The purchase to pay (P2P) process is at the heart of any organization’s procurement and accounts payable strategy. A well-optimized P2P process ensures the flow from purchase requisitions to final payment is as seamless as possible.
Improving this process requires a close look at each stage of P2P, including analysis of key performance indicators (KPIs) and building in best practices to every step. The result? Streamlined operations, fewer manual tasks, faster approvals, better cash flow management and lower costs.
Table of Contents
- What is the purchase to pay process?
- KPIs to track for purchase to pay process improvement
- Best practices for an efficient purchase to pay process
- Future proof your purchase to pay process
What is the purchase to pay process?
The P2P process includes all steps involved in obtaining and paying for goods or services within the accounts payable cycle. This starts with the creation of a purchase requisition and ends with the payment of an invoice.
It’s a critical part of every organization’s procurement operations and accounts payable efficiency, helping organizations maintain better control over their procurement activities and operational costs and nurture better relationships with suppliers.
There are several key steps in the purchase to pay process flow, starting with the identification of a need for goods or services and ending with the payment to the supplier. It requires the integration of both financial and procurement operations.
1. Purchase requisition and approval
A purchase requisition is an internal request that kicks off the purchase to pay process. A department or individual within the organization has a need for goods or services and submits a request (usually through a standardized form) to the procurement or purchasing team. Requisitions usually include details about the item required, quantity and supplier information.
Once received, the request is reviewed to make sure it aligns with the organization’s budgets, policies and operational procedures. The people involved in its review and approval vary depending on its nature. For routine purchases, automated approval workflows that route the request to the appropriate decision-makers speed up the review and approval process.
.gif)
FEATURED SOLUTION
Invoice processing made easy
Discover how DocuWare can optimize your accounts payable workflows in just a few steps.
2. Purchase order creation
Once the supplier is selected, the procurement team creates a purchase order that outlines details like quantities, pricing and delivery dates. This legally binding document ensures both parties are clear on the terms.
3. Receipt of goods and services
After sending the purchase order to the vendor or service provider, the company receives the goods or services. Accounts payable staff reviews the delivery ticket or service agreement to make sure it matches the purchase order.
If the terms of the purchase order have been met, the P2P process continues when the company receives an invoice. Detailed recordkeeping is important, to avoid discrepancies between what was ordered, received and billed.
4. Invoice verification
The supplier sends an invoice along with the order to request payment for the goods or services. Invoice matching involves taking the invoice and comparing it with the purchase order and delivery receipts. The goal is to ensure the company is only paying for what was ordered at the agreed upon price. If everything matches, the invoice can be approved for payment.
5. Payment approval and recordkeeping
Payment is the final step in the purchase to pay process. After invoice matching and approval, payment of the invoice is scheduled and paid by electronic funds transfer (EFT), bank transfer or credit card. Efficiency in the invoice matching and payment steps are important because late payment can often result in penalties from the supplier.
It’s also important to keep meticulous records of this stage in the process, including storing the purchase order, invoice, and receiving report and payment confirmation securely. From resolving supplier disputes to financial compliance and reporting, it’s likely those accounts payable documents will be needed again.
KPIs to track for purchase to pay process improvement
Implementing a P2P process is one thing, but optimizing it requires a close look at each step to see where efficiencies are possible. Key performance indicators (KPIs) can help you identify areas for improvement. Let’s take a closer look at some of them.
Purchase order cycle time
Purchase order cycle time measures how long it takes from the moment a purchase requisition is approved to when a purchase order is issued to the supplier. Long PO cycle times create delays in receiving goods or services which, in turn, can disrupt operations and damage supplier relations.
Invoice process time and accuracy
Process time is the length of time it takes to get an invoice from initial receipt to approval. Invoice accuracy measures the number and frequency of errors like incorrect amounts or discrepancies with purchase orders.
Both are important indicators of the effectiveness of accounts payable workflows and purchase to pay processes. Long invoice processing times are tied to less favorable supplier relations and higher risk of late payment penalties. Inaccuracies cause delays across the entire P2P process and eat up more resources since they need to be resolved.
Percentage of invoices matched automatically
Automatic matching of invoices and purchase orders drastically speeds up the P2P process. If there is an automatic match, no manual intervention and extra resources or time are needed. The higher your percentage of automatic matching, the more efficient and effective your purchase to pay process.
Supplier lead time and performance metrics
Supplier lead time is the length of time between a supplier receiving a purchase order to the delivery of the goods and services ordered. Sometimes, issues with an inefficient purchase to pay process are not the result of internal processes. If suppliers are the ones causing delays and discrepancies, supplier lead time can help you identify the issue and evaluate the ongoing relationship. Other supplier performance metrics include order accuracy, product quality and frequency of damage to goods or delays in service.
Cost per invoice and purchase order
Cost per invoice and cost per purchase order measure the total cost of processing each invoice and PO. The costs incorporate the time and labor needed, on average, to process invoices and POs. But they also include other overhead costs like software costs and any other resources needed throughout the verification and approval stages.
If you’re seeing high cost per invoice or cost per purchase order figures, it’s an indication of inefficiencies within the purchase to pay process which may be caused by unproductive workflows or manual efforts that could be automated.
Best practices for an efficient purchase to pay process
Since it contains many repetitive administrative tasks and standardized data sets by nature, the purchase to pay process flow is well suited for automation. But aside from automated invoice processing, there are several best practices that can help lower costs and improve the productivity of your P2P process.
Centralization and standardization of data and communication
One of the most effective ways to improve efficiency within the P2P process is by centralizing and standardizing your procurement data and communication workflows.
Centralizing procurement data means that all requisitions, purchase orders, approvals, supplier information, invoices and payment receipts are stored in a single system, rather than scattered across multiple tools.
The goal is to reduce inefficient processes, like double data entry in separate systems and reduce the risk of incorrect data. Even if this information is kept in separate systems, integrations can ensure that discrepancies are identified and rectified much faster, so everyone is working from the same information.
Standardizing communications and documents is also important because it ensures that the same data comes through to the system in the same way each time. This means implementing standardized templates for requisitions, purchase orders, invoices and any other procurement documents across all departments.
Without this, you’ll struggle to analyze data and extract performance metrics to make informed decisions about procurement strategies.
A document management system enables both the centralization and standardization of all steps within the P2P process, enabling you to eliminate data silos and streamline workflows for greater efficiency. With Docuware’s document management system, you can achieve seamless data integration and recordkeeping across departments with standardized templates, automated workflows and secure storage and collaboration. Reduce manual tasks and errors and save money on inefficient processes
Stay compliant with local policies and regulations
Like many other areas of finance and operations, procurement is often subject to compliance with local regulations.
To stay compliant, your business should:
- Regularly audit procurement processes to ensure they align with the latest regulatory requirements.
- Keep detailed records of all supplier transactions and communications, from purchase orders to invoices and payment confirmations to be ready for compliance audits or legal review.
- Clearly define how vendors are selected and how procurement activities are conducted, making sure every stage of the P2P process adheres to legal and ethical standards.
Automate approval workflows
Manual approval workflows can result in a lot of time wasted and inaccuracies due to email back-and-forth, missed communications and misplaced documents.
Automating the approval process for requisitions, purchase orders or invoices ensures the document is routed to the correct people at the right time, leading to:
- Speed and Efficiency: Sending requisitions and approvals automatically to the right decision-makers reduces waiting times and ensures reduces errors.
- Transparency: Documenting every step of the approval process provides a clear audit trail of who approved what and when, enhancing accountability and simplifying audits.
- Compliance: Enforcing compliance rules through automated systems ensures that certain thresholds or conditions are met before approval. For example, purchases exceeding a certain amount might automatically require higher-level approval. By automating the approval process, organizations can improve operational efficiency, reduce processing times, and ensure that purchases are approved in accordance with company policies and regulations.
Future-proof your purchase to pay process
The purchase to pay process is crucial for maintaining operational efficiency. By centralizing data, automating approval workflows, and closely tracking KPIs like invoice accuracy and supplier lead times, businesses can streamline their operations and reduce costly errors.
Ready to take your purchase to pay process to the next level? DocuWare offers powerful automation and document management tools designed to optimize your procurement workflows from start to finish.
Schedule a demo today, and discover how DocuWare can help you future-proof your operations, improve efficiency, and ensure compliance — all while reducing manual tasks and using automation to eliminate unnecessary steps and improve data quality.
