Getting to Know How Purchase to Pay Works

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Purchasing goods is far more complex than calling or sending a few emails to arrange them. The supply chain of your company is reliant on procurement. You can reap the benefits of a strategy-based approach to purchase to pay.

In terms of a company’s purchasing processes, storing all of the data is a daunting task, let alone organizing it. It’s not uncommon for companies to operate without a formal procurement department or enterprise resource planning (ERP). Those companies with dedicated procurement departments and standardized organizational processes only account for 44% of companies according to Pay Stream Advisors.

A company’s procurement and payment processes are critical for its success. In summary, a clear and effective procurement strategy can reduce costs in manufacturing, distribution, and wholesale companies when combined with the use of procurement software.

How does Procurement to Payment Work

Organizing a business’ purchasing habits and managing suppliers is done by using procure-to-pay procedures.

In addition to reducing material costs, it helps eliminate stock-outs, overstocks, and delays in inventory stock quality.

There can be a lot of moving parts in the procurement process. Companies that understand this complexity will be able to develop and implement strategies that will boost their profits while minimizing the risks of improper purchasing practices.

The process of conducting market research

A great place to start finding suppliers is to attend trade shows, ask around, as well as post in reputable industry forums or search online.

You should limit your time and finances when researching the market for potential suppliers, and set standards relating to their business practices. Additionally, you can examine public information about vendors such as financial records, online reviews, location, social commitment, range or products, and other standards that are relevant to your business.

Here’s where a simple checklist is helpful in the early stages of screening.

Supplier qualification

You might want to further narrow your list after creating it. You can begin your due diligence by starting with the nitty-gritty. To get a better sense of their strengths and weaknesses, you can ask vendors for references.

A business’ professional organization is also important to know. If you want to know how they manage their business, what certifications they have, how they guarantee the quality of their products, etc., ask them for Request images and videos or a site visit, as you will get a better understanding of the business practices of suppliers by visiting their manufacturing facility.

Choosing a supplier and requesting proposals

Request quotations (RFQs) from the shortlisted suppliers and compare prices as the final step in choosing your vendor.

You can also hire a third party to visit them on their websites. Your best supplier should be your first choice, with the two-second choices being your backup. Thus, if an issue occurs with your chosen vendor in the future, you will have backups.

The creation of purchase orders

Purchasing managers need to approve purchase requisitions before they can create purchase orders, particularly when the order is over a certain threshold.

An approved purchase request becomes a purchase order, which is sent to your supplier. Assuring that the supplier has received the order is the responsibility of procurement.

Keeping track of delivery processes and evaluating delivery goods

Check the products to ensure they meet the contract terms after they are delivered by the supplier. Once the goods have been received, you will need to approve or reject them under the specifications of the contract.

Taking the goods to the cashier is the next step. A reconciliation between an invoice and purchase order ensures that everything is matching and the vendor is charging you correctly. Next, accounts payable must be completed. You must handle the PO for payments, ensure payments are issued on time and enter payments into your accounting system.

Accounts payable and invoice reconciliation are tedious but costly mistakes can be made here. Your inventory management software can be integrated with your accounting system to automate your purchase-to-pay solution process. By integrating your accounting software with your purchase order software, you can reduce the chances of errors and the amount of time you spend on administrative tasks. The supplier will be paid on time, and the payment will be correct – everyone benefits.

Performance evaluation of suppliers

Create scorecards to track the results of each vendor and determine their KPIs. The creation of scorecards for your suppliers is a great way to stay on top of their performance. This method of evaluating supplier performance allows you to identify problems in your supply chain early on and solve them or acknowledge good performance when it is warranted.

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