What is procure-to-pay (P2P) cycle?

Before making a purchase, it’s important to identify and understand the need for said purchase. Only after the request is justified should you begin the P2P cycle process. This part of the process is referred to as requisition.

During this stage, employees will identify a need and submit that request to the procurement team. A purchase requisition typically comes from departments other than the procurement department.

For example, the chef of a restaurant business will identify the need for fresh tomatoes for a new menu item. They will fill out a requisition form that must be approved by the procurement team and managers.

The procurement team needs to identify and evaluate potential suppliers based on the purchase requisition. What the team will do is search for suppliers that may be able to fulfill this order.

If the chef at a restaurant needs fresh tomatoes, the procurement team is responsible for looking at vendors that sell tomatoes. The next order of business will be to compare the suppliers and evaluate which will be the best for the restaurant.

As part of the procure-to-pay process, the team will need to look at factors such as price, quality, delivery time, contract terms, and more. They will negotiate with suppliers before selecting the best fit.

Once a supplier has been selected to fulfill the need, the procurement team must create a purchase order (PO) with all the necessary details and specifications about the product they want to buy.

This will also include the quantity to be purchased and delivered. It’s equally important to note the agreed-upon terms at this stage of the P2P cycle process. 

In the case of a restaurant purchasing fresh tomatoes, the procurement team must note in the PO how many tomatoes or how many kilograms they want to purchase. They must also specify if they want red tomatoes, as well as any particular kind of it.

After a purchase order is sent to a supplier or vendor, it must be acknowledged and approved. This signals that the supplier will fulfill the order according to the agreed-upon contract terms.

The order fulfillment step in the procure-to-pay cycle is largely the vendor’s responsibility. However, the organization still must monitor the vendor's performance to ensure that all goes smoothly.

Keep a close eye on the time taken by the vendor to complete the order. It’s also a good idea to stay in regular communication with the supplier. If there are any issues, they must be resolved as soon as possible.

Receiving the goods or services sent by vendors is a fairly straightforward process. However, keep in mind that it’s unwise to just sign off the receipt without inspecting the delivered product. Any delivery made by a vendor must be thoroughly checked and verified before it is acknowledged as completed. 

If a restaurant orders 20 kilograms of fresh red tomatoes, the procurement team must examine and verify that the quantity and quality of the tomatoes are as requested.

It’s important that the next step, which is invoice processing, doesn’t start until the order receipt has been acknowledged and verified.

Any organization procuring goods or services from a supplier is responsible for upholding its end of the deal, which would be payment for the delivery according to the contract terms. After the delivery, the supplier will send an invoice that restates the items ordered, the price, and when payment must be made. 

One reason why learning about what is P2P cycle is important is because there are steps that an organization should follow before paying for an invoice.

Once the invoice is received, the procurement team must take care to match the invoice with the corresponding purchase order and delivery receipt to verify its accuracy.

To ensure that all payments are accurate, every payment that is made on behalf of an organization must be reviewed, approved, and authorized by the appropriate personnel. Typically, the verified invoice will then be routed through an approval workflow.

Company policies will dictate who the appropriate approvers are. Approvers, or personnel who are given authority to confirm the payment, will have to review the invoice. Approving and authorizing a payment means stating that it complies with company policies and can be initiated accordingly.

To encourage accountability, some companies have a multi-level workflow with several approvers who must sign off the invoice for payment.

To complete the P2P cycle process, the payment of an invoice must be executed and subsequently received by the supplier. When processing a payment, keep in mind that any changes or review notes discussed in previous steps must be taken into account.

This ensures that overpayment or mismatched amounts don’t happen. Depending on what payment methods the supplier is willing to receive, an organization can go through the payment execution process in several ways.

Most vendors accept electronic funds transfer (EFT), which is convenient to do. However, there may be instances where vendors prefer cheques or other payment methods such as card payments.

Without an efficient procure-to-pay business process, you run into the risk of an increase in costs. Not only are delays costly because they may incur late payment fees, but you will also see an increase in processing and administrative costs.

A P2P cycle process that you can rely on will help you optimize cost savings.

Many businesses know what is P2P cycle, is but not how to perform it efficiently. Relying on manual work to complete the tasks is time-consuming and error-inducing.

Luckily, an efficient P2P cycle can be achieved with the help of modern technology and automation tools. It reduces manual interventions that could lead to inaccuracy and demotivation.

There’s no denying that fraud attempts are becoming increasingly common, meaning that businesses have to be more vigilant. With a procure-to-pay cycle that is designed efficiently, it’s easier to mitigate risks such as fraud attempts or unauthorized spending.

The right approval workflows also help to ensure that everyone complies with company policies and legal requirements.

A well-designed procure-to-pay process helps to make sure that all orders and payments are made on time. As a result, communication and collaboration with suppliers are guaranteed to go more smoothly.

Suppliers will be more willing to trust you if all payments are made on time, improving your relationships with them.

One of the most important reasons why businesses must have a proper P2P cycle process is to ensure that cash flow remains positive.

Always pay suppliers on time, but make sure to factor in the cash flow cycle and make payments accordingly. Optimizing cash is easier to do with a proper P2P cycle.

For better understanding, you can read: The ultimate guide on cash flow management

The procure-to-pay cycle is made up of several different steps, which is why it’s important that all these steps flow together seamlessly. When you know what is P2P cycle, you’ll be able to integrate different procurement and payment processes. This allows you to avoid data silos and maintain good information flow.

In the P2P cycle process, you have to look for a supplier once you have identified your purchasing needs. This ensures that once a need has been identified, there is a process to fulfill it.

It maintains that purchase requisitions are taken into consideration and starts the supplier selection process.

One thing that you must not forget during the procure-to-pay process is to acknowledge when the goods or services you ordered have been delivered and received. This serves an important purpose, as it allows you to check if the order is complete and plan out your payment deadline accurately.

Before you pay an invoice, it’s extremely important to make sure that all the information on your invoice is correct and matches with its corresponding purchase order and delivery receipt.

A proper P2P cycle process will require this step to be performed appropriately to ensure all invoices are accurate.

The last thing you want is to make unauthorized or inaccurate payments. Knowing what is P2P cycle helps to avoid this, as it ensures that there is a policy in place for payment review, approval, and authorization. In an efficient procure-to-pay cycle, every payment is ideally made accurately.

Company policies must become the driving force of the P2P cycle process. One of the key functions of the procure-to-pay cycle is also to ensure that employees, as well as suppliers, adhere to the policies in place. It puts a heavy emphasis on vendor oversight and management.

The large scale of the procurement process often makes it difficult to ensure organization-wide transparency. Not to mention the same level of transparency from suppliers.

This is why it’s necessary to have an effective procure-to-pay business process that helps to maintain transparency and visibility, as well as control over business operations, procurement, and payments.

Businesses need to understand what is P2P cycle to ensure that the entire supply chain functions smoothly. The more streamlined and efficient the P2P cycle process is, the more likely it is for the other processes that follow to be as smooth. No delays procurement delays mean no delays in producing or selling your products.

When thinking about what is P2P cycle, the traditional answer often involves manual and paper-driven approaches. Because this is the version of the P2P cycle process that many businesses know of, it’s viewed as the conventional approach, and therefore the approach that these businesses take. It’s hard to introduce change when employees are used to these approaches.

With paper-driven approaches, you’re bound to run into several bottlenecks due to a lack of automation and integration capabilities.

As your business grows, it will become more difficult to manage the procure-to-pay cycle manually. This is why it’s important to familiarize yourself with automation technology so you have a starting point for it.

Even with company policies and legal or industry regulations in place, enforcing these and ensuring compliance can still prove to be a challenge for many businesses.

Non-compliant procurement practices such as circumventing the appropriate approval workflow for purchase orders and invoices, for example, can cause inflated costs due to unauthorized transactions.

When a business has hundreds of suppliers, it’s difficult to keep track of all of them—especially without automation tools to aid with the process.

This can cause inadequate supplier oversight, which will breed problems such as poor quality control, unreliable suppliers, delays in the process, and even drastic price fluctuations. 

During several steps in the procure-to-pay process, such as the invoice matching step, you may run into inconsistencies that you have to resolve before making a payment.

This could lead to disputes that must be settled. That’s why it’s important for businesses to have policies regarding resolving discrepancies and inconsistencies.

The sheer scale of the P2P cycle process can lead to a lack of visibility, especially for larger organizations with more purchase orders, vendors, and invoices.

Without a way to oversee and track procurement activities, new challenges will crop up. It’s important to nip this in the bud to prevent fraud attempts and an increase in errors.

Although manual processes are not the most efficient, you may still meet some resistance to change when you begin implementing P2P cycle tools and technology.

Employees who are already familiar and comfortable with the old processes will need to undergo training and have their concerns addressed so they’ll open up to new technology.

Understandably, trusting your data with a third-party provider is a daunting task. You or other stakeholders may have questions and concerns about how your P2P cycle process provider can ensure the utmost security.

Before you commit to any provider, make sure you know that they have industry-standard certifications and a good track record regarding data security and fraud. 

As more businesses move toward automation tools, the overall efficiency of business processes across multiple industries will naturally improve.

The more smoothly a particular company can do its procure-to-pay process, the better the process will also be for its customers who are looking to purchase goods or services from that company.

With issues like overspending, unauthorized expenses, fraud attempts, and many more, it’s even more important to streamline the P2P cycle process. This gives businesses better visibility and transparency over their vendors and transactions.

Automation tools don’t just promote better accuracy but also open up more time for managers and executives to focus on resolving issues.

Given the number of steps involved in the procurement process, it could benefit from automation to streamline it as much as possible. This also allows businesses to centralize procurement needs, documents, and processes.

Highlighting steps that can be consolidated and automated allows employees to recenter their focus, thereby increasing the procurement department’s focus.

One benefit of using automation tools is that most of them offer integration capabilities. It’s easier to mitigate accounting complexities and sync data across multiple platforms, eliminating the need for dual data entry or manual matching.

Knowing what is P2P cycle automation will also help maintain better accounting accuracy.

There are many manual administrative tasks that must be completed to achieve a smooth P2P cycle process. These can be tedious and hamper the procurement team’s productivity.

Using automation software helps the team focus on other tasks that require attention and reduces the amount of time spent on manual work.

Say goodbye to long and tedious invoice processing steps. With Volopay, your procure-to-pay cycle is guaranteed to be hassle-free. Use optical character recognition (OCR) technology to scan and capture invoices easily.

We’ll automate your invoice-matching process by automatically scanning the information from your procurement-related documents to ensure they all match. When it’s time to make a payment, you can authorize and execute the payment on the same platform.

Experiencing delays during the approval process? Get streamlined approval workflows with the help of Volopay’s automation tools for your P2P cycle process. Each invoice you receive from vendors can be automatically routed through the appropriate approval workflow.

Approvers will be sent alerts and notifications when there is an invoice that requires their attention. It’s easy to review and approve invoices and payment requests through the Volopay dashboard or mobile app.

Chances are your business will already have other systems in use, such as an ERP platform or accounting software. Volopay offers the integration features that any business will need to ensure all processes go smoothly. 

Set up integrations with other systems in just a few clicks. You can even automatically map out your accounts to make closing your books easier. Vendor payments made through Volopay are synced directly with your accounting platform. 

There are many different vendor payment methods available. The best for your business is dependent on many factors, such as the size of the order or type of product. You may find that in some situations, corporate cards are your best bet for smooth payment processing.

Volopay lets you generate virtual cards to manage subscriptions, with each card created specifically for one subscription. It makes it easy to keep track of all subscription payments.

All data related to invoice processing and the procure-to-pay cycle is kept on a remote cloud server. Using Volopay allows you to access your data easily from anywhere, as long as you have internet access.

There’s no need to invest in long hours designing a storage organization system. Volopay will save you time and money by storing your data in the cloud, allowing you to use search filters to pull up the exact information you need.