Procure to Pay, also known as P2P, is the process of
obtaining the raw materials needed for manufacturing a product or providing a
service, and making payment for these. Every manufacturing concern or service
provider needs to run this cycle efficiently if they are to continuously manage
their cash flow, build goodwill with suppliers and make profits.
Steps of the Procure to Pay (P2P)
Cycle:
* The process begins with planning what
materials are required, when they are required, and the price that the company
can afford to pay for them.
* Then the company prepares a list of
vendors that they think can provide the materials for them.
* The company asks each of the vendors to
submit a quotation, which includes the price, terms of delivery, quality of
materials, and any other information that they need for making their decision.
This stage could also involve negotiating with the vendors for the best deal.
* Once a vendor has been chosen, the buyers
create a purchase requisition form that includes information such as the
description of goods and services, department account number, signatures of the
authorized managers, delivery instructions and quotation from the authorized
vendor.
* A formal purchase order is sent to the vendor
to supply the goods along with instructions as to the conditions under which
they have to be supplied.
. Once the company receives the goods
from the supplier, the purchase department prepares a Goods Receipt. This is an
important document which can later be used for reconciling if what the seller delivered
was indeed what they asked for.
* The Goods Receipt is compared with the
Purchase Order to validate if the two match. If there are any discrepancies,
the buyer can contact the seller and post a complaint. Checks are made if the
goods are suitable for use or not, if the correct quantity has been delivered,
if all the goods meet the ordered specifications, and they are priced according
to the terms of the purchase order. If any goods are damaged then the buyers
will have to contact the sellers and ask either for a replacement or a refund.
* Once the verification of the goods is done,
the payment invoice is created and the necessary approvals from the project
managers are obtained.When the company makes the final payments to the vendor,
the cycle comes to a close.
You need a procure-to-pay process if your organization is
guilty of the following:
·
Frequent duplicate payments
·
Payments are made without internal approval
·
Spend is led away from preferred suppliers
·
Lots of new suppliers added on a regular basis
·
Retroactive orders to cover invoices received
What are the benefits of procure-to-pay
business process?
The most obvious benefit is that a procure-to-pay
process can bring light to inefficiencies and gives businesses the ability to
proactively manage suppliers. For organizations, this means employees can
easily and quickly buy all the goods and services need from preferred
contracts, ensures they stay within budget and work with required approvals.
Manual labor involving fixing invoicing issues caused by suppliers or missing
orders and receipts are more easily resolved.
Procure-to-Pay platform can offer:
·
A single place for goods, services, components, tools and travel
·
Supplier, contract, legal tax and policy compliance
·
Electronic capture of all B2B transactions
·
Reduced errors, fraud and risk
·
Buying at negotiated prices and within budget
Challenges of Procure to Pay and Their
Business Impact
Procure to Pay has considerable impact on the business since the process
is spread across so many departments that encompass purchase, production and
accounting.
·
There are many checks and balances put in place, and the authorizations
of numerous managers are required.
·
There are companies that conduct these operations manually and use
extensive paperwork thus facing the risk of documentation errors and delays in
processing.
·
In some firms there is a lack of communication and cohesiveness between the various divisions, and even among
the personnel working in the same unit. The purchase department might place
orders at a price beyond the budget of the finance department. Invoices might
inadvertently get written for goods that were rejected.
·
Orders might be placed for raw materials that the production unit does
not need.
·
There could be delays in the documentation travelling across the various
departments causing late payments, which might harm the buyer-vendor
relationship.
Transactions in SAP Procure to Pay Process
1. Purchase Requisition - ME51N
2. Request for Quotation - ME41
3. Purchase Order - ME21N
4. Goods Receipt - MIGO
5. Invoice Handling - MIRO
6. Payment (Automatic Payment Run ) - F110
Conclusion
With the Procure to Pay process being
fraught with the possibility of risk and inefficiency, which would have an
adverse impact on the business in a competitive market, many companies are now
finding ways of streamlining the procure-to-pay process.
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