The procure-to-pay (P2P) is one of the most important functions in the procurement cycle of an organisation. It covers all the processes starting from recognising a need for goods or services, their acquisition and, last but not least, payment to the supplier. However, when it is properly conducted, the process of P2P leads to an increase in operational efficiency, a decrease in costs and the strengthening of the relations with the suppliers. Nonetheless, if not well optimised, there are tendencies of inefficiencies and delays, hence escalating costs and poor business performance.
In this blog, we will discuss the best practices for the P2P process to enhance efficiency and effectiveness and to increase collaboration between the various parties involved. Here are the detailed steps to follow for procure-to-pay process improvement in your organisation and to ensure continuity from procurement to payment.
- Automate Where Possible
The largest potential for improvement of the P2P process is in the sphere of automation. Manual processes are time-consuming, often lead to errors and are not easily traceable. By automating various aspects of the procurement cycle, including requisitions, purchase orders, approvals, and invoices, the possibility of mistakes is minimised, and cycle time is shortened.
One may consider adopting an end-to-end procurement solution that facilitates the automation of several tasks. There are many primary advantages of automation in order matching, invoice matching and payment scheduling and it also reduces the chances of delay or error in payments.
Benefits of Automation:
- Faster processing times
- Reduced manual errors
- Increased compliance and ability to track changes
- Better supplier management
- Improve Supplier Relations
Suppliers play an important role in the P2P process and enhancing the relationships with suppliers can enhance the procurement performance. First of all, develop an effective platform that will allow suppliers to get the necessary documents, including purchase orders, contracts, and payments statuses. It also helps to clarify orders and solve related problems immediately.
The advantages of developing good relations with suppliers include better payment terms, cheaper prices, and enhanced service delivery. By keeping the lines of communication open and maintaining feedback, both the client and the service provider can run long-term and productive relationships.
Supplier Collaboration Tips:
- Communicate with suppliers in real-time through supplier portals
- Keep track of all the previous transactions and contracts that have been done
- Schedule and conduct performance appraisals and feedback meetings
- Optimise payment terms in order to improve cash flow
- Implement Data Analytics for Decision Making
It is critical to collect data so that it will be easy for one to realise the gaps that may be in the process. Gather information on your procurement activities in order to determine inefficiencies and delays, evaluate spending trends and assess suppliers’ performance. By using procurement analytics, one is able to forecast demand, manage stock intake and guarantee that procurement processes are in line with the overall organisational financial objectives.
Furthermore, analytics are useful in determining where the costs can be decreased, for instance, which vendors are often providing services below the required quality or where approvals often take a very long time. The more analytic your procurement is, the more effective your P2P cycle will be.
Key Metrics to Track:
- Purchase order approval cycle time
- Invoice processing cycle time
- Measures of purchasing performance (like on time delivery)
- Expenditures review and deviation from the budgets
- Standardise Procedures Across Departments
P2P process optimisation requires consistency to be effective. When for instance, different departments or teams are using different techniques of procurement, it is challenging to track the amount spent or even enforce procurement regulations.
This means that all employees in your organisation follow the same set of procedures when purchasing goods and services for your company’s various departments and teams. This helps eliminate confusion, shortens the time necessary for approval, and guarantees compliance with policies and controls in procurement. Such procedures also help in the training of new employees whereby the organisation can quickly introduce them to procurement procedures within the organisation.
Standardisation Strategies:
- Ensure that every department uses a standardised purchase order form
- Adopt a use of centralised procurement policy that is easily available to the employees
- Make it clear who gives the approvals and how much money should be spent
- Conduct periodic checks in the different departments to ensure the standard operating procedures have been complied with
- Optimising Approval Process
If approvals are at multiple levels or if the approvers are not notified on time, the procurement processes slow down. There is no question that approvals are a key component of any P2P process, meaning that it is important to keep them fast and efficient.
The use of an integrated procurement system is also helpful in minimising approvals through the automation of such processes. Design specific approval limits according to the purchase value and make sure that the approvers are alerted whenever they are needed.
Ways to Speed Up Approvals:
- Develop electronic approval systems
- Automate the reminder for approvals that are yet to be completed
- Simplify the procurement process by decreasing the number of approval stages for minor procurement
- Make use of the mobile applications in order to enable remote approvals
Conclusion
Managing procure-to-pay cycle is crucial for operational effectiveness, cost control and enhancement of supplier relations. Using automation tools, working closely with suppliers, making data-driven decisions and ensuring compliance, it is possible to ensure end-to-end optimisation of the P2P process. This way, the process will be constant and it will be possible to adapt to changes which are bound to occur in any business environment in the future.
