Procure-To-Pay — Everything a Procurement Professional Should Know
For a procurement manager, procure-to-pay sounds like a very easy topic. However, for those who are having a difficult time recognizing what procure-to-pay is, then this article can also be considered as a study guide for procurement!
For this article, we are going to talk about procure-to-pay and what it can do for your entire procurement team.
Once you’re done reading this article, you should now have an idea of how procure-to-pay works and that you’ll be using them as the professional procurement manager that you are.
The Definitionof Procure-to-Pay
The title does sound a bit weird since if we take to a literal interpretation, procure-to-pay means procuring an object to pay for something. Well, the procure-to-pay system isn’t entirely built up like that. It’s a more complex system of procurement that allows a company to integrate purchasing and accounts payable systems to create greater efficiencies.
The procure-to-pay system involves a larger procurement system as a whole since it involves four key stages. The stages are selecting goods and services, receiving and reconciliation, enforcing compliance and order, and invoicing and payment as the last process.
Procure-to-pay systems can be difficult to organize and maintain because a procurement department has a lot of processes to keep in mind. However, there are procure-to-pay software systems that companies can invest and buy, thus making the whole system more simple and easy to follow. Digitalizing your procurement process with procure-to-pay software solutions can strengthen compliance and control among vendors, contracts, regulations, buyers, and accounts payable.
Because it helps organizations buy from preferred suppliers at negotiated prices without the manual paperwork and spreadsheet headaches, process automation with procure-to-pay software can:
- Actively control and improve global spend
- Consolidate most manual commerce processes to reduce errors
- Streamline catalog maintenance, saving time and freeing up resources
- Rapidly enable the approval of new suppliers
- Drive savings to the bottom line to maximize the value of sourcing negotiations
The Procure to PayProcess Flow
And just like most procurement processes, even the procure-to-pay process has to follow a flow as well. Procurement managers can choose to complete as to which stage of the procure-to-pay process they want to finish. Procurement software tools are most helpful during this stage since these programs allow the procurement team to disseminate the important tasks to each member of the team while the automated software takes care of the rest.
For the most basic procure-to-pay process flow, the entire process flows like the following:
1. Identifying Needs
The first step of the procure-to-pay process is to check and define the business requirements with the help of cross-functional stakeholders. Once there is a valid need, procurement teams can then sketch out the specifications needed for the goods/products and terms of references for the service
2. Creating Requisitions
Once the specifications are created, a formal purchase requisition is created. The requester submits the filled-out purchase requisition forms after making sure that all necessary administrative requirements are met.
3. Purchase Requisition Approval
The submitted purchase requisitions are then reviewed by the procurement department heads for approval. These guys can either approve or reject the purchase requisition once the need is evaluated and the budget is also verified. Any incomplete requisition forms are bought back to their creator for re-editing.
4. Creating a spot-buy/PO
If the requested goods are items that have certain characteristics like unmanaged category buys, one-time unique purchases, or low-value commodities, then buying on the spot can be done.
5. Purchase order approval
Purchase orders are now sent through an approval loop to ensure the legitimacy and accuracy of specifications. Approved purchase orders are then dispatched to vendors. After reviewing the purchase order vendors can either approve, reject, or start a negotiation. When an officer approves a purchase order, a legally binding contract is activated.
6. Goods receipt
Once the supplier delivers the promised goods/services, the buyer inspects the delivered products or services to ensure that it complies with the contract terms. The goods receipt is then approved or rejected based on the standards specified in the purchasing contract or purchase order.
7. Supplier performance
Based on the data obtained from the previous step, the supplier performance is evaluated. A number of factors like quality, on-time delivery, service, contract compliance, responsiveness, and Total Cost of Ownership (TCO). Non-performance is flagged in existing rosters and information systems for future reference.
8. Invoice approval
Once a goods receipt is approved, a three-way match between the purchase order, the vendor invoice, and the receipt of the goods is performed. If there are no discrepancies found, the invoice is approved and forwarded to the finance team for payment disbursement.
9. Vendor payment
Upon receiving an approved invoice, the finance team will process payments according to the contract terms. Any contract changes or reviews of liquidated financial security will be taken into account. A payment made to a supplier will fall into one of the following five types: advance, partial, progress or installment, final, and holdback/retention payments.
+ What is procure-to-pay?
Procure-to-pay is a process where procurement is often mixed together with administrative tools in order to come up with a more processed procurement flow.
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