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All you need to know about the Procure-to-pay system

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Praveen Sudha

February 9, 2021
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Irrespective of how good an organization's processes are, there are always loopholes and ample scope of improvements that can be made in the process flow of a business. With the wide adoption of digital assets in the tech-driven era and integrating next-gen technologies like automation, AI, big data analytics, and so on, it even becomes important to optimize the procure-to-pay process. 

In recent times, huge capital is lost just because of the shortcomings and inefficiencies in the procure-to-pay systems. So, businesses need to invest in the most suitable and ideal procure-to-pay system to stay on the safer side and realize a procure-to-pay system's true potential. 

So, without further ado, let's understand the nitty-gritty of a procure-to-pay process so that you can reap the best out of it and experience more efficiency, productivity, and profitability. 

Understanding Procure-to-pay process 

Procure to pay is a process of purchasing, requisitioning, accounting, and paying for accounting for goods and services. In this process, a requisition is made, the order is placed and after receiving the order, payment is made depending on the invoice from the supplier. Basically, procure-to-pay is an automated system that integrates procurement with accounts payable for streamlining the process, offering accurate and efficient outputs. 

How Procure-to-pay System Makes Your Job Easy? 

 An automated procure-to-pay system accompanies a comprehensive range of business benefits for procurement and accounts payable. Here are the major benefits that businesses experience with an automated procure-to-pay system. 

  • Minimized invoice processing costs: Getting automated and avoiding paper-based management can help in saving a lot of time and costs. This ensures that employees can take more strategic initiatives instead of spending time on repetitive tasks on a regular basis. 
  • Accurate decision making: Procure-to-pay system ensures robust on-demand reporting features and with the help of real-time data gathered, businesses can get more control over cash flow and make wise, accurate, and smart decisions that would help the business in the long run. 
  • Streamlining procurement processes: A procure-to-pay system ensures connectivity throughout the business, so requisitions are requested and approved quickly, POs are created, and suitable suppliers are chosen on the basis of data electronically and are easy to track. 
  • 100% transparency: A procure-to-pay system ensures thorough visibility and transparency throughout the supply chain and ensures that both purchasers and suppliers get access to view invoice status in real-time. 
  • Improved supplier relationships: With an automated procure-to-pay system, suppliers get notified in real-time of when they'll receive payment and even get other important information. This helps in strengthening a business's relationships with the suppliers. 

Process flow of an Ideal Procure-to-pay Cycle 

A procure-to-pay process comprises basic stages based on the organizational practice and the requirements in question. So, let's understand the suitable steps of a procure-to-pay cycle. 

Identifying Requirements 

The first thing in the procure-to-pay process is identifying and defining the needs connected with cross-functional stakeholders. When the valid requirement is noted, procurement experts further outline high-level specifications for products or services, Statements of Work (SOW), and Terms of Reference (TOR) for services. 

Build Purchase Requisition 

Once all the specifications are finalized, the next step is to create a formal purchase requisition. The requester needs to submit the filled out purchase requisition form while making sure that all the important administration needs are met perfectly. 

Approval 

Procurement officers then review the submitted purchase requisitions. Once the needs are evaluated, available budget verification, and validating the purchase requisition form, the heads can approve the purchase requisition or reject if the conditions don't meet. Moreover, if the purchase requisition is incomplete, it is rejected back to the initiator to make the needful corrections and resubmit it. 

Creating PO 

In case the requested products have specifications like one-time unique purchases, unmanaged category buys, or low-value commodities, a spot buy is carried out. Otherwise, purchase orders are built from approved purchase requisitions. 

Approval of purchase orders 

With the help of an approval loop, purchase orders are sent to ensure the accuracy and legitimacy of specifications shared previously. After that, approved purchase orders are dispatched to vendors. Once the purchase orders are reviewed, vendors approve or reject, or begin a negotiation. Once the procurement officer has approved the purchase order, a legally binding contract gets activated. 

Good receipts 

After the products or services are delivered by the supplier, the buyer inspects the delivered goods to ensure that they comply with the contract terms or not. After this, depending on the standards mentioned in the purchasing contract, the goods receipt gets approved or rejected accordingly. 

Supplier performance 

On the basis of the data gathered from the last step, supplier performance is then assessed thoroughly while taking numerous factors into consideration such as- contract compliance, on-time delivery, Total Cost of Ownership (TCO), and responsiveness. 

Approval of invoice 

As a product receipt gets approved, a three way match amongst the vendor invoice, purchase order, and the goods receipt is carried out. If no discrepancies exist, the invoice is approved and further transferred to the finance team for payment disbursement. And if inaccuracy is found, invoices are rejected back to the vendor along with the reason of rejection. 

Payment processing to vendors 

When an approved invoice is received, the finance team further processes payments as per the contract terms. All sorts of contract reviews liquidated financial security are taken into consideration and the payment made to the supplier are of either types- partial, advance, installment, retention, or final payments. 

Digitalize your procure-to-pay cycle 

Wish to uplift your purchasing processes? TERA helps you digitalize your procure-to-pay cycle thoroughly. Connect with our experts today to learn how we can transform your procurement process and take your business to the next level. 

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