Table of Contents
Key Takeaways
- Procure-to-pay (P2P) best practices often encompass technology, people, and policy changes.
- Procure-to-pay system optimization goes beyond automation, and includes breaking down siloes, tracking KPIs outside of cost-efficiency, and building better supplier relationships.
- The right accounting software solution can help you deploy best practices quickly.
Successful procure-to-pay operations require several spinning plates: Employee spend, vetting vendors, maintaining vendor relationships, re-evaluating suppliers, POs, invoice processing, and measuring success. For procurement and accounts payable (AP) professionals, it can seem challenging to address bottlenecks when there are dozens of daily tasks to complete. Outdated technology and processes further hinder their work.
For example, 66% of finance professionals note that late payments are a significant issue. Manual invoicing and processing for both AP and AR functions delay payments. This can stress vendor relationships, especially when some are paid over 120 days late.
The good news is that there are best practices to minimize challenges like manual tasks, policy violations, and other common procurement-related blocks.
10 top procure-to-pay practices
1. Define your P2P strategy to optimize the procure-to-pay process
Your P2P should offer a foundation for enforcing policies, managing challenges, and measuring progress. A well-defined, clear procurement strategy should streamline troubleshooting and training questions.
What is a P2P strategy?
Typically, a procurement strategy should include models around the following elements:
- Competences, which include organizational requirements, technical skills, mandatory or preferred training, and support materials. In most cases, this element deals with the people component and ensuring training keeps up with changing technologies.
- Governance, which includes oversight provisions and the approval process. Generally, there will be key stakeholders to manage priorities and evaluate policies in both the finance and procurement departments. Documenting a governance structure enables teams to both automate approvals with ease and ensure there is a system to evaluate performance and compliance.
- KPIs, which include metrics to identify growth and cost-savings opportunities, as well as efficiency. Some common examples are straight-through-processing (STP) rate for invoice processing, early payment capture, and days-payable-outstanding (DPO).
- Roles, which include understanding roles and controls for each team member, and ensuring their level of access to sensitive information is appropriate for their needs. This can also refer to how P2P teams and department access are structured. When talking broadly around finance and procurement access, it’s important to ensure these teams are aligned and procurement data comes from company-wide sources.
In addition to these four elements, it is important to map out your P2P cycle and set benchmarks for future evaluations.
2. Update procurement policies
Your overall strategy should reference your policies. However, it’s important to not simply build a new strategy around pre-set or older procurement policies. Regularly reviewing policies can ensure that they are aligned to company objectives, updated regulations, and address past challenges.
3. Connect procurement to AP
Procurement and finance departments should not be siloed. Procure-to-pay software, in particular, seeks to connect these two fields for full transparency. These two functions should always be connected for maximizing efficiency.
4. Automate procurement
Another best practice is to automate the procurement process. You can automate and optimize the procure-to-pay process in several ways, such as invoice matching, payment delivery, and vendor management. Invoice processing alone provides significant savings, with The State of ePayables reporting in 2023 that invoice automation accelerated processing time by 81% and decreased costs by 79%.
5. Manage inventory
Your inventory is another key area that requires close review to limit spending. Inventory management features or programs that seamlessly. This can include optimizing tracking and alert mechanisms, having access to data from multiple warehouses, and tapping into inventory analytics.
Inventory management is often housed in your ERP system. You will want an ERP that can handle both inventory and integrate this data with your chosen procure-to-pay solution.
6. Reach out to suppliers
Successful procure-to-pay processes don’t stop at identifying vendors, but maintaining those relationships. Automated workflows, detailed vendor portfolios, and ease of interaction can all reduce errors and improve interactions with vendors—leading to increased trust.
7. Focus on transparency
Without visibility and transparency, it’s challenging to ensure compliance and optimize the procure-to-pay process. Keeping policies clear and leveraging company-wide data ensures nothing falls through the cracks. A transparency-first approach to data collection, storage, and sharing, will simplify both reporting and audits.
8. Go beyond cost-efficiency for KPIs
Procurement is often defined in terms of cost-reduction, but that isn’t the only performance metric for a successful procure-to-pay strategy. Looking at increased efficiency or value-add activities can also offer a glimpse into process effectiveness.
What are procurement KPIs?
Common KPIs include day sales outstanding (DSO) and early payment discount capture. Other, non-cost-based metrics include:
- Cycle time
- Number of invoices
- Rate of emergency purchases
- Contract coverage
- Payment term accuracy
- Cost savings per employee
- Spend under management per employee
- Spend per supplier
- Order fill rate
- Average lead time
- Delivery Rate
- Defect Rate
- Compliance to contract
- Number of single-source suppliers
- Number of suppliers audited
- Waste or CO2 reduction
9. Break down siloes
When discussing procurement and departmental barriers, we commonly refer to potential friction between procurement and accounts payable teams. However, this can also be applied to company-wide siloes. Procurement and AP teams work across the organization—and the more visibility, the better.
10. Review and limit controls
Finally, it’s critical to manage and regularly review who has access to sensitive financial data. This both ensures compliance with company policy, reduces fraud risk, and secures accountability for spend.
You can also set more than user controls through automating policy enforcement and alerts on spend. Adding automation enables you to easily monitor and apply controls—without adding to your workload.
Unlock cash flow with comprehensive procure-to-pay solutions
An efficient procurement process can unlock cost savings and growth opportunities. Linking procurement, AP, and pay automation interactions through the procure-to-pay is the backbone of high-growth and easy-to-optimize operations. But without a comprehensive tool, it can be challenging to meet goals and measure progress.
Enter Teampay.
As a leader in spend management, Teampay offers key features and integrations for procurement professionals to successfully track vendors and transactions. But the platform includes more than vendor management and invoice matching. Teampay is an intuitive accounting automation platform that enables procurement and AP teams to fully access company-wide spend data with a few clicks.
Discover how we can transform your procurement process today.
