What Is Procure-to-Pay (P2P)?
Each purchase order eventually results in an invoice, and each invoice has to be paid. The transition from the purchase order being approved to the money leaving the company is the point at which procure-to-pay automation begins to pay for itself.
This guide includes all the information on the basics of P2P as well as an explanation of how AP automation can eliminate the manual bottlenecks that delay the entire process. If you'd like a refresher on the matter of requisitions and the issuance of purchase orders, our article on purchase order management has you covered.
What is the procure to pay process?
The purchase to pay process, which is also known as the procure to pay process, includes all the steps from identifying a need for goods or services right through to paying the invoice: this involves need identification, placing a requisition, issuing the purchase order, receiving the goods, matching the invoice, and making the payment.
In a large number of organizations the responsibility for this process is divided among three different teams: the procurement team handles the sourcing and the preparation of purchase orders, the warehouse or receiving team verifies that the goods have been received, and accounts payable looks after the matter from invoice right through to payment.
The P2P cycle begins when a requirement has been recognized and a supplier is already established. It should be noted that this differs from the broader process known as source-to-pay, since source-to-pay includes the stages of supplier sourcing, negotiation and contracting before the P2P cycle, and for the purposes of the P2P cycle those elements are being left out.
The stages of the P2P cycle
A well-managed P2P process provides finance with accurate visibility of spending, ensures that procurement policy is enforceable rather than optional, and offers suppliers a predictable and auditable route from placing an order to receiving payment.
Before going deeper on the stages that matter most here, it helps to see the full P2P cycle at a glance:
Need identification: A department identifies the need for some goods or services.
Requisition: The request is recorded and sent for approval.
PO issuance: When a requisition has been approved, it then becomes an official purchase order, which is sent to the supplier.
Goods receipt: The business records the goods received by checking them against those that were ordered.
Invoice processing and matching: The invoice processing and matching involves checking the supplier's invoice against the purchase order and the goods receipt.
Payment: The payment has been scheduled, carried out, and entered.
It is during the last stages, specifically invoice processing and payment, where the matching becomes more detailed and AP teams usually spend the most time on manual tasks.
Invoice processing and 3 way matching
To confirm that the quantity ordered, the quantity received and the amount being billed all agree, the invoice is compared with both the purchase order and the goods receipt.
The delays in the case of manual invoice processing come about because of having to re-enter the invoice data by hand, having to hunt down exceptions in cases where the figures don't match, and having to follow up with those who have not replied.
The effect is noticeable on both sides of the relationship since when supplier payments are delayed and they begin requesting status updates, it increases the amount of manual work carried on by the AP team.
It means that 67 per cent of organizations take at least five days each month to process their invoices.
Payment execution in the procure-to-pay cycle
When an invoice has gone through the matching and approval stages, the next step is payment. This aspect of the process is not included in a guide that focuses on purchase orders since it takes place long after the purchase order has been closed.
What is most important in this situation is three things.
It is important to plan and arrange the payment of invoices so that they are paid on time in order to avoid incurring late fees and damaging relations with suppliers, but they should not be paid too early since that would unnecessarily tie up cash.
Early payment discount availability. A number of suppliers provide a lower rate when payment is made early, typically 2% if the payment is made within 10 days.
Controls against duplicate payments and fraud. It is more difficult to spot manually when the same invoice is paid twice or when a payment is directed to the wrong account.
Procure to pay vs order to cash: how the two cycles connect
P2P is the counterpart on the buy-side of the order-to-cash (O2C) process, which is the sell-side cycle that takes a customer's order all the way through to collecting payment for it; P2P covers the entire process from need identification to making payment to a supplier, whereas O2C covers the process from capturing the order to collecting money from the customer.
In companies which act as both buyers and suppliers, most mid-market and enterprise organizations do, the two cycles constantly overlap. When the same finance team is responsible for handling both order to cash and procure to pay processes, it is this clear understanding of the timing of procure to pay in relation to order to cash that ensures cash flow forecasting is reliable rather than merely a guess.
Where AP automation fits across the P2P cycle
Automation applies to all of the stages mentioned above rather than addressing just one of them. It eliminates the need for manual cross-checking between the purchase order, the invoice and the goods receipt. Using AI to assist with invoice processing automation takes care of invoice capture and validation, thus reducing the amount of data entry that takes up an AP team's week. Automated approval routing presents exceptions to the correct person without having to rely on emails. Finally, automated payment execution reduces the number of duplicate payments and the failure to take early payment discounts by consistently applying the same checks each time.
Customers of Quadient AP say that they now spend 50% less time processing invoices, have 56% faster approvals, achieve 99% accuracy when capturing invoices, and enjoy an average return on investment that is five times higher. Although these figures are self-reported by customers and not the result of independent third-party research, they are consistent with the data from PYMNTS shown above, which indicates that the time is being spent on exception handling and reconciliation, not on the core matching logic.
Nothing in this setup takes the place of the controls that are already part of the P2P cycle. Automation continues to carry out the identical 3-way match, the same approval hierarchy and the same payment checks as a manual process would, the only difference being that it doesn't require a person to enter the data by hand or to follow up on an approver who is away from the office. The outcome is a reduced cycle time with the same or even improved level of control.
Signs your P2P process is ready for automation
A few signals tend to show up before a P2P process outgrows manual handling:
Frequent matching exceptions or invoice disputes that eat into the AP team's week.
Invoice processing that regularly takes multiple days per batch rather than hours.
Limited visibility into payment status or upcoming liabilities, so finance only finds out about a problem after it's already happened.
Building the business case for a modern P2P process
A modern procure-to-pay process is not concerned with automating one stage by itself; matching, invoice processing and payment execution are interrelated such that faster matching leads to faster approval, which in turn feeds a payment run that takes advantage of the discounts rather than missing them. Deloitte discovered that the procurement organizations which performed the best, the Digital Masters, spend up to 24% of their budget on technology and achieve an average return on investment in generative AI of 3.2 times.
If your P2P process is still depending on manual matching, data entry and email approvals, then the next thing to do is to consider how AP automation can be incorporated into your particular process, beginning with the stage that is currently taking up the most time for your team. This is generally invoice processing and matching because it is the stage which involves the greatest number of manual steps, although the same reasoning applies to payment execution after matching has been taken care of.
Frequently asked questions
What is the difference between procure-to-pay and source-to-pay?
The source-to-pay process is more extensive since it includes the stages of supplier sourcing, negotiation and contracting before the P2P cycle begins, while procure-to-pay starts when a supplier has already been secured and covers the entire procedure from the identification of a need through to the making of payment.
What is 3-way matching in accounts payable?
A three-way match checks the supplier's invoice against two other documents, the purchase order and the goods receipt, in order to make sure that the quantity that was ordered, the quantity that was delivered, and the quantity being billed all match before the invoice is approved for payment.
What happens if an invoice fails 3-way matching?
If an invoice doesn't match, it is treated as an exception and is not approved automatically. A member of the AP team has to investigate the discrepancy, and this usually involves contacting either procurement or the receiving team before the invoice can proceed. The way exceptions are handled is indeed one of the main causes of delays in manual invoice processing.
How does AP automation reduce invoice processing time?
AP automation reduces invoice processing time by cutting out manual data entry, running 3-way matching automatically, and routing exceptions and approvals to the right person without email chains. Quadient AP customers report 50% less time spent processing invoices as a result.
Who owns the procure-to-pay process in a company?
Procurement owns sourcing and PO issuance, the receiving team confirms goods receipt, and accounts payable owns invoice processing, matching and payment.