7 step procurement process and how to simplify it using virtual cards?
At a glance, the procurement process seems straightforward. Picking a vendor, creating an order, and processing payment sound like a simple enough process.
In fact, because of how straightforward things may look, it was easy to overlook the procurement department in the past. But now that there is more attention being given to the procurement process, it is becoming increasingly obvious that the process is a complex one with many challenges.
Procurement officers have to identify your business needs, source vendors, get quotes, create orders, receive orders, process payments, and manage all your existing vendors. When you only have a handful of vendors, this may seem manageable. But as your business grows, your procurement department will find it difficult to keep track of everything manually.
Luckily, you won’t have to stay manual. Here’s how virtual cards can help your procurement department simplify the process and manage vendors better.
7 step procurement process
There are several steps involved in the procurement process. Traditionally, these processes are done manually, though many tools could help automate them.
1. Identifying the needs
Any procurement process begins with the identification of business needs. Whether it is a new purchase for the business, restocking your inventory, or even renewing services and subscriptions, there must be a need to procure a particular good or service.
Typically, the request comes from another department. Procurement may also directly consult with them to understand their needs. Regardless, the procurement department needs to delve into precise details about these needs.
2. Supplier identification
After a clear need has been identified, the procurement team will start looking for vendors. At this point, you’ll want to have as much information as possible available to you.
When investigating potential suppliers, your procurement team may then submit a request for information (RFI) or request for proposal (RFP) to the suppliers. This way, they could receive product details, a price list, or a quote to strengthen their evaluation.
3. Supplier evaluation
Based on the information that the procurement team has gotten from suppliers that they’ve sourced, the next step is to evaluate these suppliers. The evaluation process is typically based on several criteria.
You’ll want the best value for the price from your vendors. The procurement team will also negotiate for the best quotes. But the price is not the only factor of consideration. Other factors include delivery time, dependability, and quality of the product they’re offering.
4. Purchase order (PO)
Once a vendor has been selected and a price is agreed on, the procurement or finance team will then create a purchase order (PO). The purchase order will contain details of the product you are purchasing, including the quantity of the order.
The vendor will fulfill the order based on the PO issued by the buyer. Issuance of the PO signifies that the order is final and that the vendor can proceed with it.
5. Invoice receipt and processing
Just because the vendor will now fill the order, that doesn’t mean that the procurement process is completed. Your procurement team will have to inspect and review the goods or services you purchased once it has been delivered.
You’ll also receive an invoice receipt from the vendor, which details payment terms and a breakdown of the costs. You must take your time to match the invoice with your PO to ensure that everything is correct.
Suggested read: What is electronic invoicing and what are its benefits?
6. Payment processing
You will then be required to pay for your purchase according to the invoice terms. This means paying the cost stated on the invoice and adhering to the agreed-upon deadline.
You want to have a system in place that will help you make sure that all your vendor payments are made promptly and accurately. Ideally, there should be a standardized vendor payment process to minimize costly mistakes when paying your invoices.
Related read: What is procure-to-pay (P2P) cycle?
7. Contract management
While the process of a single invoice is completed once payment has been made, your business will have multiple vendors with many different invoices that you’ll have to pay.
For the procurement department, the last step of the process is to keep and manage records of your vendors and invoices. If you are ordering from a particular vendor long-term, you’ll want to make sure that you manage and keep track of the contract with them.
Problems with the traditional procurement process
Time-consuming
Considering the number of steps there are in the traditional procurement process, it’s no surprise that it’s time-consuming.
In addition to the often long back-and-forth conversations between suppliers and buyers, the supplier evaluation process and selecting the best suppliers also take a lot of time. This could hamper your business’ productivity.
Data management issue
Chances are there are multiple people in your procurement department handling the process. When there are many people involved, you run into the risk of miscommunication.
Not everyone will likely have the latest information update. You’ll end up spending way too much time keeping everyone updated and debunking false or outdated data.
Chances of fraud
Many companies do their procurement process on paper, meaning that it’s difficult to document and track everything.
Oftentimes, there is very little transparency in the dealings between the suppliers and your procurement officers. This makes it difficult to enforce any sort of fraud prevention, which can have detrimental effects in the long run.
Limited visibility into spends
Without a centralized database of all your vendors and the payments that you’ve made, it’s difficult to keep track of how much your business is spending each month.
The more transactions you make a month, the truer this is. You’ll have your data scattered across piles and piles of paper, making it difficult to track everything and see what.
High administrative cost
Because the procurement process takes a lot of time, it is quite costly. With plenty of administrative tasks that have to be done manually, you’ll have to hire many people to get on top of documentation and data entry.
Not to the cost of lost opportunities, considering that your team will be focused on administrative duties.
Vendor management
Sourcing suppliers, reaching out to them, and qualifying them are tedious tasks. When you add manual vendor documentation to the list, your procurement team will start to struggle with just how much needs to be tended to.
Without an easily accessible database, it’s easy to forget or misplace vendor information, including what they are offering.
Streamline business purchase & procurement management
How does virtual cards simplify the procurement process
One tool that you could use to manage your vendors and payments better is virtual cards.
Rising to popularity in the modern era of digital payments, virtual cards are easy to use, convenient for payment management, and can be tracked in real-time. These cards act as crucial financial tools for better cost control of business expenses.
Here are some ways how virtual cards can help you eliminate challenges in the procurement process.
1. Make payments
Cheques are understandably starting to fall out of fashion when compared to their digital payment counterparts. They’re faster and easier, and you’ll have a clear record of when, where, and why your money is going out.
You can achieve quick digital payments with virtual cards. Using virtual cards will streamline your whole payment process and you can always ensure that your payments are made promptly.
2. Issue vendor-specific virtual cards
Unlike physical cards where you can only assign one corporate card to one employee, you can generate an unlimited number of virtual cards. You can effectively issue a virtual card to each vendor you have.
This way, there’s no confusion about which payment is for what vendor. Each card is only for a designated vendor, making all payments easily traceable and unmistakable.
3. Set spend limits and controls
When you have virtual cards that are linked to a dashboard control center, spend controls are at your fingertips. You can give each virtual card you have an individual limited, set up policies for expense reporting, and even freeze and block cards if needed.
If you have a subscription-specific virtual card, for example, you can set the limit exactly as what your monthly payment is.
4. Automatic reconciliation
The best thing about virtual cards is that they don’t exist as a segregated standalone tool. Instead, they’re easily integrated into your existing processes.
Unlike cheque payments or even manual bank transfers, all your virtual card payments are recorded in your system and you can directly sync this data with your accounting software. Automatically reconcile all your vendor payments with the use of virtual cards.
Unlock the power of virtual cards. Explore our article on virtual cards use cases and discover endless possibilities for secure and efficient transactions.
Why should you choose Volopay cards and invoice management systems?
While the traditional procurement process can be long, complex, and ultimately costly, it doesn’t have to be that way.
There are tools that will help you streamline the process and increase your procurement team’s efficiency and productivity.
Volopay offers the right tools and systems for you. Managing your vendors and paying your invoices will be hassle-free with Volopay’s virtual cards and invoice management system.
Once your procurement team has selected, evaluated, and approved a vendor, they can simply create a vendor-specific virtual card and keep track of vendors that way.
Every payment you make will be traceable and easily accounted for with virtual cards. With the aid of recurring payment scheduling, you’ll also never miss a payment again.