Procure-to-Pay Process: definition and challenges

procure-to-pay process

Last modified on June 14th, 2024

The procure-to-pay cycle (or P2P) is at the core of financial departments. While it ensures your company functions as it should and maintains good relationships with your suppliers, it also represents a risk. Scams are on the rise, and any breach in the P2P process is the first target of fraudsters. A robust and optimized procure-to-pay process is essential for good vendor management and to guarantee your company’s safety. Keep reading to find out all there is to know about the procure-to-pay process and its’ challenges!

At Trustpair, we help financial execs secure their P2P processes by continuously checking third-party information. Contact an expert to learn more!

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Introduction to the Procure-to-Pay Cycle.

What is the procure-to-pay process?

“Procure-to-pay” describes the process used in organizations to purchase goods and services, from the selection of a commodity, a good, or a service, to its payment.

It’s an important part of your supply chain management. It’s also called the purchase-to-pay process, or P2P. The process can be done manually, but these days it tends to involve software like SAP, Oracle, or other ERPs.

What are the steps of the P2P cycle?

The P2P process goes from the initial procurement to the payment of goods and services. Here are the steps of the procure-to-pay process:

  • Identifying the business needs for specific goods/services, and sourcing them through suppliers. This can be done automatically through a purchase order system (like procurement software) or bidding from various vendors. Negotiations usually happen at this stage
  • Issuing a purchase order to the selected supplier.
  • Receiving and invoicing. Suppliers deliver the goods or services and then send an invoice.
  • Invoice verification and payment approval. Invoice approval needs to happen before payment matching happens.
  • Paying the supplier. Actually sending the funds to your suppliers – is the riskiest and most overlooked step in the P2P process (more on this later).

Who is involved in the purchase-to-pay cycle?

Some companies have a procurement department, with its own procurement officer. Others have a departmental procurement management strategy. In all organizations, however, the accounting and/or financial departments are involved in the payment reconciliation (when purchase number, invoice, and payment are matched).

The P2P process specifically involves Accounts Payable, Procurement, Treasury, and even Internal Control – which in large corporations are whole departments. Regardless of who’s involved in it, the goal is to increase your operational efficiency over your P2P as it can be a costly, labor-intensive process. Making it more efficient leads to cost reduction, while increasing your cash flow management and your company’s security.

 

Common Challenges and Risks in the Procure-to-Pay Process.

Having a P2P process doesn’t come without its sets of inherent challenges and risks. Let’s have a look at some of them, which could prove dangerous for your organization.

Inadequate procure-to-pay process.

As companies grow, it can be a challenge to keep their business processes up-to-date. P2P is no exception. It’s not uncommon for organizations to have a procurement system that’s irrelevant, either because it’s too old, or because it doesn’t meet the needs of your current business.

When that happens, every line manager or department can decide to take the matter into their own hands and turn to another purchasing system. You end up having a siloed P2P, with no global procurement management.

It’s also an increased security risk for your company if your employees decide to use their own procurement software or process. By multiplying the number of software used in your company, you multiply the risks of security breaches.

Non-compliance to internal standards.

Similar to the previous point is when an employee decides to make an exception to your procurement policy. They decide to do it their way either by foregoing the bidding process, stopping negotiations with a specific supplier, or ignoring some quotations from others.

While making exceptions can happen for specific, strategic sourcing sometimes, it’s not a great practice to create a precedent. Whatever the reason, varying your internal policy puts your company’s internal safety on the line.

It’s an open door to making an “urgent transfer” to a well-known supplier or even to the CEO, which are common excuses used by scammers in wire transfer scams. Those risks can be reduced by making sure you carry out 3 way matching before payment approval, meaning you check the invoice against its purchase order and order receipt.

Your internal standards are here for internal control, but also to guarantee the safety of your company.

Lack of transparency over the procure-to-pay cycle

In large corporations, P2P is a business process that can become opaque and confusing – especially for people outside of the financial department. It’s important that everyone – not only the chief procurement officer – understand the necessity and implications of your procure-to-pay process.

If your employees don’t have visibility over your P2P, they won’t be able to follow the rules, correct mistakes, or even spot fraud attempts. While essential, the P2P can turn into a gateway to fraudsters.

Financial fraud attempts.

The biggest risk of your procure-to-pay cycle is financial fraud. And changes in suppliers’ credentials are actually the number one way financial fraud happens.

Between the moment you place your order and the moment payment is sent to your supplier, scammers have numerous opportunities to commit fraud. They can for example impersonate your vendor (spoofing) and send you an email changing their bank details.

That’s what we call vendor fraud. It’s done either by hacking into your system or your suppliers’. If you don’t do systematic account IBAN validation (or use a tool that does it for you like Trustpair), you won’t notice it and pay the wrong person.

Because of the nature of their jobs, your accounting and financial employees are most at risk. That’s why we recommend adopting the “4 eyes principle”: having two different people check everything when making your payment campaigns.

To learn more about B2B financial fraud, download our latest report!

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The missing piece to your procurement software.

Nowadays, most companies streamline their P2P through procurement software.  Procurement software speeds up the process, but it falls at the last hurdle: third-party checks.

Even with the best workflow automation, your company is still at risk of fraud if it doesn’t automatically check third-party information before approving payment.

Fraud prevention software like Trustpair does automatic, systematic, and real-time checks of your third-party data, so you always know you are paying the right person when you send payment. All payments are secure and any suspicious activity or status is flagged. On top of that, manual processes are reduced – or simply cut off. 300+ businesses already protect their P2P cycle with us!

Our automation tool integrates with Procurement software, TMS software, and ERPs. It’s additional security on top of your existing P2P process that completely eradicates the risk of vendor fraud through ongoing data monitoring. Our cutting-edge system will help your finance team and procurement department gain time, efficiency, and peace of mind. Services also include detailed fraud analytics, customized workflows, and automated checks before payment campaigns are executed to ensure no fraud goes unnoticed.

 

To conclude..

Procure-to-pay (or purchase-to-pay) is the process used in organizations to purchase goods or services. It encompasses every step from vendor selection to order payment. In companies, it’s ususally carried out either by a procurement department or by each department that manages its own procurement process. Nowadays, it’s often done through e-procurement, with online tools. While it makes the process more efficient, most procurement software falls at the last step: third-party checks.

Common challenges of the procure-to-pay cycle are: using an inadequate process, non-compliance to internal standards, and lack of transparency over the process. That leaves an open doorway to fraudsters. Use fraud prevention software like Trustpair to secure your payment chain and help your finance team gain time and efficiency. Our best-in-class solution will help your company gain time, performance and will provide more visibility on fraud risks.

FAQ

The procure-to-pay process is the process by which an organization acquires goods (like commodities) or services. 

Without it, there is no procurement and no production.

The P2P cycle includes several steps: identification of the needs, vendor selection and purchase order, receiving and invoicing, invoice verification and three-way matching, and actual payment of the supplier.

Procurement software automates the P2P process by carrying out a three-way matching and account validation. Trustpair can also detect fraud attempts by checking third-party information in real-time, ensuring that the payment goes to your actual supplier, not a scammer.

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