What is Procure To Pay?

Procure to pay is the end-to-end process a company follows to purchase, receive and pay the vendor for the products and services.

Procure to pay process touches all stakeholders.

It starts with a stakeholder identifying a need to purchase a product or service. It is then sent to procurement to determine the best product or service price. The purchase order is issued, and then the vendor delivers the product.

The Accounts payable (AP) team is responsible for processing supplier invoices and paying the vendors on time.

A well-established procure-to-pay process helps an organization control costs, increase compliance with the purchasing policy and pay the vendors on time.

And if you are a cash-rich company, an efficient procure-to-pay process allows you to pay the vendors early and avail of any early payment discounts.

The procure-to-pay process can be manual, a combination of different tools and technologies, or a single procure-to-pay platform that automates the entire process.

Steps in Procure to Pay Process?

Here are the key steps in the procure-to-pay process. There might be sub-processes that we are missing in this list, but it covers the main steps.

Need identification

The need identification process starts when a stakeholder identifies the need to purchase a product or service. The stakeholder is trying to solve a problem, which drives the need for an external product or service.

For example, a new CRM software that will help streamline the customer records data.

Request for purchase

The requester creates a purchase request to start the purchasing process. The stakeholder might have done their research, or they might need procurement help to do that.

If the requester knows the preferred vendor and price, they can key that in the purchase request.

RFP/RFQ process

Request for proposal(RFP) and Request for a quote (RFQ) is the process of soliciting proposals from vendors for the product or service you need to purchase. It is an optional step only required when you don’t have a preferred vendor.

It could be as simple as emailing vendors requesting a quote or an elaborate proposal process with detailed specifications.

The process is highly dependent on the size and maturity of the procurement function in a company.

Purchase approval

The purchase approval is the formal approval request by the requester.

The company’s purchasing policy should cover the approval process and approval matrix.

The goal of approvals is to allow managers to review and control spending if needed.

Issue Purchase order

This step involves sending the purchase order to the vendor. You can manually issue a purchase order using a purchase order template. Alternatively, you can use a purchase order system.

Receive the product

After receiving the product from the vendor, a buyer creates a receipt. The receipt is a confirmation that the supplier delivered the product.

It also allows you to confirm the exact quantity delivered by the vendor. In the case of partial shipments, you can specify the exact quantity received.

Create and process supplier invoice

After shipping the product, the vendor sends the invoice to the buyer’s accounts payables team. The team reviews the invoice and matches it with the purchase order and receipt.

If all checks out, the AP team marks the invoice ready for payment.

If the invoices don’t match, it goes through a review process by the appropriate stakeholder.

Pay the vendor

The last step in the process is to pay the vendor. Once the invoice is marked as ready for payment, the AP team pays the vendor per the agreed payment terms.

Sometimes the AP team decides to pay the vendor sooner than the net terms because the vendor offers an early payment discount.