Breaking down the silos between accounts payable and procurement is the first step in creating a more efficient, cost-effective finance function.
When it comes to P2P, or procure to pay (aka, purchase to pay), the first step is defining exactly what it means; the second step is putting it into action.
So what is P2P?
Basically, every B2B transaction that involves a buyer and a seller is a procure-to-pay process. In the past (and too often, in the present for some companies), two separate functions were provided by two separate entities. Procurement (those who order the goods) and Accounts Payable (those who pay the suppliers for those goods) rarely collaborated with one another. Each had their appointed tasks and their individual processes. But technology, through automation, is tearing down the time-consuming and inefficient silos that have traditionally separated these two. By digitizing and automating processes for AP and Procurement, this has helped to create an automatic communication between the departments.
Automating the Procure-to-Pay Process, Step by Step
- When an electronic PO is generated by procurement, all the parties involved (procurement, AP, and supplier) have visibility into that PO and the subsequent actions (receipt of goods and invoices).
- Suppliers then send invoices, either as e-invoices which automatically appear in the system, or as paper, fax, or other format which are scanned and the appropriate data is extracted and normalized. At this point, the invoices go through the accounts payable processes.
- Matching the invoice to the PO and receipt of goods takes place within the system.
- If matches are confirmed (within tolerances pre-set by procurement), the invoice is sent straight through to the company’s ERP system to process a payment.
- Rules may have been stipulated that certain invoice amounts require higher level approvals. That approver would be automatically notified and, upon approval, the invoice would go into the ERP to process a payment.
- Many P2P solutions also offer a payment component which can deliver electronic payments to suppliers once they’ve been approved.
- Since all documentation and information is captured and stored within the system, AP has visibility into invoice status, allowing them to get better control of outgoing cash flow; procurement has visibility into supplier history, allowing them to negotiate contracts more effectively; and suppliers are able to see where their invoices are in the payment cycle.
Finding the right solution will enable you to streamline your entire procure-to-pay process flow for easier purchasing and faster processing of supplier invoices.
Learn more about the Procure-to-Pay process and how automating it can help you optimize your cash flow.