Procurement risks occur as a result of unreliable purchasing and P2P processes. These processes become unreliable when inefficiencies are not planned for, not identified and dealt with properly and in a timely manner, or when risk assessment and management protocols fail.
The procure-to-pay (P2P) process, also sometimes referred to as purchase-to-pay, is a structured workflow that involves receiving goods or services and issuing payments. Procure-to-pay is a part of the larger procurement process.
This process connects the purchasing department and the accounts (AP) department and directly influences a company’s financial projections and quarterly financial statements, which is why it’s important that the P2P process is connected and managed properly.
An inefficient purchasing and P2P process is not only risky for the procurement and accounts payable department, it’s also risky for business performance and can jeopardize its financial standing. But first, let’s look at some signs that may point to P2P inefficiencies for a better understanding of how these risks and pains can lead to long-term troubles.
Signs of an inefficient procure-to-pay process
Some risks are easy to catch, but many are more difficult to spot until they’ve snowballed into larger issues. Keep an eye out for any of the following to maintain your procurement and P2P management. If any of these warning signs appear, then it may be time to consider an automated solution.
- Reviewing purchase orders and evaluating suppliers is a lengthy process
- Purchasing and P2P processes are disconnected, siloed, or bureaucratic
- Difficulty collecting information to create accurate purchase orders
- Lack of visibility and prone to bottlenecks
- Invoices are spread across multiple channels (such as email threads, messaging apps, and accounting systems), resulting in long processing and approval cycles
- Late payments, fees, penalties, or financial losses are a constant issue
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Why P2P optimization is necessary
One reason why P2P optimization is so important is that it reduces risk. Procurement risks occur wherever visibility and control are limited. Risk is also introduced when processes lack standardization, or when elements of the process are unreliable.
Unoptimized P2P processes pose risks not only for procurement and accounts payable teams but also for the business as a whole. In addition to time and resources wasted through inefficient workflows, mistakes, and duplicate data entry, an unoptimized P2P process can cost the business in terms of late payment penalties, missed discount opportunities, and its reputation as a reliable buyer.
6 procure-to-pay risks and pains (with examples)
Don’t wait for easily solvable issues to become unsolvable. Below are some common procurement risks and pains that can emerge when signs of P2P inefficiencies go unresolved.
1. Invoice and payment errors or delays
Unstandardized and decentralized workflows can open the door to costly mistakes and delays in the P2P process. The data silos and faltering handoffs typical of a broken P2P process may lead to:
- Exceeding spend
- Penalties incurred from late payments
- Missed discount opportunities
- Poor inventory management
- Tarnished supplier relationships
A company’s purchase policy ensures that only approved purchase requests can be created and submitted to the procurement team. This layer of compliance prevents something known as maverick spending (purchases outside the scope of the purchase policy) and invisible spending (purchases made without the approval of the procurement or purchasing team). Purchases that evade compliance policies occur when visibility is limited by data or collaboration silos.
Procurement fraud varies from unapproved purchases, intentional accounting mischarges, conflicts of interest, false invoicing, invoices that don’t match purchase orders, unregulated post-contract changes, and single-source supplier schemes.
Companies that are growing or evolving rapidly are especially vulnerable to fraud. That happens because process structure and visibility don’t evolve fast enough to match the scale of procurement.
4. Poor contract management
It’s reported that poor contract management can cost companies as much as 9% of their annual revenue. Without a gateway to manage and centralize contracts, it can become nearly impossible to:
- Ensure that products or services were sold to buyers at an agreed-upon price
- Confirm whether products or services meet company quality standards
- Guarantee that products or services are delivered to meet the 5 Rs of procurement: right quantity, right quality, sold at the right price, delivered at the right time, and delivered to the right place
- Assess whether existing supplier relationships are cost-effective and the right fit for current or future needs
5. Email and spreadsheet sprawl
Relying on Excel spreadsheets or email threads to manage payments or invoices is a common quick fix at the moment, but it’s also one that requires a lot of repetitive, manual work. Distributing information across spreadsheets and email threads also makes it difficult to track or verify information across processes.
Managing decentralized purchase requests can be a nightmare for P2P teams. When data and information are scattered, and when processes require users to constantly toggle back and forth between the ERP and other apps, opportunities for errors and redundancy proliferate.
6. Employee burnout and limited IT resources
The most important element of any P2P process is the people who manage it. Businesses rely on their procurement team members to strategize, solve problems, and build relationships with their suppliers. But accomplishing these goals isn’t easy if teams are burned out or resources are stretched too thin.
Too much manual work and broken processes can lead to fatigue and frustration for the procurement team, which can impact performance and drag down productivity. The reality of limited resources can also impact procurement teams if IT teams are overburdened.
One tool that can mitigate bottlenecks with IT is the use of no-code process automation, which allows the P2P team to make some changes to their processes and workflows using a visual user interface, rather than throwing every change request over the wall to IT.
Manage P2P risks and pains with an effortless P2P solution
Unoptimized P2P processes pose risks not only for procurement and accounts payable teams but also for the business as a whole. In addition to the time and resources wasted through inefficiency, an unoptimized P2P process can cost the business in terms of late payment penalties, missed discount opportunities, and its reputation as a reliable buyer.
With procure-to-pay process automation, treat these symptoms of inefficiencies can be treated and transformed into optimization opportunities that achieve:
- An integrated and automated end-to-end procure-to-pay process free of manual tasks and errors.
- Control and visibility across purchasing, accounts payable, invoice processing, contract management, and supplier databases.
- Flexible and agile purchasing and procure-to-pay processes that evolve with your procurement operations and needs.
- Reduced request, invoice, and payment cycle times.
- Better finance, risk, and compliance management.