Purchase-to-Pay: the strategic lynchpin bridging finance, procurement and the wider business

By Gary Simon, BSc, FCA, FBCS, CITP, Chief Executive of FSN & Leader of the Modern Finance Forum on LinkedIn

For many years, the Purchase-to-Pay (P2P) cycle has been viewed as a transaction-oriented process. Most improvement initiatives focus almost exclusively on automation, enabling straight-through processing of purchase invoices, order matching and payment. But with advances in technology, especially broader integration across cloud-based ERP and procurement systems, P2P is broadening its reach across the enterprise and opening up new vistas of opportunity in support of strategic decision making. It is a view supported by FSN’s 2020 research, “The Future of Analytics in the Finance Function*,” which highlighted the strategic value that P2P could bring to corporate performance management.

Historically, Accounts Payable (AP) automation has been at the heart of P2P capability, enabling right-first-time invoice submission, reduced paper handling and error correction. It has also improved the control environment, for example, ensuring that invoices cannot be paid without an authorized purchase order and that payment matching is complete and accurate. All of this has reduced the opportunity for fraud and error and, when integrated with a modern ERP system, has improved the user experience and raised process efficiency.

But modern finance functions are beginning to see value in P2P well beyond the confines of transaction processing. Smart CFOs know that they can leverage the latent information potential nested in fully automated AP platforms to drive a wide range of more strategic objectives and decisions.

Procurement is a relatively untapped source of rich information which a mature P2P process can support. In the past, procurement has focused on compliance with corporate policy, for example, to ensure that goods and services are only sourced from authorized suppliers and that the nature of spending is aligned with spend policy and limits. But there is a treasure trove of information within procurement that can have a significant impact on strategic issues such as the dependability and diversity of the supply chain, as well as which supplier relationships are strategic and must be cultivated. In a post-COVID era, organizations are only too aware of the need to pay more attention to the supply chain and supplier performance.

Matching supply and predicted sales demand is a perennial challenge and organizations need to be agile and responsive to both sides of the equation.  Procurement data (amounts, deliveries, sources and substitutes) needs to be planned in line with sales forecasts, sometimes over very long periods depending on industry sector. Shortages and delays can have a profound impact on profitability and strategic decision making. Increasingly, integrated business planning (IBP), i.e. the fusion of operational data from, say, procurement and sales order systems with financial plans, is crucial to assessing the robustness of both short-term forecasts and longer-term planning scenarios. It is also vital for managing cash balances and ensuring that suppliers are treated fairly according to stated CSR (Corporate Social Responsibility) policy.

So, it is no exaggeration to say that P2P has the power to bridge Finance, Procurement and the wider business and drive value into every corner. With the capability to coalesces Accounts Payable, ERP and Procurement, it can play a vital role in informing strategy development and ensuring that organizations remain strategically aligned. Modern finance functions that grasp the nettle now will not only be more efficient but also more agile and responsive to market demands.