What is 'Purchase-To-Pay'

Purchase-To-Pay is an integrated system that fully automates the goods and services purchasing process for a business. The system gets its name because it handles all aspects of the acquisition from the purchase of goods to the payment of the vendor. The Purchase-To-Pay system begins with requisitioning, then proceeds to procurement, and ends with payment. Purchase-to-Pay seeks to optimize the purchasing process, thereby benefiting the organization through better financial controls and efficiency. This streamlined, integrated system saves costs and reduces risk.

Purchase-To-Pay can also be called Procure-to-Pay, eProcurement or req-to-cheque.

BREAKING DOWN 'Purchase-To-Pay'

A typical Purchase-to-Pay system covers the following steps:

  • Catalogs - catalogs from preferred suppliers are the first step in a Purchase-to-Pay system.
  • Purchase requisitions - Once a product has been selected from a catalog, the end user sends a purchase requisition to the appropriate manager.
  • Purchase Order workflow - Upon approval of the purchase requisition by the manager, a purchase order is generated.
  • Invoicing - This is a critical component of a Purchase-to-Pay system since manual processing of invoices is a hugely laborious and time-consuming process. Automated invoice processing saves time and money, and also includes a reconciliation feature that matches purchase orders to invoices.
  • Payment - Once an invoice is approved for payment, a ready-to-pay file is generated into the company's accounts payable system, which will result in payment being made to the supplier by the end of the period for which the supplier has extended credit.

Purchase-to-Pay systems are not intended to speed up the payment process. While this would be a laudable objective, the reality is that it would not be a priority for most companies, since paying bills faster would affect the timing of their own cash flows. Rather, the goal of a Purchase-to-Pay system is to improve efficiency and financial controls, since finance departments have timely purchasing data at their fingertips.

Best practices for Purchase-to-Pay systems include solid technology that uses a single point of contact such as a supplier portal, reduced complexity in catalogs and buying channels, and support from top management.

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