procure to pay (P2P)
What is procure to pay (P2P)?
Procure to pay is the process of requisitioning, purchasing, receiving, paying for and accounting for goods and services. It gets its name from the ordered sequence of procurement and financial processes, starting with the first steps of procuring a good or service to the final steps involved in paying for it.
It is a process, not a technology, though there is software expressly designed to handle the entire procure-to-pay process or components of it, such as invoicing, or related processes, such as inventory management and financial accounting.
Procure to pay is often abbreviated as P2P, but it shouldn't be confused with, for example, peer-to-peer networking technology, which is also called P2P. Procure to pay is also sometimes called purchase to pay.
The procure-to-pay process
The main steps in procure to pay, starting with the procurement side, include, first, a requisition order -- essentially, an internal request to purchase something -- which starts the ordering process during which a purchase order (PO) is created. The next steps involve receiving the good; common documents created in this phase include an advanced shipping notice (ASN) and order confirmation. Finally, there is the payment side, which typically includes creating an invoice, arranging to pay suppliers and recording the transaction in the accounting system.
In practice, most organizations have many additional steps in each major phase of procure to pay. Procurement might require the use of an approved catalog of products or involve the issuance of a request for quotation (RFQ). Managerial approval is typically required at key decision points, such as before a PO is sent to a supplier or before payment is approved. There are often processes to inspect received goods, acknowledging their acceptance and entering them into inventory.
Considering the complexity of the procure-to-pay process in most companies, it's not surprising that some software vendors have attempted to develop what they claim are end-to-end suites that automate and integrate each step. However, the reality is procure to pay began as a mostly manual process conducted on paper, with components of it being gradually computerized in recent decades.
Most vendors of ERP software -- Infor, Microsoft, Oracle and SAP being the market share leaders -- provide modules that handle the major phases of procure to pay. ERP suites typically have procurement and order management modules, as well as inventory, warehouse management and logistics functions for the middle phase of procure to pay.
ERP core financials, including accounts payable and general ledger functions, handle the invoicing, payment and accounting stages. Some ERP vendors claim to have integrated the procure-to-pay process across their various modules.
Numerous vendors specialize in one of these ERP business processes and support at least parts of the procure-to-pay workflow. Vendors of e-sourcing and procurement software, such as SAP Ariba and Coupa Software, have significant procure-to-pay features. A few niche players, among them Basware, BirchStreet Systems, GEP, Jaggaer and Zycus, claim to automate the entire process.
One of the biggest benefits of integrated procure-to-pay suites is their ability to consolidate data, enabling a process called spend management that executives can use to get more control over expenses.