How to Improve Procure to Pay Process and Generate Higher Revenue

Imagine losing 15% of your annual revenue because of a poor alignment and contact between your procurement and financial departments. It’s even painful to think, right? 

But the good part is. You can save this cost and even increase your company’s revenue.

Research indicated that a company that optimizes procurement can boost its revenue by 5-10% and reduce its procurement cost by 9-16%. 

In this blog, we will learn how a simple and optimized procure to pay process can prevent your business from losing a large chunk of revenue. 

What is Procure to Pay Process

The procure-to-pay process, or P2P, is actually an end-to-end workflow where businesses or organizations manage their cycles of acquiring goods from suppliers. In simpler terms, it’s a process of identifying the business’s needs, which could be anything from raw materials to IT supplies, then forwarding that need for approval, purchase, to receiving goods, invoicing, and payment fulfillment. Procurement departments are mostly responsible for this process in collaboration with other departments, like finance/accounts. 

The whole P2P process connects two major teams:

• Procurement (who handle purchasing)
• Accounts Payable (who handle payments)
  

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9 Steps of Procure to Pay Process 

1. Identifying needs

The first step in the procure-to-pay cycle is need identification. It starts when a specific person from the team or a procurement department identifies the need for a certain product, service, or supply that can benefit the business or is necessary for continuing business operations. In this step, a business determines exactly what is required, including specifications, quantities, and costs related to that purchase. This step is important because with clear and transparent need identification, a business can prevent unnecessary purchases and ensure that the need aligns with business objectives.

For example, as a new e-commerce business, you identify the need for a “Marketing department,” but due to the lack of resources to hire a proper team, you identify that outsourcing marketing services can help you achieve your objective. 

2. Purchase requisition creation

After the need is identified, the next process is creating a purchase requisition. This is a detailed document detailing the required items, quantities, specifications, and other relevant information. This particular document is then forwarded for internal departmental approval.

3. Purchase requisition approval

Next, authorized personnel review the purchase requisition to see if it fits the department’s budget and complies with organizational and other policies. Approvers usually include department heads, budget managers, or procurement officers who confirm the need and appropriateness of the request.

4. Supplier selection

Now, if you get the approval, you move to the next step: supplier selection. Based on your price, quality, reliability, and past performance, you will select and evaluate the supplier that is reliable and perfectly aligns with your requirements. Businesses mostly have a list of trusted vendors already available. You can choose from them or propose a new one if it fulfills your selected criteria.

5. Purchase order (PO) or spot buy creation

After selecting a supplier, a purchase order (PO) is created from the approved requisition. The PO contains important details like item descriptions, quantities, prices, delivery dates, terms, and supplier information. Once the supplier accepts it, it becomes a legal contract between the business and the supplier. 

6. Order fulfillment

Based on the purchase order PO that you submitted, the supplier prepared the goods or delivered the services within the requested period. Proper communication is necessary in this step to streamline the whole order fulfillment process. Because any delays can impact your business’s normal operations. 

7. Goods receipt

When goods arrive, the receiving department checks that the delivery matches the order specifications. They create a document to confirm what items were received and note any differences that need to be resolved. This step is very important for quality control and to make sure you receive what you paid for.

8. Invoice processing and approval

The supplier sends an invoice for goods or services to accounts payable. The accounts payable staff check the invoice against the purchase order and goods receipt to ensure everything is correct and to fix any issues. 

Again, this step is also very important because a single error can have a big impact. Manual errors can cause you to either overpay or receive duplicate invoices. 

Most businesses automate the accounts payable and invoicing processes to prevent manual errors. Recent research shows that an automated accounts payable process can reduce processing time by 60% and invoice processing cost by 40%. 

9. Vendor payment

After authorized personnel verify that the invoice amount matches the order receipt, the payment process begins. The payment is then handled through the organization’s financial system, which completes the P2P cycle.

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Procure to pay process (P2P) vs Order to Cash (O2C)

Both business processes are important to manage the cash flow and financial health of any business. Where P2P manages internal procurement processes like ordering goods/services from vendors to fulfill internal needs and requirements, the O2C manages external cash flow like receiving payments from customers. 

In simple words, P2P handles what you buy, and O2C handles what you sell. 

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How to create a procure to pay process map

With a detailed procure to pay process map, you can make your workflow run smoother and help your business generate more revenue.

Grow your business revenue with process mapping

Process mapping has many benefits for growing your revenue. It helps spot cost leakage points and approval delays, which can hurt your profits. By seeing your procure to pay process, you can:

• Make procurement smoother
• Speed up processing
• Improve vendor relationships
• Improve financial reports and analytics

Step-by-step P2P process mapping

To make a good P2P process map, follow these steps:

Decide what part of your process to map

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Collect data on your current procurement steps

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Draw out your current P2P process

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Look at the map to find bottlenecks and areas to improve

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Plan a better future state for your P2P process

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Put the changes into action and keep track of how they’re doing

Identifying and eliminating revenue-draining bottlenecks

Bottlenecks in your procure to pay process can cut your revenue and slow down your growth. Common issues include:

1- Cost leakage points

Cost leakage happens when you don’t track or manage expenses properly. 

2- Approval delays

Slow approval times can slow down buying and hurt cash flow. But you can fix this by;

• Using automation software 
• Setting clear approval rules and limits
• Training approvers on the need for quick decisions

By tackling these problems and making an efficient procure to pay process map, you can improve your company’s finances and grow your revenue.

Procure to Pay Process in different systems

Procure to pay process in SAP

The P2P module in SAP helps businesses manage purchasing, from requesting items to paying for them.

Key features of the P2P module include:

Workflows: Organized steps for completing tasks.

Approval hierarchies: Required approvals to ensure proper authorization for purchases.

Reporting: Tools for tracking and analyzing spending.

This system is especially useful for large companies with complex purchasing needs, as it provides clear processes and oversight.

In SAP, you can create Purchase Orders (POs) using ME21N and verify invoices with MIRO.

But it’s not all fun and easy; just like any other tool, it also comes with a few errors. In SAP, users often face issues with fragmented workflows that can lead to inefficiencies in the procurement process. 

Procure to pay process in Oracle Fusion

Oracle Fusion Procurement Cloud is a complete software solution for managing the Purchase-to-Pay (P2P) process. It helps businesses handle everything from ordering products to making payments. The platform uses artificial intelligence (AI) to offer insights, improve supplier management, and allow mobile approvals, so users can review and approve purchases from their smartphones or tablets.

When used with other Oracle applications, Oracle Fusion creates a unified financial system. This integration helps all parts of the financial ecosystem work together, making it easier for businesses to track spending and manage their supply chain.

The software also includes automation tools to make operations smoother:

• 3-way matching

This process automatically checks three important documents

1. The purchase order
2. Receiving report 
3. Invoice 

And make sure everything is correct before payments are made.

• Approval hierarchies

These are levels of authority for approving transactions, making sure the right people are involved in the decision-making.

Additionally, there are key data tables to monitor:

1- PO_REQUISITION_HEADERS_ALL: 

This table holds all information related to purchase requests.

RCV_SHIPMENT_HEADERS 

This table tracks deliveries and shipment details to confirm that what was ordered has been received. 

Procure to pay process in NetSuite

NetSuite offers a complete purchase-to-pay (P2P) solution tailored for mid-sized companies. It helps businesses effectively manage their buying processes from start to finish. 

Here’s a simple overview of its key features and benefits:

Custom approval workflows

Businesses can set up specific steps for approving purchases, allowing them to customize the process to fit their needs.

Vendor management

This feature lets companies track their suppliers and manage relationships, ensuring they have updated information about vendors and agreements.

Real-time financial visibility

NetSuite provides up-to-date financial data, enabling decision-makers to access current information for planning and budgeting.

A major advantage of NetSuite’s P2P solution is its real-time connection to the General Ledger (GL). Every transaction, whether an order or payment, is automatically recorded in the financial system, helping companies keep accurate financial records and simplify performance reviews. 

Procure to pay process in Oracle apps R12

Oracle E-Business Suite R12 is a software solution that helps with the Procure-to-Pay (P2P) process. It includes features for purchasing products, managing accounts payable, and handling supplier relationships. Although it’s an older system, many organizations still use it because it is reliable and has many capabilities.

Unlike modern systems like Oracle’s cloud-based Fusion, which automate many tasks, R12 requires more manual work. For instance, approving purchase requisitions often involves steps that users must perform manually, as recorded in the PO_HEADERS_ALL table. Employees need to approve requests before they become purchase orders, making the process slower than newer technologies that usually streamline and automate workflows. 

How to improve your procurement process – starting today

1. Automate repetitive tasks

Use software to automate repetitive tasks, such as invoice approval, which can reduce your processing costs by 60% and help you save $23 per invoice compared to manual processing. The other task that needs to be automated is three-way matching (a process that automatically checks three important documents, including the purchase order, receiving report, and invoice). The last one is reminders, such as order receiving dates or payment fulfillment dates, to reduce delays. 

2. Centralized vendor data

Use software that helps you centralize all your vendor data and allows you to keep supplier profiles, payment terms, and POs in one shared dashboard. 

3. Standardize workflows

Set clear rules for approvals, exceptions, and audit checkpoints to avoid unnecessary delays and errors. 

4. Use B2B Portals 

When you use B2B portals like Seebiz, where buyers and suppliers use the same digital space, you can easily speed up data flow and reduce back-and-forth to find information related to vendors, payments, etc. 

Audit your procure to pay process

An audit that does more than find mistakes but also looks for inefficiencies and risks in a business’s financial processes is considered a proper audit. 

Here’s what makes an effective audit:

Cycle time from requisition to payment

This measures the time taken from when a purchase is requested to when payment is made. A shorter time means a more efficient process.

Invoice match rate 

This checks how many invoices match their purchase orders (POs) and receipts. A high match rate means fewer errors and smoother transactions.

Off-contract spend

This refers to purchases made without approval or outside existing contracts. Tracking this helps control spending.

Duplicate or fraudulent payments

This means identifying any payments that may have been made more than once or could be fraudulent. Catching these can save money and prevent losses.

Larger businesses can use audit tools like NetSuite, SAP, and Oracle Fusion, which have built-in audit features for easier tracking. Smaller businesses can start with simpler tools like spreadsheets or Airtable to track spending patterns and find areas to improve.

Conclusion

Improve your workflows by improving your procure to pay process. How smoothly you can manage your procurement process directly represents how successfully you can manage your order-to-cash process as well. Make sure to automate your repetitive tasks and avoid delays to generate higher revenue and reduce manual errors and discrepancies. 

FAQs

What is procure to pay process?

The procure-to-pay process, or P2P, is actually an end-to-end workflow where businesses or organizations manage their cycles of acquiring goods from suppliers. In simpler terms, it’s a process of identifying the needs in the business, which could be anything from raw materials to IT supplies, then forwarding that need for approval, purchase, to receiving goods, invoicing, and payment fulfillment.

How to improve procure to pay process?

By automating repetitive tasks and eliminating possible bottlenecks in your procurement process, you can improve your procure-to-pay process and generate higher revenue by cutting costs on manual work, such as manual invoice generation, which can be cut by 60% with automation. 

What is the duration of P2P cycle completion?

It depends on which system you are using. If you are using automations, your P2P cycle will take 2-3 days for completion, but if you are using spreadsheets (manual system), then it may take more than 10 days.

What’s the difference between P2P and O2C?

Both business processes are important to manage the cash flow and financial health of any business. Where P2P manages internal procurement processes like ordering goods/services from vendors to fulfill internal needs and requirements, the O2C manages external cash flow like receiving payments from customers. 

In simple words, P2P handles what you buy, and O2C handles what you sell. 

How can small businesses manage P2P without ERP?

As a small business, you can start with:

• Digital forms for purchase requests
• A shared Google Sheet for PO tracking
• Payment logs with basic invoice scanning tools