How P2P Accounting Connects the Dots in Procure-to-Pay

Have you ever wondered why supplier invoices take a long time to process? How are these invoices checked and approved? What causes delays in supplier payments?

Here is the key reason in most cases.

Different teams within an organization often work in functional silos, unaware of what is happening in another function. While one team may be cross-checking the supplier invoice against the original purchase order, another team may be verifying the contractual prices and delivery terms. 

Due to lack of collaboration, there is a high possibility of error, and a long time is taken to match and process invoices. Not only does this delay payment, but it also keeps valuable resources engaged in mundane and repetitive tasks. 

The question now is: How can these functional silos be removed to enable close collaboration between procurement, accounts payable, external suppliers and other stakeholders? 

How can businesses bring together fragmented processes in procurement, right from the initial requisition to the final payment to the supplier? 

This is where they need to streamline their procure-to-pay (P2P) cycle. 

P2P accounting makes this possible by unifying procurement processes and their financial management. This approach removes functional barriers between sourcing and accounting, enabling both teams to establish a link between acquiring goods and services and the financial implications of associated transactions. 

It also enhances transparency as every procurement process, from requisition to payment, is accurately captured and reflected in the organization’s financial records. 

How P2P Accounting Works 

The smooth implementation of P2P accounting requires the setting up of accounting touchpoints and internal controls across different stages of the P2P cycle. 

1. The first stage is requisition, where a business identifies, evaluates and formally documents its requirements. In this stage, a business estimates demand, assesses current inventory and specifies required quantities of material. 

P2P accounting necessitates the creation of internal controls and approval hierarchies to govern this stage. These controls ensure adherence to budgetary constraints and monitor unauthorized or excessive spending. 

2. The business now issues purchase orders to preferred suppliers that detail specific items with their quantities, pricing and delivery terms. Here, internal controls are set up in P2P accounting to validate purchase orders and ensure that they align with negotiated prices and contract terms. 

3. The supplier sends an invoice listing the financial details of goods or services rendered, such as specifications, quantities, pricing, taxes and shipping charges. Here again, P2P accounting necessitates rigorous invoice processing and three-way matching against purchase orders and receipt documents. The objective here is to minimize errors, avoid duplicate payment and comply with contractual terms. 

4. In the final stage, all transactions are recorded in the financial ledgers. P2P accounting controls here require accurate recording that complies with accounting principles and maintains a comprehensive audit trail. 

Also Read: Top 5 Use Cases of Leveraging Analytics in Procure-to-Pay 

Leveraging Technology to Automate P2P Accounting 

Advanced procurement technology has made it possible to automate P2P accounting. This means that it can automatically set up and run internal controls to automate P2P accounting. 

For example, AI-powered procurement technology can provide intelligent guidance during the initial requisition. When suppliers submit invoices to claim their payment, technology can automate the three-way matching process to validate these invoices. In this way, it can detect any irregularities and create a touchless environment for invoice processing and approval. 

Technology can provide actionable insights to optimize procurement processes. For example, it can monitor internal workflows and determine the average time taken to approve a purchase order from the time of creating a requisition. Likewise, it can review the total spend and identify specific categories where spend exceeds the allocated budget. 

By aggregating and analyzing huge volumes of data generated from multiple source systems through the P2P organization, it can create opportunities for both procurement and finance teams to go beyond their usual responsibilities and add more value. 

Learn how GEP’s AI-powered procurement software can automate P2P accounting in your organization.