What Is The Role Of The Purchase To Pay Process?
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Purchase to Pay, which usually goes by the abbreviation of P2P is a set of business processes relating to the tasks of requisitioning, Purchasing and Payment. As with many business processes they may vary from company to company but do contain some key common steps. For an appropriate example see here
The process can be significant, without both control and visibility of the purchase to payment process organizations will fail to optimize company funds – without efficiency employees will be faced with a bureaucratic process that fails to meet business need.
Whilst not explicitly referring to the use of technology P2P in today’s world is often used in relation to software tools such as e-procurement, e-invoicing etc. P2P concepts will typically be applied in improvement or streamlining activities.
Existing purchase to pay processes can be inhibited through poor regulation and visibility. Where companies are lacking proper controls and disciplines this can lead to:
• Spend occurring without appropriate authorization
• Loose budget controls and codification
• Failure to optimize use of company funds
• Failure to capitalize on agreed supplier contracts
• Lack of visibility on committed spend resulting in poor cash planning
• Lack of appropriate management information
These issues can be substantial as can the impacts on both productivity and the cost of process. Significantly the less robust the process, the greater impact.
Improving the purchase to pay process
These days many companies look towards software solutions to help automate and improve controls in their purchase to pay process. These software solutions can manage the whole end to end process within one system (while integrating with existing ERP and Finance solutions) and can manage:
• Requisitions and Ordering
• Authorization and coding
• Invoice matching and payment authorization
Such automation can help in a number of ways
Efficiency – the process can be simplified and standardized for all users throughout the activity. Configurable workflow can be established to ensure compliancy with company policy whilst reducing administration (and overhead cost) through the removal of paper reduced errors.
Efficiencies are not just seen in the buying function either – automated 2 or 3 way matching coupled with auto-coding can greatly reduce the load on bought ledger functions – allowing time to be better spent on value add activities such as cash management.
Ensuring compliancy – Enforced authorization and sourcing compliancy can help organizations control cost and increase savings by reducing spend that is either inappropriate or off-contract.
Visibility – As processes become transparent a key benefit is management information. Detailed spend analysis data can be readily available and access to key performance indicators simplified. Increased visibility on spend can help facilitate improved budgeting and cash forecasting resulting in better cash utilization and mitigating the typically reactive “ we only see cost when the invoice turns up” style of cost management.
Summary
Purchase to pay is not without its challenges – however there are an increasing numbers of vendors and consultants in the market and with effectiveness and ROI demonstrable more and more private companies and public sector organizations are deploying P2P improvement projects.
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