Purchase to Pay or P2P (Procure to Pay if you prefer) is a misnomer in most organizations. In reality, P2P is owned and managed either in the procurement organization – in which case it should more accurately be called P2 – or it’s owned in the finance organization in which case 2P is a better term. Rarely – very rarely - is P2P implemented fully, all the way across the organization. But without an effective partnership between finance and procurement, P2P doesn’t work. And depending on where the ownership lies there are very different views on what purchase to pay is.
The Finance Centric View
When it’s is owned in finance, P2P is seen as a means of imposing control. The business needs to ensure that proper processes are in place to ensure that P.O.s are properly authorized, that proper segregation of duties are in place, that capex and opex are properly differentiated and, above all, that there are no anomalies that will make the job of accounting difficult.
The Procurement Centric View
The purpose of P2P is the same when it is managed in the procurement organization however the emphasis is different. There is more focus on building and maintaining processes that reduce cost and ensure that the goods and services are delivered to the business accurately and in timely fashion. Accuracy of catalog data and order functionality are higher on the agenda and the importance of prompt payment to maintain good supplier relationships is seen as more important than management of DPO.
Scope and Breadth of Purchase to Pay
For procurement and finance to partner effectively it’s important to understand the extent to which P2P reaches both from a process point of view and an organizational point of view.
There is a distinction between procurement and purchasing. P2P is about effective process, not about sourcing and negotiation but don’t put procurement out of scope. The terms of engagement between the buyer and supplier are a key component of the P2P relationship and critical elements of the contract negotiation, such as payment terms, are certainly within scope.
And what of the organizational boundaries? P2P does not start with purchasing and end in payment. It starts within the supplier and their sales order processes and ends with the month end accounting processes including cash flow management.
(There are those that would argue that the term “Purchase to Pay” should be “Procure to Pay” or vice versa but these terms have become confused with ERP module branding and it is now a matter of pure semantics which expression is used.)
Anyone that says its easy has never done it. Identifying a shared agenda at a high level is straightforward but making it happen is another matter all together.
Take GRNI for example. GRNI (Good Received Not Invoiced) is an important number for finance. When it’s a big number that’s a bad thing and when it’s a small number, it’s a good thing. And keeping it low means having good ordering and receipting processes. Explaining the critical importance of GRNI to a buyer is a major challenge. To be frank, the buyer doesn’t care.
Similarly, getting agreement on prompt payment is difficult because purchasing and finance have opposing interests – happy supplier vs good cash flow.
But these challenges have to be overcome. Buyers don’t need to become accountants and the finance community don’t need to become procurement experts but they do both need to sit on the same side of the wall and develop a shared agenda and respect each other’s expertise.
P2P is about partnership. Partnership between buyers and suppliers for sure but more importantly, an internal partnership between finance and procurement.