Procure-to-Pay (P2P), also called purchase-to-pay, is the completely automated process of purchase request to payment between B2B buyers and sellers. Benefits of P2P include saved costs, lower risks, and increased efficiency. The goal of an automated P2P process is to optimize the purchasing process, which means that it’s a buyer-led initiative. On the supplier side, this is referred to as the order-to-cash process.
There are multiple steps involved in the P2P process, but it’s not too complicated. First, a buyer identifies a need for a good or service and then selects a vendor (supplier). At this point, the buyer enters the purchase requisition process with the selected vendor. A requisition order (which includes details about cost, services provided, and the vendor) is created and must be approved internally before the order is sent to the vendor.
Once the requisition order is approved, a purchase order (PO) is created and sent to the vendor (an EDI 850 in ANSI X12 terms). The PO states details such as product/service descriptions and billing information. The vendor then receives the PO and confirms receipt by sending an electronic purchase order acknowledgment (EDI 855). When the order is ready to ship, the vendor notifies the buyer by sending an EDI 856.
When the product or service has been delivered or fulfilled, the vendor sends an invoice (EDI 810). Invoices must match the information in the PO, and once this has been verified (i.e., 3-way matching), the buyer can enter the invoice into their accounting system or ERP and remit payment.
Source-to-Pay (S2P) is an extended version of the P2P process. While it begins in a similar way (a demand/need is determined) there are additional steps at the beginning of the process that deal mainly with vendor selection. The goals for S2P are to increase productivity and savings, identify new vendors/supplies, and to decrease overall risk. Additional steps in S2P include strategic sourcing and vendor management (an easy way to track and analyze KPIs) for future purchases.
The S2P process begins the same way as the P2P process does: a need is identified. With S2P, however, a vendor has yet to be selected. In this case, the buying organization begins by conducting a data analysis to evaluate vendors according to their need: they compare pricing, reviews, and vendor goals. A few vendors are selected to advance to the next stage and the buyer engages with them by requesting more information from each one of them.
The vendors submit the requested information; this could be a proposal, a quote, or some of their key financial reports. The buyer then uses this information to make an informed decision regarding which vendor they will choose to purchase the goods or services from. However, once that vendor is selected, the buyer still has the option to negotiate with the seller now that they have been selected as the preferred vendor.
After a contract has been agreed upon by both parties, the normal P2P process can take place as described above. In the future, the data collected from the earlier stages is useful for analyzing business decisions and can lead to more accurate trend forecasting.
How Does Technology Support These Processes?
Invoice-to-pay, procure-to-pay, and source-to-pay processes are supported by various types of e-procurement software. Invoice-to-pay software could be as simple as enabling the automated review of invoices, while source-to-pay software is more advanced simply because there are more steps involved in the process. Regardless, the goal of using technology to support one or more of these processes is to simplify and automate as much as possible.
The TIE Kinetix Solution (B2B Communication)
Common issues that can arise during procurement when supporting technology is not in place include purchase order errors, invoice errors, late payments, and more. By using an automated system such as our FLOW platform, you can eliminate the risk of human error, for example, a cancelled order due to something as small a mistyped order quantity.
FLOW helps you to facilitate business transactions with your trading partners in an efficient and error-free way by ensuring that all your documents are securely sent and received electronically. Plus, its cloud-native and seamlessly integrates with whatever Enterprise Resource Planning (ERP) software you’re using.
For buyers, FLOW offers the potential for 100% digitalization by enabling vendors of all sizes and technical capabilities to send their documents electronically:
PORTAL-2-FLOW: For small businesses that only exchange a few documents each month, our web-based solution makes it easy for these suppliers to communicate with you without giving it a second thought—we provide them with an easy-to-use web form, so an internet connection is all it takes to get started.
PDF-2-FLOW: For small-to-midsize companies, PDF-2-FLOW enables suppliers to continue sending (digitally born) PDF versions of their business documents. We convert them to the appropriate electronic format with 100% accuracy so that they can be immediately processed by your ERP system. Unlike unreliable Optical Character Recognition (OCR) solutions, PDF-2-FLOW uses highly advanced Artificial Intelligence (AI) and machine learning (ML) technologies to ensure maximum output.
EDI-2-FLOW: If you and/or your business partners already have an EDI/XML solution, EDI-2-FLOW provides a direct connection for completing P2P transactions. It completely alleviates the need for your company’s accounting team to spend time on redundant tasks, like constantly checking for errors in transactional documents, because it’s a fully automated solution.
How Do Our Solutions Complement S2P and P2P Solutions?
While TIE Kinetix can’t access your internal workflow, we can ensure that document exchange is seamless and fully automated between you and your trading partners—all of your trading partners. The ability to achieve 100% digitalization for all B2B transactions with a single solution is invaluable and instantly maximizes the value you can get out of your S2P or P2P solutions.
Using FLOW in addition to your S2P or P2P system can help you to further analyze your purchasing habits, evaluate KPIs, and realize areas of financial improvement. In addition to full integration capabilities with your ERP system, FLOW is perfectly capable of integrating with your other solutions as well to ensure that every step of the purchase process is error-free and fully automated.