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Purchase-to-pay, often abbreviated to P2P and also called req to cheque, refers to the business processes that cover activities of requesting (requisitioning), purchasing, receiving, paying for and accounting for goods and services. Also commonly referred to as procure-to-pay.
Purchase-to-pay systems automate the full purchase-to-payment process, connecting procurement and invoicing operations through an intertwined business flow that automates the process from identification of a need, planning and budgeting, through to procurement and payment.
Key benefits are increased financial and procurement visibility, efficiency, cost savings and control. Automation allows for reduced processing times and straight-through processing where the incoming invoices are handled without any manual intervention.
Purchase-to-pay systems are designed to provide organizations with control and visibility over the entire lifecycle of a transaction – from the way an item is ordered to the way that the final invoice is processed – providing full insight into cashflow and financial commitments and is now deemed an important tool for proper implementation of Resource Accounting and Budgeting, not least by UK Government Departments such as HM Treasury. Financial commitments are understood at the point they are committed to rather than when invoiced.
Organizations automate invoice processing and purchasing policies and procedures to bring financial rigor and process efficiency to the business of buying.
Both purchase order (PO) and non-PO spending, capital, credit card and reimbursable spending can be captured and controlled through automated P2P systems. Finance departments can also enforce internal spending controls and have instant access to data that tells them who is spending, what they are buying and paying for, and with which vendors.
As a result, efficiency and cost saving benefits can be substantial.
The term emerged in the 1990s and is one of a number of buzz phrases (like B2B, B2C, G2C etc.) that emerged as Internet applications became used more widely in business. Although it does not necessarily refer directly to the application of technology to the purchasing process, it is most often used in relation to applications like e-procurement and ERP purchasing and payment modules.
A discipline in its own right
Following the maturation of Internet-supported supply chain processes, the case emerged for identifying opportunities to further streamline business processes across the whole of the procure-to-pay value chain. This was driven primarily by the supply chain software vendors and consultants as well as by governments who had recognised and enthusiastically embraced concepts like e-procurement. The publication of the Gershon Review in the UK in 2004 for example, gave the British public sector the mandate to direct significant resource and effort toward creating efficiency and in particular in all aspects purchasing.
As a consequence, once disparate business functions, such as accounts payable and purchasing, have in some organisations been brought together, and the concept of purchase-to-pay has evolved from a buzz phrase to a recognised discipline. (Some organisations have changed the reporting line of the payables function from finance to purchasing.)
A Basware research report ‘The Cost of Control: A Call for Collaboration between Finance and Procurement’ identified this growing trend of increased levels of finance and procurement collaboration to overcome finance and purchasing challenges – and highlighted that there is a clear emerging trend toward using technology as a way of overcoming operational challenges and harmonising ‘buyers’ and ‘payers’ within the business. Mark Frohlich, associate professor of operations management at the Kelley School of Business commented at the time on the findings:
"A resounding majority of those interviewed have woken up to the negative realities of supply chain risk and the crucial positive role supply chains will have in transforming their businesses for years to come. Clearly such changes to the business landscape will require a coordinated and collaborative response between functional departments, in particular finance and procurement, as well as the intelligent implementation of appropriate integrative knowledge sharing tools and systems. This is something we must all prepare for."
Procure-to-pay is the start of the procurement process from the point where the purchasing department starts working until the moment the invoices are paid.