DEFINITION of ‘Purchase-To-Pay’
An integrated system that fully automates the goods and services purchasing process for a business, beginning with requisitioning, through to actual procurement and ending with payment. Purchase-to-Pay seeks to optimize the purchasing process, thereby benefiting the organization through better financial controls and efficiency, which in turn saves costs and reduces risk. Also called Procure-to-Pay, eProcurement, or req-to-cheque.
BREAKING DOWN ‘Purchase-To-Pay’
A typical Purchase-to-Pay system covers the following steps:
- Catalogues – catalogues from preferred suppliers are the first step in a Purchase-to-Pay system.
- Purchase requisitions – Once a product has been selected from a catalogue, the end user sends a purchase requisition to the appropriate manager.
- Purchase Order workflow – Upon approval of the purchase requisition by the manager, a purchase order is generated.
- Invoicing – This is a critical component of a Purchase-to-Pay system, since manual processing of invoices is a hugely laborious and time-consuming process. Automated invoice processing saves time and money, and also includes a reconciliation feature that matches purchase orders to invoices.
- Payment – Once an invoice is approved for payment, a ready-to-pay file is generated into the company’s accounts payable system, which will result in payment being made to the supplier by the end of the period for which the supplier has extended credit.
Purchase-to-Pay systems are not intended to speed up the payment process. While this would be a laudable objective, the reality is that it would not be a priority for most companies, since paying bills faster would affect the timing of their own cash flows. Rather, the goal of a Purchase-to-Pay system is to improve efficiency and financial controls, since finance departments have timely purchasing data at their fingertips.
Best practices for Purchase-to-Pay systems include solid technology that uses a single point of contact such as a supplier portal, reduced complexity in catalogs and buying channels, and support from top management.