The purchase to pay (P2P) process is at the heart of any organisation’s procurement and accounts payable strategies. A well-optimised P2P process ensures the flow from purchase requisitions to final payment is as seamless as possible.
Optimising this process requires a close look at each stage of P2P, including analysis of key performance indicators and building in best practices to every step. The result? Streamlined operations, fewer manual tasks, faster approvals, better cash flow management and lower costs.
Let’s take a closer look at how you can begin improving the full P2P process and measure success.
The purchase to pay (P2P) process refers to all steps involved in obtaining and paying for goods or services within the accounts payable cycle. This starts from the creation of a purchase requisition and ends with the final payment to the supplier.
The P2P process is a critical part of any organisation’s procurement operations and accounts payable efficiency, helping organisations maintain better control over their procurement activities, optimise operational costs, and nurture better relationships with suppliers.
There are several key steps in the purchase to pay process, starting with the identification of a need for goods or services and ending with the payment to the vendor. It requires the integration of both financial and procurement operations.
A purchase requisition (or purchase request) is a formal internal request that kicks off the purchase to pay process. A department or individual within the organisation has a need for goods or a service and submits a request (usually through a standardised 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 organisation’s budgets, policies and operational procedures. The people involved in its review and approval varies depending on the nature and scope of the purchase requisition. For regular purchases, automated approval workflows that divert to the appropriate decision-makers speed up the review and approval process.
Once the right supplier is selected, the procurement team raises a purchase order that outlines details like quantities, pricing and delivery expectations. This legally binding document ensures both parties are clear on the terms.
After sending the purchase order, the next step in the P2P process is receiving the goods or services that were ordered. During this step, the organisation needs to review the order to make sure it matches the purchase order.
If the terms of the purchase order have been met, the P2P process can move onto the next step and deal with payment. That’s why detailed record keeping of the review is important, so the organisation can avoid discrepancies in what was ordered, received and billed.
The supplier sends an invoice along with the order to request payment for the goods and services. Invoice matching involves taking the invoice and comparing it with the purchase order and delivery receipts. The goal is to ensure the organisation is only paying for what was ordered at the price that was previously agreed upon. If everything matches, the invoice can be approved for payment.
Payment is the final step in the purchase to pay process. After invoice matching and approval, payment of the invoice is arranged and confirmed according to the terms of the purchase order whether that’s 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, receiving report and payment confirmation securely. From resolving supplier disputes to financial compliance and reporting, it’s likely those accounts payable workflow documents will be needed again.
Implementing a P2P process is one thing, but optimising 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 purchase to pay process KPIs.
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.
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 the accounts payable function and purchase to pay process. Long invoice processing times are tied to less favourable 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.
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 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 cost per purchase order measure the total cost of processing each invoice and PO. The costs incorporate the time and labour needed, on average, to process invoices and PO’s. But they also include other overheads like software costs and any other resources needed throughout the verification and approval stages.
Manual processing can cost anywhere from £9 - 31 per invoice. When you consider the number of invoices processed through accounts payable every month, it’s easy to see how reducing this by even a couple of pounds can lead to huge cost savings.
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.
Since it contains many repetitive administrative tasks and standardised 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.
One of the most effective ways to improve efficiency within the P2P process is by centralising and standardising your procurement data and communication workflows.
Centralising procurement data means that all requisitions, purchase orders, approvals, supplier information, invoices and payment receipts are stored in one single system, rather than scattered across multiple tools.
The goal is to reduce inefficient processes, like the double entry of data 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 quicker so everyone is working from the same information.
Standardising 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 standardised templates for requisitions, purchase orders, invoices and any other procurement documents across all departments.
Without this, you’ll struggle to analyse data and extract performance metrics to make informed decisions about procurement strategies.
A document management system enables both the centralisation and standardisation 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 record keeping across departments with standardised templates, automated workflows and secure storage and collaboration. Reduce manual tasks and errors and save money on inefficient processes - Explore Docuware with a personalised demo!
Like many other areas of finance and operations, procurement is often subject to compliance with local regulations. This can include tax requirements or anti-corruption laws such as the Bribery Act 2010, which mostly applies to transparency around vendor selection, or Public Contracts Regulations 2015, which requires requisition approvals to be non-discriminatory and competitive, with transparent documentation of all requisition approvals. Broader legislation such as the Companies Act 2006 and the Value Added Tax (VAT) Act 1994 also require clear documentation of procurement and payments, and the storage of records to be kept available for inspection. Failing to follow these regulations can result in financial penalties for the organisation.
To stay compliant, businesses should:
Manual approval workflows can result in a lot of time wasted and inaccuracies due to email back-and-forth, missed communications and even 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:
By automating the approval process, organisations can improve operational efficiency, reduce processing times, and ensure that purchases are approved in accordance with company policies and regulations.
The purchase to pay process is crucial for maintaining operational efficiency and ensuring smooth procurement workflows. By centralising 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 optimise 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 paperwork.