Understanding how to map your Procure to pay (P2P) process can seem somewhat daunting at first. Of course the steps already exist in your organisation, but being able to get it all down in one place can seem a difficult task.
In this guide we will share with you some of the basic stages you should consider and the reasons why it is so important to have a clear understanding of your process. Our how to map the Procure to Pay process will outline the steps and we’ll even throw in a free Procure to Pay template to help you get started. Just read on to find out more.
What is the Procure to Pay Process?
Procure to pay is the end to end process from selecting and ordering from a supplier to receiving goods/services and making payments. Historically P2P, also known as Purchase to Pay, was a manual process involving numerous parties, different requirements and countless pieces of paper. Whilst the numerous stages remain, many organisations are taking great steps to automate the Procure to Pay process. Why is this so key? As a vital component of any business, an efficient P2P process results in a healthy financial outlook, competitive strength and not to mention a honourable reputation.
You can break the P2P process down into different sections and there are different interpretations of this. At the end of the day it doesn’t really matter how many stages you have as long as you’ve included the fundamentals. In this blog we group them into four main categories – to keep it simple.
When you start to examine how your business runs its purchasing process you really need to consider the following aspects:
Selection and Sourcing
Before you even start raising purchase orders you need to detail the system in place to identify company needs. Plus how you find and select suppliers.
- Who do you need to speak to in the company?
- What are your criteria for selection?
- Do you have existing relationships with suppliers and who manages them?
Once suppliers are selected:
- What contractual agreements are in place?
- Who manages these relationships?
In addition this also our first glimpse into compliance requirements in the P2P process. It’s vital to get this right from the Selection and Sourcing stages.
Purchasing and Ordering
Once you have selected a supplier and signed the relevant agreements consider how you raise your purchase orders. It can be a very simple process, but historical and manual involvement means that it is often convoluted, confusing and wastes time. This is often due to a delay in getting sign off or a lack of clarity around your company rules and policy. Mapping out your P2P processes is a great opportunity to see the steps involved here and whether there is room for improvement.
- Think about how you create a requisition?
- Who decides how much money you will spend?
- How do you get approval from the budget owner and who enters the details into your computer system so a purchase order can be raised?
- Once a PO has been generated how do you send it off to the supplier ready to order your goods or services?
Receiving Goods and Services
Next, your services or goods should arrive.
- Whose responsibility is it to check on the quality of the goods/services?
- How do you define if they are up to the standard you were expecting?
- Have they arrived in a timely fashion?
- Are there any credit notes or faulty items to return?
- How has your purchasing experience measured up so far?
- Most importantly who is responsible in your organisation for each part of this stage?
Remember these are the types of questions you should be asking your organisation as you work through the process. Consider what tools you use in your organisation to measure these questions. Make sure you document them as you capture the P2P Process.
Invoices and Expenses
Finally as soon as the goods/services are delivered the payment part of the process is in motion. Invoices will be raised and entered into your accounts system. Goods or services delivered are crossed off and compared to what was ordered. Payments are made and accounts settled. You want this to run smoothly, paying suppliers promptly and without mistakes of course makes for a smooth supply chain. Once again, consider who does what at these different stages:
- What different departments are involved in releasing payments?
- Have you also thought about the different methods of payment your business uses to pay back suppliers?
You also need to compare how much you forecast to spend at the requisition stage and check how much the actual amount is in the invoice. This is key to managing the company’s cash flow. This is another clear example of how learning how to map your P2P process will help with the financial management of your business and keep it healthy too.
At this stage you can also include details of how you deal with internal expenses.
- How do you pay back your employees?
- How do you keep copies of receipts and proof of payment?
- What do you ask to see and who needs to sign these off before payment can be made?
Expenses payments are a vital part of the P2P payment process.
Risks in not having a well thought out P2P process
As highlighted in this article, the Procure to Pay process is fundamental to an effective business. Making sure you know how to map out the P2P process is key. Not taking the time to clearly outline the process can result in many issues for any organisation including:
Customer satisfaction decreased because you couldn’t hire the temporary staff quick enough to satisfy demand? Products removed from your stock because you couldn’t get hold of the goods you needed to make them? All this relates back to your Purchase to Pay process. If you can’t get that right, your business can’t work quick enough.
Do you really know how much you are spending on your suppliers vs the value it brings the organisation? Are you able to access this information at a touch of a button? A lack of clarity from your business means that you may not be able to track the flow of money around your organisation easily.
A purchase to pay process that has not been clearly mapped means it’s easy to fall into the trap of making mistakes or not adhering to regulations. If your organisation was audited tomorrow – could you relax knowing that everyone in your business understands the rules and regulations and has been following them?
Traditional approaches meant that P2P had a paper trail. How many lost purchase orders or requisitions entered incorrectly have you experienced? Do you truly know how many people are involved in the P2P process? Do they all understand the steps and requirements? If there was an issue with payment tomorrow – do you know who to speak to about it?
Supplier disputes, late payments? All headaches you clearly don’t need. They aren’t great for your reputation, suppliers need paying and all of this can be avoided if you have a system in place that works well. You may not even be aware of the issues your suppliers and staff are experiencing until you take the time to map out the Procure to Pay process.
Successful P2P leads to Successful Organisations
When you look at the breakdown of the Procure to Pay Process, you begin to understand why it is such an integral part of any organisation. The delivery of goods and services are a component of every department. The success and smooth running of any P2P process is key to an efficient and profitable business.
Yet we still see hesitation. For many the task itself seems overwhelming. P2P affects every part of your business and at Skore we see that some people just don’t know where to start. By mapping out your process you are opening up that discussion. You are discovering your key people in this process, learning about the limitations and uncovering where your bottlenecks are.
A clearly defined Procure to Pay process means that:
- You have better control of your business.
- The lines of communication are open within departments and everyone understands their roles.
- Efficient sourcing and payments will make your company more competitive in the marketplace and of course improves reputation.
- More opportunities to uncover hidden costs and potentially save money
- Saves time approving suppliers and creating orders
- Safeguards your company from compliance and risk issues.
And these are just some of the initial benefits. As more companies move towards automation in the Procure to Pay process, the opportunities to reduce errors and streamline the process become even greater.
How to map your Procure to Pay process – Free Template.
At Skore we understand that for some it means just taking the first steps towards a healthy P2P process. That’s why we have made our Procure to Pay Process template available and free to use. Skore’s Process Improvement Software platform was designed to be used by everyone in the organisation. That means there are no complicated shapes or terminology to learn and from the moment you start mapping the software will begin to build your analytics dashboard to help you understand where the costs, risks and opportunities are in your business.
The Procure to Pay process template will help you look at a standardised way of managing the process. It’s up to you to customise or change it to your own business requirements.
If you have a Skore workspace you can add it for free or you can always sign up for a free trial and try out the process template for yourself.