Seamless Procure-to-Pay processes are more important than you think

From ordering to payment. These are, in broad terms, the processes that PtP covers. While it may sound simple, there are potentially many pitfalls in these processes, precisely because multiple organisational areas and systems are often involved.

This is why well-optimised and efficient PtP processes can make a significant positive difference. However, it also requires balancing robust compliance with effective execution. In this article, we guide you through the process from policies to practice: First, we define the necessary policies, then we look at the design of PtP processes and approval hierarchies, and finally, how it all comes together in a risk matrix tailored to your company's needs. 

In this section, we take a closer look at the foundation of well-functioning PtP processes. Before diving into the specific processes and approval hierarchies, it is essential to understand the connection between policies and processes, as this hierarchy forms the basis for an effective process chain and is therefore a prerequisite for successful implementation.

Effective PtP processes are built on clear policies that define the framework within which the processes should be designed. These policies can be more or less extensive and detailed depending on the need and typically include: 

• Procurement policy: Establishes the overall framework for the company’s procurement activities, including whether the procurement function should be centralised or decentralised. The policy also defines which types of purchases require prior approval and how different procurement categories should be handled differently – for example, differentiated requirements for purchasing production equipment versus regular operational purchases.  
• Authority policy: Defines who is authorised to enter into agreements and approve transactions on behalf of the company. This includes spending limits, approval levels and any specific requirements for certain types of purchases. The policy is fundamental to the company’s risk management through internal controls.
• Supplier policy: Sets the framework for how the company selects, evaluates and collaborates with suppliers. This includes criteria for supplier approval, documentation requirements, ethical guidelines, and how supplier relationships should be maintained. The policy may also include requirements for suppliers’ sustainability profiles and compliance. 
• Segregation of duties policy: Ensures that critical tasks within the PtP processes are not performed by the same individual. This is a key element of the company’s internal controls and includes, for example, the separation of ordering, approval and payment. The policy is crucial for preventing errors and fraud. 
• Working capital objectives: Defines the company’s strategy for liquidity management, including payment terms, credit periods and inventory management. This policy is central to optimising the company’s cash flow and has a direct impact on how procurement and payments should be structured.   
• Technical policy: Defines the framework for system integration and IT security within the PtP process. This includes managing user access rights, requirements for system integrations between the ERP system and other IT systems as well as the potential implementation of e-procurement solutions. The policy ensures that technology supports the processes effectively and securely.  

With the policies defined, we now have the foundation in place to design effective processes. The policies set the framework, but the real value lies in how we translate them into practical workflows. Let’s therefore take a closer look at the process chain (the processes from A to Z), which represents the concrete flow from the emergence of a procurement need to the completion of payment. 

As the process chain shows, the policies manifest differently throughout the flow. The procurement policy governs the initial phases, the authority policy defines the approval flow, while the working capital policy particularly influences the final stages of the chain. At the same time, the technical policy ensures that the entire flow is effectively supported by the company’s systems. Successful implementation, therefore, requires not only an understanding of the individual policies but also how they interact throughout the entire process chain.

The process chain is typically integrated into the company’s ERP system, but the complexity increases due to the many organisational layers and potential system integrations. This places specific demands on process design and attention to dependencies ‒ both in terms of automation opportunities and risk management.

With this foundation in place ‒ from policies to organisation ‒ we can now focus on designing the specific approval rules and hierarchies that will ensure the effective implementation of the policies in practice.

The number of individuals involved in the approval processes must be carefully considered, balancing resource consumption and approval speed against risk. A well-defined cost center structure and setup are essential to ensure that the right individuals from both support and production departments participate at appropriate levels without overloading the process with unnecessary involvement of multiple parties at the same level. This helps maintain an efficient and focused approval structure.

At the same time, the need for continuous approval of smaller transactions, such as fees, office supplies and recurring subscriptions, can often be determined relatively easily. In such cases, it may be relevant to design exceptions to the approval requirements. Essentially, this is about finding the right balance between risk and resource consumption.

An approved purchase order serves as the framework for the subsequent process and should not require renewed approval at the invoice and payment stages, as long as the invoice matches the order within acceptable tolerances (e.g. +/- 5%). Only in cases of significant deviations from the original purchase order or particularly critical transactions should new approval be required. This ensures efficient processes where the original approval of the purchase order is respected as the governing framework for the entire transaction.  

Process policies, the process chain and considerations of approval hierarchies and rules come together in a risk matrix, which serves as the central tool to ensure that policies are followed in practice. The matrix maps out how each policy is implemented through specific controls and how these controls are distributed among the various actors in the process chain. This provides management with a comprehensive overview of how policies are operationalised and how risks are managed across the organisation.

The risk matrix for the distribution of employee responsibilities must be flexible and tailored to the size and characteristics of your company, particularly in terms of scale and complexity. A large organisation with activities in different regions will typically require a more complex structure with centralised procurement processes and extensive system integration. In such cases, dedicated roles with clearly defined responsibilities, stringent approval hierarchies and formalised processes are often necessary to ensure consistency across the organisation. Conversely, larger companies operating under a well-defined authority policy may, in some cases, design PtP processes based on decentralised organisation and local decision-making authority.

In smaller companies, overlapping responsibilities are often seen, where the same employee handles multiple functions ‒ for example, both procurement and bookkeeping. Similarly, employees may have broader responsibilities and greater flexibility to cover for one another. For instance, an accounting manager may have broader authority to approve regular operational expenses on behalf of the business, while decisions exceeding set financial thresholds or special situations, such as urgent matters or disputes, are always escalated to CFO or CEO level. This requires particular attention to segregation of duties and the implementation of compensating controls in the approval processes.

A critical design principle is understanding the company’s primary transaction patterns. For example, a manufacturing company with high volumes of material purchases will require different processes than a consulting firm that primarily handles services, travel reimbursements and time tracking. This business understanding is fundamental to designing a process that effectively supports the company’s actual needs rather than simply implementing a standard template.

These design choices are essential to ensuring a process that provides management with the necessary oversight while effectively supporting the company’s operational goals.