Do you wonder how Procure to Pay (P2P) process optimization can help reduce cost and increase cash flow visibility?
Procure to pay process could be complex, but a well-optimized P2P process could also be a source of cost savings.
After working with 100’s clients, here is what we found:
- Procure to Pay process optimization saves the Company anywhere from 30-50% of the purchase order and invoice cost.
- You can reduce your procure-to-pay cycle times by 40-50%.
- It reduces the overall cost of Supply chain management by around 15-20%, especially if you manage inventory.
- You can reduce the vendor payment cycle by 30%. You can then pay vendors on time or use early payment discounts.
- You gain deeper insights into your procurement process and gain the opportunity to improve your design procedures.
Want to achieve results like this?
Then read on…
This guide will walk you through a step-by-step process to generate cash from Procure to Pay process.
- We will walk through how to find areas of improvement in your current procurement process.
- How to find opportunities for cost reduction in your procure-to-pay process.
- How to collaborate with other teams so that you can get started with P2P process optimization.
- We will show you how Procure-to-Pay software can help you optimize the P2P process.
Before reading further, download the procure to pay checklist by clicking the button below.
Then follow along to find the hidden opportunities in your procure-to-pay process.
What Is Procure To Pay Process?
Procure to pay process is the end-to-end process that covers the steps from purchase request initiation to the payment to the supplier.
Here is a quick break up of the key stages of this process:
- An employee creates the requisition listing the requirements and any preferred vendor.
- The sourcing team then finds capable vendors.
- The purchase request is approved as per the purchasing policy.
- Create a purchase order creation and submit it to the supplier.
- Receipt of the goods or service by the Company.
- Vendor invoices received
- Payment issued to the supplier.
Of course, the process on paper looks simple, but each step could be problematic and detailed for your end-users.
How are your users creating requisitions today?
Are they requesting purchases via email and filling data in Spreadsheet forms?
This simple step could be a source of frustration for users. It could lead to productivity loss for the entire team because the entire process is manual.
Procure To Pay Process Flowchart & Steps
Let’s briefly look at each of the steps of the entire P2P process and the wide range of potential improvement areas in each step.
Requisition
The requisition process is the start of the purchasing process for most companies.
We said most companies because not all purchases go through a Purchase order.
Sometimes, the vendor submits the invoice, and the payment is made.
The requisition process could be a source of frustration for many users, especially if the requisition process is manual.
Companies don’t pay enough attention to this process.
It is not just about creating a requisition, but this is an opportunity for the Company to direct the spending to the preferred vendor.
You can easily save one FTE effort in an entire year if your requisition process is simple and is automated through an easy-to-use purchasing system.
Supplier Selection
This step might not be required in every purchase requisition. If you already have a preferred supplier for your employees’ product or service, this step is redundant.
In other cases, the sourcing team can get engaged if you don’t have a preferred supplier.
This process could be as quick as a few hours or take a few days.
If your purchase history is readily available, it is easier for the team to identify the supply source.
Requisition Approval
This step includes approval of the purchase requisition per your corporate Spend/purchasing policy.
The purchasing policy should identify the owners who approve the requests before Procurement can issue an order to the supplier.
In our experience, companies without automated approvals spend a lot of time chasing the right manager or executive team member.
To avoid last-minute escalations and save time for everyone involved in this process, we recommend the following
a) Ensure that your process is automated and executives can approve requisitions over the phone at the bare minimum.
b) Review your approval cycles and see if the requisitions are getting approved at the right level. For example, if 90% of your approvals go to a senior executive for approval, that is the bottleneck.
In that case, you should change the approval limits so middle management can handle more approvals. That drives accountability.
If you fear a loss of control, then purchasing approvals can easily manage that.
You can analyze what is happening in the purchasing process and change the process to close any loopholes.
Purchase Order
After a requisition is approved, the next step is issuing the purchase order to the supplier. This step of the procure-to-pay process is straightforward, but there are a few things to consider here.
- Is your requisition to purchase order process fully automated, or are you manually keying the orders in the system?
- Are suppliers automatically getting the orders, or do orders need to be sent manually to suppliers?
If the answer to these questions above is that the process is manual, then you should look at automating this process.
There are two primary benefits of automating the purchase order creation
- By not having an automated process, you increase the chances that an order would be entered in error because you are typing data from one system to another.
- Automating this process also saves your resources time, which can now be allocated to other value add activities like negotiating to price with vendors.
Receipt
A receipt is the confirmation of the delivery of the goods by the supplier. In most companies where the end-to-end process is not automated, receipt management is a very manual process.
The A/P (Accounts Payable) team often has to check with individual users whether the products have been received or not so that they can reconcile the invoices.
In the case of services, there might not even be a check whether the service is delivered and as per the agreement.
Also, the lack of centralized documentation means that if you have to look at the packaging slips, etc., you have to reach out to the individual who confirmed the delivery at any time in the future.
Companies can reduce the overhead of receipt management by shifting the responsibility of creating the receipt to the person accepting the delivery.
If you have a modern purchasing system, then the process of receipt management is much easier.
Invoice Receipt
The next step in the process is receiving the invoice in the system. In reality, vendors ship invoices as soon as they ship the product.
So you might have an invoice before the product even hits your warehouse docks or, for that matter, your office.
How are you creating invoices in your system today?
The most common scenario is that companies receive invoices via email, snail mail, fax, etc. Those invoices are then keyed in manually in the accounting system by the Accounts Payable and Purchasing Department.
Let’s do a quick time analysis.
Assume it takes 10 minutes to key in an invoice, and let’s say you receive 10,000 invoices yearly.
That is 100,000 mins or 1,666 hours. That is almost one FTE worth of effort you spend entering invoices into the system.
Best-in-class companies automate the process so that suppliers can submit the invoices electronically. Aside from that, this can also improve supplier relationships!
That way, you don’t have to key them into your system.
Invoice Matching And Invoice Approval
The next step is to reconcile the purchase order, electronic invoices, and receipt to ensure that you received your orders and that the invoice amount matches the purchase order amount before approving any invoice.
Based on the number of documents, you can have a 2-way or 3-way match.
System of accounts payable teams can easily handle the 3-way match process and the related workflow.
The workflow should be able to route invoices for approval in case of any exceptions.
Again if there is a lack of P2P automation, your team could manually chase users or suppliers for these documents.
Invoice Ready To Pay
Once the invoice is reconciled, it is now ready to pay.
In some companies, this could be a two-step business process, the invoice might be reconciled in one system, and once the invoice is reconciled in that system, it is sent to another system for payment.
The Enterprise Resource Planning/Accounting system then issues the payment based on the supplier’s payment process, terms, and preferred vendor payment method.
Payment Issued To The Supplier
The last step in the process is, of course, payment to the supplier.
The area for improvement here is to move away from paper checks and move to either ACH payments or payments via credit cards.
Source:https://www.bottomline.com/us
As per a study by bottom line technologies, the cost of issuing a check could be between $2 and 4 dollars.
In contrast, the ACH fee could be anywhere between $0.15 to $0.95 per transaction.
Bonus: We have compiled a procure-to-pay process optimization checklist in under 30 days. You can download it here for free.
Procure To Pay Process – Siloed Approach Doesn’t Work
As you saw in the previous section, any organization can reap significant benefits by improving the procure-to-pay process.
So if this is obvious, why aren’t companies doing this already?
We think companies are living with suboptimal procure-to-pay processes for the following reasons.
Siloed Purchasing And Accounts Payable
Purchasing and accounts payable are two different teams in most companies. But we see companies integrating these functions to ensure efficient processes.
Purchasing organization generally handles the source-to-PO process, and once the PO is issued, it is the responsibility of the AP department to clear the supplier invoices.
Since there is segregation of duty, both departments look at their initiatives for process improvement.
But when you think about it, one can’t be optimized without the other.
For example, AP must chase the PO owner if a vendor submits the wrong invoice.
However, a single process owner can easily optimize the end-to-end process rather than individual silos if there is a single process.
When you start looking at P2P solutions as one process and not two different departments, you can quickly identify areas for improvement.
That includes a standard set of procurement technology, such as one that can automate the whole purchasing process. This could also lead to changes in upstream processes, which favorably impacts downstream processes.
For example, if you have a lot of issues during the invoice reconciliation process, the invoice does not perfectly match what you have on the PO.
The issues could be because of how the system creates the PO.
So when you have single ownership, it is much easier to resolve issues like this.
Lack Of Executive Buy-In
Depending upon the size of the Company, procurement, and AP are considered to support functions.
Most executives consider these functions a necessary evil, something you require to run operations.
Procurement in small companies could be under the department that spends the most money, and Accounts Payable reports to the Controller of the Company.
However, if companies start looking at end-to-end process optimization, they will soon realize that an effective procure to pay process could be a competitive advantage.
Where Is The Hidden Cash In Your Procure-To-Pay Process?
Hopefully, by now, you are convinced that procure-to-pay optimization is the right step for your Company to gain efficiencies in Procurement and Accounts payable.
But how do you quantify this into hard cash?
In the following sections, we will help you quantify the benefits of procure-to-pay optimization.
Cost Control And Cost Avoidance
When it comes to reducing operating expenses, a proactive approach works best.
What is a good Cost control benchmark?
As per research by Spendmatters, mid-market companies can reduce 2-3% of their Spend through effective spending control and strategic cost control mechanisms.
Assuming your annual revenue is $100M, approx.
30% of Spend is with external vendors, which is a $30M annual spend that can be strategically controlled.
With effective cost control, you can save 2-3%, $600,000 to $900,000 in cost control savings.
That is not an insignificant amount.
Even if you get a 1% reduction due to cost control, that is still $300,000 in annual savings.
Using a Purchasing system would allow you to implement flexible cost controls.
Most companies create a bureaucratic process to control costs.
Every order has to be approved by senior management or in small companies; every order has to be approved by the owner of the Company.
On the other hand, you can’t assume that every employee in the Company will behave reasonably.
So let’s look at some strategies for effective cost control
a) Budget controls
b) Category and spend-based approval controls
c) Cost avoidance through better contract management.
Budget Control
If you already have a set budget for projects or general operating expense categories like office supplies, you can use your procure-to-pay process to ensure cost control.
By ensuring that budgets are part of your procure-to-pay process, you can ensure spending is within the allocated budget.
From there, you can control the overspending scenarios by requiring finance team approvals to extend the budget.
Purchasing systems can automatically do this, whereby you can build automated controls on what should happen if the purchase exceeds the allocated budget.
For example, if the budget is unavailable, you can block the purchase until the budget is adjusted.
Category And Spend-Based Approval Controls
Another way to control costs is to ensure that purchase requests are approved by the right person before the PO (Purchase Order) is sent to the supplier.
Let’s take an example.
Michael from the accounting department is looking to purchase a subscription to a new BI tool. He finds a vendor and creates a purchase requisition.
Suppose this official request is routed to an IT manager for approval. In that case, the IT manager might have some spare licenses and can fulfill the request without additional spending for the Company.
Additionally, for large spending, you can ensure that purchase request is authorized by senior management. That allows further review and analysis.
The goal with category and amount-based approvals is to have a review process to ensure that the Spend is required.
Cost Avoidance Through Better Contract Management
Companies lose a lot of money yearly on automated renewals of products or services that are no longer required.
The simple reason is that companies don’t have a central place to store and track contracts.
Or, even if there is a central place to store contracts, there is no way to identify which contracts must be auto-renewed.
This can be easily solved by keeping track of all the contracts, including their expiration dates, and then a monthly review to ensure that you are at the top of your renewal cycles.
Productivity & Efficiency Improvement
Improving the procure-to-pay process can improve user experience and overall productivity for your procurement and accounts payables team.
So how do you quantify the savings due to a streamlined process?
Let’s look at two critical factors that impact the cost of the purchase order.
Reduced Purchase Order Cost
What is the cost of a purchase order?
Do you know how much does it cost to process a purchase order?
If not, that is the first step toward calculating the benefits.
A purchase order can cost from $35.88 to $500.
Some studies even put the cost of a purchase order to be as high as $700.
The cost of a purchase order varies based on the industry, hence such a stark variation in the purchase order processing cost.
If you want to calculate your own cost, use our purchase order cost calculator. To quantify the savings, let’s take an example: the purchase order cost is $50/PO.
With automation, you can reduce the cost by 50%.
Assume that your company processes 2000 POs per month.
That is a cost-saving of $50,000 (2000*$25) annually
Reduce Invoice Processing Cost
Let’s now look at the cost of processing an invoice.
How much does it cost to process an invoice?
Invoice processing cost includes the time it takes to scan and enter the invoice into your accounting system, match the invoice with the purchase order, and then send for further approvals so that AP can pay the vendor.
As per the Paystream advisor’s research, the average cost for an invoice varies from $2.36 to $15.00.
Source: https://www.paystreamadvisors.com/
For our discussion, let’s assume that the average cost is approx—$ 9.
With automation, simplifying the purchasing process, and having vendors submit invoices electronically, you can reduce this cost to half.
If you process even 5000 invoices annually, that is a savings of $22,500 (5000*$4.5).
Early Payment Discounts
A well-optimized procure-to-pay process means that you can process documents faster and realize early payment discounts.
Let’s break this down.
An optimized process ensures that purchase orders are processed fast, invoices are entered automatically in the system, and automated 2-way or three-way matching is.
All that means is your invoice is processed fast and ready to pay to your vendors.
Assuming you have negotiated early payment discounts and sufficient cash flow to pay your vendors early, you can avail of these early payment discounts.
Standard payment terms calculating early payment discount savings.
It is not uncommon to see 2/10 Net 30.
That means your standard payment terms are Net 30, but the vendor would give you a 2% discount if the invoice is paid within ten days. Let’s take an example to quantify the savings.
Assuming the invoice is ready to pay within ten days, the invoice amount is $5,000.
So at a 2% early payment discount, you can settle the invoice in full for $4,900 if paid within ten days.
That is savings of $100; if this is a recurring monthly invoice, you can save $1200 annually for just this one vendor.
What if you don’t have the cash to pay but borrow the money? You are paying 20 days early for the discount, so let’s do the math.
Assuming your short-term borrowing rate is 8%.
Then you would pay $16.2 in interest ($4900*8%* 20/365). So even if you are borrowing to pay, that savings are $83.8 ($100-$16.2)/invoice.
Not a bad return on investment!
Increasing Cash Flow Visibility
As you look at improving the efficiency of your procure-to-pay process, you should also look at how to increase the spend visibility across the organization.
Finance, of course, would have visibility into company Spending.
However, most of that visibility is at the Chart of accounts level. There are two main issues with Chart of Accounts level visibility into expenses.
a) Chart of accounts is suitable for a data summary but lacks granular spend visibility.
That makes sense because a Chart of accounts is created to group expenses in buckets, which can drive financial statements like profit and loss accounts and balance sheets.
They are not designed for Spend analysis. To better understand the Spend and opportunities for cost reduction, you need granular spending data.
b) Few people understand the Chart of accounts outside the finance department. The goal of better Spend visibility is not just for the finance department. The purpose is better visibility and also to ensure that individual department owners understand where they are spending money.
Increased spending visibility is all about transparency and driving accountability across the organization.
How do you quantify the savings related to better visibility?
There are two ways you can measure the value of better visibility
1. What kind of resources are required to get granular spending visibility? You can measure in terms of FTE(full-time employees) effort. Let’s say it takes an annual ½ FTE worth of effort.
So now you know the baseline, you can review the process and see the impact of optimized procure to pay process on reporting. It is a measure of reduced effort.
2. The second way is to more subjective. It is the impact of the better and faster decision-making process because of better cash flow details.
Avoid Disruption Cost
Do you ever have to deal with a situation where the supplier did not deliver a critical product or service because they never received the purchase order?
Have you ever been involved in a situation where you must expedite the orders and pay air freight to get the products faster because you are running low on product supplies?
If you answered yes, then it is easy to quantify the cost of disruption in the business and the cost of expediting the orders.
This can easily be avoided by having a better procure-to-pay process. By optimizing the procure-to-pay process, you can ensure that the orders are delivered on time and suppliers can acknowledge the order and confirm the delivery of the items.
Along with vendor acknowledgments, you can start tracking how often the vendors deliver on time. You can use this data to work with vendors to improve delivery time frames or find new vendors who can deliver per your schedule.
Reduce Cost – Procurement Cost savings
The next obvious benefit of an optimized procure-to-pay process is reduced spending by getting better pricing for the product and service you purchase. Thus, giving your company procurement cost savings.
Spend can be divided into direct and Indirect Spend.
Direct Spend is what you consider raw materials that go into the product and COGS spend.
An optimized process enables the procurement team to increase the Spend under management because they can now review it before the purchase order is issued. Also, an optimized process provides better Spend visibility to the team.
Indirect Spend is the company’s money to run the operations, such as IT, office supplies, marketing expenses, etc.
Direct spending is very much controlled. We will focus on the opportunity in the indirect spending area.
The first measure of an optimized process is to have more Spend under management. As you can see from the graph below, only 20-30% of companies have more than 90% of their Spend under management.
By spend under management, we mean the Spend, which is actively reviewed by a procurement team and negotiated to get better pricing.
If you don’t have a procurement team, you can use this analysis to build the business case for having a procurement team.
Source: https://assets.kpmg.com/
So once you know how much spending you have under management, you can easily calculate the savings.
As per KPMG, the savings number could vary based on the maturity of the sourcing and procurement function. For example, if you have a high maturity in the procurement process and all your sourcing activities are centralized, you can achieve as high as 10% savings annually.
To be conservative, let’s assume a 4% cost reduction.
Let’s say your revenue is $100M, and your Indirect Spend is $40M.
Even if you have 40% of Spend under management, that would be $16M.
4% saving would be $ 640,000. That is not an insignificant amount of money.
Fraud Prevention
Do you know if your Company is a procurement and invoice fraud victim?
Procurement fraud can be defined as dishonestly obtaining an advantage, avoiding an obligation, or causing a loss to public property or various means during the procurement process by public servants, contractors, or any other person involved in the procurement.”
There are different types of procurement fraud.
For example, a person responsible for purchasing takes gifts from the vendor to award them the business.
The other example is an employee awarding business to their relatives or close associations.
The chance of fraud is also higher in the A/P process because if you don’t have tighter controls, someone can set up a fraudulent company and keep paying small amounts over time.
It is hard to quantify the savings from preventing fraud because till you don’t know the extent of fraud, it is difficult to know what you could have prevented.
Bonus: We have compiled a procure-to-pay process optimization checklist in under 30 days. You can download it here for free.
How To Get Started On The Procure-To-Pay Process Optimization
So we talked about the procure-to-pay (P2P) process so far and why the process is not optimized. Let’s now look at how to go about optimizing the procure-to-pay process. We walk you through a step-by-step process.
Procure To Pay Process Audit
The first step towards the optimization journey is to determine what is wrong with the current process.
To start with the audit of the procure-to-pay process, you need to review every step in the process.
You could look at dividing the feedback into objective and subjective areas.
Objective Assessment
This is where you look at the data for the end-to-end process and see how long it takes for the complete cycle. For example – How long does it take to create the requisition?
- How long does it take to approve the requisition?
- How long does it take to create the purchase order?
- How long does it take to send the purchase order to the supplier?
- How suppliers are submitting invoices. For example, how many are paper or electronic invoices?
What is the average time to create an invoice, such as scanning the document and indexing the document?
- How long does it take to reconcile the invoices with other documents?
- How many invoices are automatically reconciled vs. the invoices which need manual intervention?
What to do with all this data? We will cover that in the next step. But before we start looking at what areas to focus on. Let’s do a subjective assessment.
Subjective Assessment
Why do subjective assessments when you have all the data to review your process efficiency?
There are two reasons to do that:
a) When you ask around enough time enough people, you get a sense of the most troubling issues.
b) Perception is key in the adoption of any new change. So it is important to how people perceive the current process.
We haven’t heard anyone say that they love PO and the invoicing process. However, the goal should be that the process is optimized and easy enough so employees don’t have to consider it.
With this subjective assessment, you should be able to identify the top 2-3 focus areas.
Let’s talk about how to use all this data and subjective information now.
Prioritization Of Procure To Pay Optimization
By now, you should be able to identify the areas of improvement. The areas might be identified by objective or subjective feedback.
Before you decide on the next steps, let’s find out if there s a correlation between objective and subjective feedback.
Let’s assume that one of the top subjective feedback areas is that it takes too long to create requisitions or that the process is cumbersome. If you overlap this with the data, you have collected (the time it takes to create a requisition”, you can quickly identify whether the data supports the subjective facts.
Once you have done that, let’s prioritize the areas for optimization of the procure-to-pay process.
Focus on areas where you can deliver maximum value faster.
Focus on areas where the ROI is the highest and the implementation time to improve the process is shorter.
For example, after you compared the objective and subjective feedback, the topmost issue was the employees complained that the requisition process takes too long.
You looked at your data and realized that the cost per purchase order (from requisition to issuing a purchase order to the supplier) is $30.
Let’s say you can cut this cost by 50%, so even if you were creating 5000 orders a year, that is savings of $75,000.
So what would it take to implement this change?
Maybe you can automate the purchasing process if you have a manual process. Of course, it depends on the cost and the time to implement the change.
The second approach could be to look at your purchasing policy and see if you can simplify the purchasing process to reduce the number of steps in the approval process.
For example, per the current process, all orders must go to a Director for approval.
Can you change the process such that Sr. managers can approve more requisitions?
That will drive accountability and reduce the time for a requisition to be approved.
This is just one example, but this is how you should think about each item in your list and prioritize it based on the cost and time it will take to implement.
Joint Ownership Of The Procure To Pay Process
Having common ownership of the process enables an easier review of the process and makes it easier to identify areas for improvement.
There are multiple ways to address the common ownership a) You can have both A/P and procurement reporting to the same leadership. That way, you can share common resources, especially around processing documents, whether a Purchase order or an Invoice.
There is a SOX issue here because the best practice is that the employees who have access to purchase orders shouldn’t have access to Invoices.
However, in our experience, we have seen multiple companies successfully implement this model.
For example, with proper approval controls, you can restrict only the review of the process to certain individuals to review and key in the data. Still, they cannot approve any orders or invoices in the system.
This approach makes sense from a resource utilization perspective and reduces overall investment in technology costs. Instead of investing in individual technologies, now the team can invest in one common platform.
If a typical reporting structure is not possible for procurement and Accounts payables, the alternate approach is to have a collaborative process owner. The person could have a dotted line reporting to procurement and Accounts Payable.
The goal is to have one person looking at the end-to-end process and working with both process owners to optimize the process.
Automate Wherever Possible
Needless to say, automation is key in optimizing the process.
Can you do this without technology?
Yes, at least in theory.
In practice, however, you have limited resources. Companies find it challenging even to conduct an audit of their process.
There are limited resources available to invest in process optimization.
If you have the resources to optimize the processes manually, go for it.
Otherwise, look at technology to automate the process. We will cover this topic in-depth in a later section.
Continuous Evaluation Of The Process
Procure-to-pay optimization is a continuous process. It is not one and done for the following reasons.
a ) The procure-to-pay process evolves. You introduce new categories that might have high complexity.
It could also be because your vendor base is changing, requiring changes to procure-to-pay process.
b) You could start with wrong assumptions. For example, let’s say your goal is to reduce the time it takes to process the invoices received from suppliers.
You realize it is taking time because the purchase order information is unavailable on the invoice. So you implemented a No PO, No Pay policy for your suppliers.
You might not have realized that most stakeholders don’t create purchase orders today.
So this approach is not going to work.
Hence, you must first focus on ensuring that the stakeholders create purchase orders.
This is just an example, but when you start your optimization journey, you must continuously evaluate whether your initial hypothesis is accurate and, if not, change the approach or strategy.
Bonus: We have compiled a procure-to-pay process optimization checklist in under 30 days. You can download it here for free.
Role Of Procure To Pay Software
As we mentioned earlier, you can look at putting more resources into this initiative that is not a scalable model or try to cobble together a piece of technology using your current ERP system and other internal system solutions.
You can build your solution, but then you have the responsibility to evolve it continuously, and it doesn’t have best practices built-in from 100’s other organizations.
We recommend that you evaluate procure-to-pay technologies that can accelerate the pace of the process optimization.
Let’s look at some points where technology can help play a role.
Speed Of Implementation
As we said earlier, you can build your solution, but it takes time to assemble it. You have to write requirements, work with IT to assess the time it will take, and then, once it is ready, test to ensure there are no bugs in the new system.
Compare this to putting together a must-have list, evaluating available solutions in the markets, piloting to ensure the product meets your requirements, and launching the system.
As you might have noticed, the second approach is much faster, and with this approach, you don’t have the hassle of continuous upgrades and testing every change done in the system.
Reliability Of The Tool Over Manual Processes
Any procure-to-pay technology is more reliable than any manual process you would establish.
The challenge with manual processes is that they are not scalable.
When individuals leave the organization, you have to start with transitioning to a new person.
More often than not, companies start with a manual process because it is quick, but they soon realize that the process is not scalable, and then they start over to redefine and automate the process.
For example, you want to review Spend before issuing a purchase order.
So you have a person review every purchase order, which goes out of the door, and since you don’t have a technology solution, it is hard to differentiate between what you should be reviewing and what you shouldn’t be reviewing.
With Procure to Pay technology, you can create a completely touchless process if the purchase order meets certain criteria.
The Long-Term Cost Of Ownership
When you compare the long-term total cost of ownership of the system, procure-to-pay technology would still be cheaper than a homegrown system.
Let’s look at what is involved in the long-term cost of the internal ownership system and who does what in each scenario.
If you are considering homegrown vs. external vendor technology, You can easily compare the cost over three years and see which is cheaper over the long term.
Different Use Cases For Procure To Pay
There are many variations on how you can implement procure-to-pay technology. You could implement an end-to-end solution that automates the entire process from purchasing to invoicing, or you could look at just automating the purchasing process only.
So which procure to pay use case is right for you?
Let’s look at the different use cases first, and then we will give you some decision criteria to help you decide which use case makes sense for you.
In our opinion, there are four primary use cases.
Requisition Only Uses Cases
This use case is the most simple use case for procure-to-pay automation. Let’s say you are currently creating manual requisitions, which are sent for approval through emails.
And you want to automate the process to improve your approval process. In that case, you can implement just the requisition module to automate the requisition process.
Your purchase orders still need to be created in your accounting system manually.
This use case only makes sense when you have a very low volume of purchase orders.
If you have a high volume, you need more resources to create purchase orders in the accounting/ERP system manually.
Purchasing Use Case
This includes automation of the requisition process and includes receipts, invoicing, and sometimes supplier payments.
It takes more time for implementation, but it does help you to realize the efficiencies of an automated procure-to-pay process.
More details on this use case, including integration, check end-to-end purchase to pay use case.
End-to-end Purchase To Pay
This includes automation of the requisition process and includes receipts, invoicing, and sometimes supplier payments.
It takes more time for implementation, but it does help you to realize the efficiencies of an automated procure-to-pay process.
More details on this use case, including integration, check end-to-end purchase to pay use case.
Procure To Pay With A Third-Party Invoicing
This use applies when your existing invoicing system is not very robust, and it makes sense to do end-to-end automation.
We have worked with companies that have already outsourced their invoice processing to third parties. These third parties are responsible for onboarding suppliers to a portal or other integration scenarios.
The invoices are then submitted through a third party, and that third party then sends the invoice to your systems.
The use is very similar to end to end scenario. The procure-to-pay process works precisely in the same fashion as the above use cases with one difference – the invoices come through a feed in the procure-to-pay system.
The procure-to-pay system is responsible for matching the invoices and then sending the invoices to the downstream system.
Bonus: We have compiled a procure-to-pay process optimization checklist in under 30 days. You can download it here for free.
Which Use Case Is Right For You?
The simple answer is that you should aim for an end to end-process automation, which will also help you with your company’s key performance indicators. However, there are other considerations for selecting the right use for you.
Change Management
All said and done, implementing a procure-to-pay system includes change management. It is not just changing the processes but also changes in user behavior.
If you are a small company, this change is straightforward because there are limited people and processes or systems to change.
However, if you are midsize to a large company, audit your process and ensure all stakeholders are on board for the process and system reengineering.
Time To Value
Are you looking for quick wins, or can you wait for the end-of-end automation?
For example, you just took over the procurement department and are looking to gain some efficiencies in the process quickly. In that case, it makes perfect sense to automate the requisition to PO process and see immediate improvements in your procurement process.
Cost
Cost is another factor for consideration of your company’s software solution; a simple use case like requisition would be much cheaper than entire procure-to-pay automation.
So depending on your budget, you can choose a use case.
Conclusion
Procure-to-pay process automation increases process efficiencies, reduces overall costs, and provides your organization with e-procurement solutions.
Companies with best-in-class procure-to-pay systems and processes have tremendous advantages over their peers. They have better cost savings, the ability to gain actionable insights, better engagement with employees, and better visibility into their Spend.
To gauge the full potential of the hidden cash in your procure-to-pay process, start with a complete audit, talk to your counterparts about their willingness to change, and then select use cases for procure-to-pay transformation.
Want to see how ProcureDesk can help with procure-to-pay automation? Schedule a demo with one of our product specialists and have yourself the procurement software you deserve!
