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 earned its name because it handles all aspects of acquisition from the purchase of goods to the payment of the vendor. The key benefits to purchase-to-pay are efficiency, cost savings, and increased financial and procurement visibility.

Understanding Purchase-to-Pay

The purchase-to-pay system begins with requisitioning, proceeds to procurement, and ends with payment. Requisitioning is the process of formally requesting a service, item, or product with a purchase request form. Procurement happens when the goods or services are received. The system ends when payment is made.

Key Takeaways

  • Purchase-to-pay is a complete purchase system for businesses from the purchase of goods to vendor payment.
  • Purchase-to-pay is also called P2P, procure-to-pay, eProcurement, or req-to-cheque.
  • The purchase-to-pay process is automated, saves costs, and reduces risk.
  • Purchase-to-pay is not designed to speed-up vendor payment because this is not in the interests of companies who want to hold on to their cash for as long as possible.
  • Purchase-to-pay systems are designed to improve efficiency and financial controls.

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. A typical purchase-to-pay system includes five steps and requirements for completion:

  • Catalogs: Catalogs from preferred suppliers are the first requirement in a purchase-to-pay system.
  • Purchase requisitions: Once a product has been selected from a catalog, the buyer sends a purchase requisition to the appropriate manager.
  • Purchase order workflow: A purchase order is generated once the purchase requisition is approved by the manager.
  • 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 includes a reconciliation feature that matches purchase orders to invoices.
  • Payment: Once an invoice is approved for payment, a file is generated in the company's accounts payable system. The approved invoice results in payment 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 because 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.

Fast Fact

Purchase-to-pay systems are automated processes that reduce labor costs and increase accuracy.

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. It can provide key data on how much is being spent, what products or services are being received, and delivery times.