Finance and Accounting

Master procure-to-pay: A guide to efficiency

Procurement can be fascinating yet tedious and frustrating when it comes to chasing suppliers for delivery, handling their queries for pending payments, processing non-PO invoices, and following up with managers for invoices. According to a study, the average cost in the US in dealing with procure-to-pay (P2P) issues is $170,000 per business per year.

This highlights the need to enhance efficiency in the P2P process to save time and money. However, the strategy must focus on answering these basic questions –

1. Which P2P processes should you improve?
2. Can we quantify the time and cost inefficiency we currently face?
3. Who owns the P2P processes? The finance or procurement department?

This article discusses the procure-to-pay mistakes, best practices for avoiding errors, and processes you can optimise.

Procure-to-pay challenges and problems

The P2P challenges may differ for each business depending on their size and scale of operations. However, some of the common ones are –

Paper invoicing

Searching through and sorting paper invoices can be cumbersome. It is also difficult for the approver to sign a stack of paper invoices, detect and handle errors, and answer all the questions posed by the auditors. Digitisation solves these problems and creates a trail of invoice submissions, approvals, and payments for future reference and audit.

Non-PO based invoices

Without a purchase order (PO), matching invoices becomes challenging, necessitating substantial manual effort from the accounts payable (AP) team. However, the AP team’s role extends beyond data entry, and companies can leverage their full potential in analytical problem-solving and root-cause analysis.

A cloud-based P2P solution digitises the process, eliminating friction. The digital solution maintains documents electronically and leverages an optical character reader (OCR) to verify them.

Suppliers chasing payments

This is perhaps the most painful point for the buyer. Without proper communication and automatic responses, the supplier may start chasing payments and often threaten to withhold supplies. For SME suppliers, pending payments can be a significant issue. Research shows that businesses in the US owe SMEs an average of $40,857. This amount can put SMEs at risk of going out of business.

A digital solution that maintains proper terms of delivery and payments while sending regular communication keeps all the parties informed and helps build trust.

Lack of automation

Without the right technology, even the best P2P team can fall short of realising its full potential. A study showed that organisations waste an average of 125 hours per week by using manual P2P processes. Without automation, lengthy workflows make it challenging to handle approvals and compliances.

A P2P automation system reduces turnaround time from several days to a few minutes. To drive cost reduction, eliminate waste by reducing manual and non-value-adding activities.

No spend visibility in the P2P department

Medium to large businesses with several supply chains and suppliers struggle to have complete spend visibility. The procurement teams are often unaware of how much, on what, and with whom they spend the budget. A traditional ERP system does not efficiently solve this problem. You need technologies such as big data, machine learning, and artificial intelligence to analyse spending and cut costs.

No ownership of the P2P process

In many organisations, it is unclear who owns the P2P process. Is it the finance or the procurement function? By sharing the responsibility between two departments, no one wholly owns it. One person or function should be accountable for the decisions made and results achieved within the P2P process.

Three-way matching

Three-way matching includes the supplier’s original invoice, the procurement department’s internal purchase order, and the receiving report, which determines the payment processing. This process reviews the price per unit, quantity, and purchase terms to prevent fraud. Manual three-way matching involves holding three documents side-by-side and matching their details.

Best practices to avoid procure-to-pay mistakes

The best practices to prevent P2P mistakes include improving the processes and implementing digital technology.

1. Negotiate before accepting a price – Do not accept an item or a service without challenging the price. Research fair market rates and get multiple quotes to encourage competition.
2. Forecast the procurement budget – Set a P2P budget for a fiscal year and stick to it. Financial spending discrepancies can strain future procurement. Use technology to check real-time spending.
3. Embrace P2P automation technology – Embrace P2P technology and leverage AI and ML to enhance accuracy and efficiency and minimise errors. Automation saves time and money, allowing your P2P team to focus on strategic initiatives.
4. Control unauthorised spending – Never bypass the established procurement process, which can lead to potential fraud. Ensure each expense has an associated PO and authorisation for simplified audits and financial tracking.
5. Maintain robust connections with suppliers – Without strong supplier relationships, you can miss out on new products and special deals. Strong relationships also open doors to innovation and a stable supply chain.

How can Infosys BPM help in streamlining procure-to-pay?

The P2P services at Infosys BPM cover the full spectrum of accounts payable processes, including scanning and processing invoices, vendor queries, master data management, and claims management, to minimise value leakage and enhance vendor and client relationships. Explore procure-to-pay solutions.