What Is Procure-To-Pay and How Companies Are Automating It

Improving the procure-to-pay process helps companies save money and time when buying goods. Learn how to strengthen your P2P process through automation here.
Written by:  Allison Reich
Last Updated:  June 14, 2024

Better systems are the key to better results, especially when your organization is on a growth track. A robust procure-to-pay process (P2P) is one of the most beneficial systems to speed progress while retaining visibility into spending. 

But how can you be sure your procurement and purchasing processes are optimized? What does an effective procure-to-pay process look like? How can automation ensure that spending remains under control as you grow?

We’ll take a detailed look at what goes into a successful purchasing workflow. We’ll also cover some best practices that can tighten up the process. Lastly, we’ll show you how automation can help you keep your procure-to-pay process functioning without breaking a sweat.  

Download the free ebook: The Complete Guide to Procurement Management KPIs

What is procure-to-pay?

P2P is the systematic process an organization uses to identify, request, and pay for the goods, products, and services required to run the business.

Procure-to-pay does not encompass the entire procurement function. It focuses on the purchase, reconciliation, and vendor payment portion of the process. 

Activities such as strategic sourcing, lifecycle evaluations, vendor off/onboarding, and supply chain management fall outside the scope of procure-to-pay. 

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The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

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The 9 steps of an effective procure-to-pay process

The benefits of a standardized, repeatable procure-to-pay process in your organization cannot be overstated. 

Having a streamlined workflow in place reduces maverick spending, makes the purchase process faster, improves your order and supplier management, and increases productivity and satisfaction for stakeholders.  

The general flow of the procure-to-pay process is as follows: 

  1. Identify a business need: A stakeholder realizes the need for a product or service to perform their job. They may evaluate services or identify the product or materials that work best.
  2. Request the item/service: The stakeholder then puts together a requisition or intake form to formally request the purchase of goods. This requisition kicks off the approval and purchase process.
  3. Receive requisition approval: The requisition goes through a standard approval process and receives sign-off from all pertinent stakeholders or departments. Finance allocates money for the purchase.
  4. Create purchase order: After approval, the relevant stakeholder creates a formal purchase order (PO) to procure the goods. This PO will have all the necessary information for order processing and delivery of goods.
  5. Receive purchase order approval: Although the requisition has received approval, the completed PO will ideally undergo a separate evaluation and approval process. This helps reduce errors, clarify requirements, and ensure a smoother purchase and reconciliation process. Once approved, the PO is transmitted to the supplier for fulfillment.
  6. Receive the items/materials: The order is fulfilled and delivered by the supplier. The receiving party inspects and evaluates the delivery and checks for accuracy against the order. In cases where the goods don’t match the order or meet quality requirements, the receiver may reject the order.
  7. Evaluate vendor performance: Once receipt and reconciliation of goods is complete, a performance review is conducted. This should evaluate aspects of the purchase, including on-time delivery, order accuracy, quality/condition of goods, etc. Any issues can be noted during this evaluation and used during subsequent purchasing decisions.
  8. Invoice approval: At this point, a three-way matching process begins to ensure the delivered goods are accurate to the purchase requisition, purchase order, and invoice. Once invoice matching is complete, accounts payable can start invoice processing.
  9. Pay the Supplier: This is the final step of the procure-to-pay process. The approved payment is submitted to the supplier based on the purchase order or contract terms. In some cases, timely payment of invoices can help the organization realize benefits such as early payment discounts. 

3 best practices for improving your procure-to-pay process

Improve your business processes, maximize outcomes and make your purchasing and payment functions work better with three highly-impactful best practices.

1. Build a standard approval process for every purchase

Outlining a formal process for requesting and purchasing goods balances your organization's need for oversight and compliance with the need to support your staff and avoid hindering their progress. 

A well-documented procure-to-pay process:

  • Creates a frictionless environment where your employees get what they need without uncertainty. It allows staff to remain productive and feel supported in their role.
  • Ensures consistent oversight into purchases and adherence to budgets and departmental prerequisites. 
  • Reduces risks of ordering from unknown suppliers or making out-of-process, unsanctioned purchases
  • It increases visibility, reduces redundancy, and allows finance to track, analyze, and forecast spending 

Your process doesn’t have to be elaborate. It should lay out the path to approval and set expectations for requestors. It should be easy to implement, track, and repeat for every purchase, and enhance the procure-to-pay cycle to ensure continuous improvement of these functions.

At a minimum, your purchase approval process should include: 

  • A standard requisition or intake form with all required information spelled out.
  • A first point of contact or process owner to begin the requisition and approval. 
  • Clearly defined approvers and approval parameters for each purchase. 
  • A system to track and document requisitions and orders as they go through the process.
  • A post-close process for evaluating purchases, strengthening beneficial supplier relationships, and offboarding vendors at the end of service

2. Outline your contract and departmental requirements

Each approving department in your purchasing process likely has standard requirements for its purchase requisitions. These prerequisites are essential for ensuring high-quality procurement while reducing risk. However, stakeholders and purchasers can only meet these requirements if they know what they are. The specific requirements will be unique to each organization and their individual strategy, but form an important part of the decision-making process and ultimate outcome of the request.

Some examples of possible departmental requirements:

  • Internal department lead: Preferred supplier or integration partners based on current tech stack or other partner agreements.
  • Legal: specific terms or clauses to enforce adequate contract protections cover to common issues like service-level agreements (SLA), downtime clauses, disaster recovery responsibilities, arbitration, etc.
  • Security: Completion of a supplier questionnaire to determine security and risk management thresholds. 
  • Finance: Preliminary budget estimate or project milestone report to aid budgeting and forecasting.

To ensure a smooth approval process, document and outline these requirements in one place.

Making departmental requirements part of the intake process helps stakeholders acknowledge and fulfill them before a requisition even enters the pipeline. This reduces friction, avoids purchasing delays, and ensures high quality for every purchase your company makes.

3. Consider automation

As organizations grow, the purchasing process grows exponentially along with them. 

As growth increases, so does contract management for dozens or hundreds of vendors. In a short time-frame, departments begin processing hundreds or thousands of monthly invoices across different locations. In a very short amount of time, your manual procure-to-pay process becomes backlogged and inefficient. 

Rather than continuing to expand the headcount for these operations, consider implementing automation to handle the repetitive and manual tasks in your purchase-to-pay process

Using procurement and AP automation can improve the purchasing experience for buyers while reducing the strain on procurement teams and AP departments. In addition, it can free up these important teams to conduct higher-value functions in the organization.

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The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

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How does procure-to-pay automation software work?

Procurement software creates a centralized, automated workflow from item selection to invoice payment. 

On the front end, the system automates the purchasing process for buyers through a cloud-based system that centralizes supply orders. Users access a curated catalog of items provided by a database of approved suppliers. 

From there, they can order the goods they need within pre-set system budgets and parameters. This system is dynamic, giving administrators the ability to set spending rules by user, department, category, or location. 

On the back end, procure-to-pay software automates many repetitive and manual processes. Purchases originating from the catalog are routed through an automated approval process. Once approved and delivered, invoices are checked and reconciled within the system, and payment for goods and services are scheduled automatically. 

The system uses AI and machine learning to automatically process thousands of invoices, ensuring they are correctly routed, reconciled, and paid without manual input from workers. 

E-invoicing also enables integrated payments for purchases.

How can procure-to-pay automation help?

Using an automated e-procurement system will improve every stage of your P2P process. By providing a centralized system for all your purchasing, you ensure that organizational requirements are observed while reducing the friction of fulfilling everyday needs. 

With the right P2P solution, you will:

  • Ensure adherence to budgets, purchasing guidelines, and approved vendor lists 
  • Improve supply chain management when ordering for multiple locations
  • Reduce your cost per invoice and invoice exception rates 
  • Stabilize and improve cash flow by consolidating invoices and payments
  • Help surface cost savings opportunities to improve the bottom line
  • Provide real-time, line-level visibility into buying data for better spend management

The value of procure-to-pay software begins with improving productivity for teams and maintaining quality in purchasing. It also has the potential to drastically improve cost savings and reduce waste spending within your organization. 

If you’re ready to learn how automated procurement with Order.co can help you achieve these outcomes, schedule a demo of the platform today. 

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