type of product. You may find that in some situations, corporate cards are your best bet for smooth payment processing.
Volopay lets you generate virtual cards to manage subscriptions, with each card created specifically for one subscription. It makes it easy to keep track of all subscription payments.
Utilizing cloud storage capabilities
All data related to invoice processing and the procure-to-pay cycle is kept on a remote cloud server. Using Volopay allows you to access your data easily from anywhere, as long as you have internet access.
There’s no need to invest in long hours designing a storage organization system. Volopay will save you time and money by storing your data in the cloud, allowing you to use search filters to pull up the exact information you need. This combination of features makes Volopay an essential intake-to-procure software solution for modern businesses.
Streamline your procurement process end-to-end with Volopay!
Frequently asked questions (FAQs)
Any procure-to-pay cycle begins with the purchase requisition. After a need has been identified and a purchase requisition form is submitted for approval, the procurement team will evaluate it and search for potential suppliers to fill the order.
Then, a purchase order must be made. This will include specifications that the supplier must keep in mind. The vendor must fulfill the PO accordingly and deliver the product, whether it be goods or services.
Once the business has received an invoice from the vendor, the invoice must be verified, validated, and matched with the PO and delivery receipt. It’s only after this that the payment should be authorized and executed.
Automation reduces the time taken for businesses to complete the P2P cycle. There are a large number of tasks that must be completed to ensure that the P2P cycle process goes smoothly, which means that the faster these tasks are finished, the faster the cycle goes.
With automation tools, businesses can also maintain a higher level of accuracy, visibility, and transparency to keep the P2P process running smoothly.
The complexities of the P2P cycle can cause challenges such as non-compliance, lack of supplier oversight, inconsistencies, and more. One other major challenge is managing the amount of manual administrative work that must be done, especially without automation tools.
Supplier relationship management is very important for what is P2P cycle, as it helps avoid delays and ensures that vendor performance is monitored.
Make sure to stay in contact with suppliers and vendors to get everyone on the same page regarding orders and invoices.
Technology helps reduce manual administrative work in the P2P cycle process while allowing businesses to maintain better accuracy and transparency by minimizing human interventions. Employees will be able to focus on other tasks that require more creativity and attention.
The procure-to-pay process involves all the steps that are needed for a business to procure goods or services from suppliers. Starting from the purchase requisition to the payment execution, every step must be monitored, streamlined, and optimized.
Volopay helps businesses process invoices and make payments hassle-free, while automatically tracking all transactions in the procurement process.