Dilip Kumar Patairya September 5, 2020 Procurement to Pay, P2P, is a step-by-step method that covers the procurement and financial procedures. The initial steps include the procurement of the goods or services. It ends with the payment for the procured goods and services. The procurement to pay process is executed through the Enterprise Resource Planning (ERP) systems. The system is used by the buyer to place a purchase order which then goes to the supplier.
The buyer creates goods receipt in the ERP as soon as the goods/services are delivered. The invoicing process begins thereafter wherein the supplier issues the invoice to the buyer. The development of the payable record is done in the ERP system and the reconciliation of all the transactions is done. The payment instructions are provided by the buyer to the bank and the payment is released by the supplier.
Existing Challenges & Issues
Currently, there are numerous challenges that present with the Procurement to Pay process. The inadequate data governance is one of the major issues. The lack of effective governance in the P2P process leads to the inability to the business firms to appropriately utilize the data. The use of manual operations or the traditional systems is prone to the accuracy concerns.
The probability of the errors increase which automatically brings down the accuracy of the outcomes. The security and privacy issues are the major challenges as forged invoicing is possible. The maintenance of the centralized transactional history is usually not present. Also, the transparent measures of information sharing are not included. The forged invoicing and information gaps are often observed due to such challenges. These errors and issues also lead to the increase in the costs.
There are resources that get engaged in the error resolution and it enhances the overall costs. There are several organizations that still follow the manual processes. The purchase orders are manually signed and approved along with the rest of the documents. The chances of errors are high in such manual processes.
Blockchain Approach for P2P
Blockchain is also referred as the distributed ledger technology that maintains the decentralized and distributed public ledger. It is a disruptive innovation as it offers enhanced technology along with the required levels of scalability and flexibility. There are multiple blocks present in the Blockchain networks and each of these blocks includes data, nonce, and hash. The nonce is a 32-bit whole number that is randomly generated. The technology is being increasingly applied to promote the security and privacy of digital information.
Deploying the Blockchain brings in a change in the current P2P process. As soon as a purchase order releases, the transaction details is visible on the Blockchain. The supplier and the buyer get to see the details of the transaction. With the delivery of the goods to the buyer, there is a goods receipt that is generated. The transaction details become visible on the Blockchain and the supplier gets to see it on a real-time basis.
The invoice process is also executed and managed by the Blockchain and it is possible for the buyer to acknowledge instantly. In the current process, a considerable amount of time goes into reconciliation. With the involvement of Blockchain technology, the transactions are pre-approved. The suppliers can then make use of the invoice and the overall improvements in the liquidity can be made.
Set of Benefits
There are huge security and operational benefits that can be achieved with the implementation of the Procurement to Pay processes over the Blockchain. Technology has disrupted the technology world by providing the cryptographic transparent network for end-to-end security.
Improvement in security and minimization of risks
Top manufacturers are likely to have hundreds of suppliers. The involvement of the Blockchain helps maintain the risk and performance rating of the suppliers. The organizations get to see the rating and the performance details to avoid any future tampering or fraud. Procurement to Pay processes over Blockchain enhances the authentication and access control for all the steps involved. The distribution of authentication over the processes such as supply chain management prevents the probability of unauthorized access.
A considerable amount of resources are involved in the process of inquiry responses and follow-ups. With the inclusion of the Blockchain technology, enhanced transparency is launched which also brings down the need to follow-up and place the inquiries. Fraud in digital transactions is frequently reported. There are increasing cases of information security breaches that take a toll on the financial and banking sectors. The other business sectors are also adversely impacted by the ever-increasing rate of fraud. Blockchain provides cryptographic networks that utilize hash functions. The probability of transactional risks and money laundering risks are eliminated.
Choice of the right vendor
The business firms generate hundreds of purchase orders in a day. There is a massive amount of information generated that includes receipt data and purchase information. The inclusion of Blockchain enhances performance levels. The Blockchain approach provides the ability to determine the most cost-effective vendor present in the network. The trade-off between the cost and performance is maintained as the lead time comes down.
Reduction in the requirement of reconciliations
Invoicing is one of the operations carried out at every business firm. The invoicing process is supported by the Blockchain technology in the Blockchain-enabled P2P process. All the authorized parties get to review the transactions which bring down the requirement of reconciliations. The additional processes, such as invoice scanning is eliminated with P2P over the Blockchain. This enhances the overall resource utilization and performance levels.
Transparency and real-time information
There are numerous entities involved in the procurement to pay process. The involvement and contribution of all of these entities are necessary to achieve operational and business goals. Blockchain-based P2P offers complete transparency along with the access to the real-time information available on the shared database. The standard settlement timeframe also comes down as the additional processes are eliminated.
Blockchain is a distributed public ledger that maintains transparent information to all the parties. The P2P process over the Blockchain technology leads to the development of enhanced trust among the stakeholders. In a business set-up and processes, there are clients and vendors involved along with numerous other entities. Blockchain maintains the shared IDs and information that is accessible to all the stakeholders. The referral and rating mechanisms are also transparent and fair. Access to the payment details, reviews, ratings, and similar details is done. It assists in the building of trust and the higher levels of transparency are induced.
Increased efficiency and accuracy in the process
All the parties are included and registered in the public distributed ledger. The transactional information of the P2P process is stored and maintained in a tamper-proof audit trail. The enhanced levels of visibility improve the efficacy and accuracy of the procurement and other processes. There are numerous small to large-scale processes that can be included in the procurement to pay cycle. There can be numerous financial transactions that are also involved. For instance, the client pays for the raw materials procured from the respective vendor. The use of cryptocurrencies is possible as a medium of financial exchanges.
Helps companies maintain an edge in the market
There is an enhanced level of competition in every business field. All of the business organizations are taking measures to stay ahead of their competitors. The use of technology has become essential for business firms. Technological advancement is also one of the ways through which the business firms can obtain an edge in the market. The Blockchain-based P2P contributes towards the same. The execution speed of the operations also enhances the involvement of the Blockchain. The transaction ledger database is present between the service user and the vendor and it is a secure medium. The database is updated immediately to reflect on the new set of transactions. This provides real-time updates to take place.
Final Thoughts
The procurement to pay process covers a wide range of operations and activities that are critical for every business organization. The current process has numerous loopholes in terms of accuracy, visibility, security, and performance. The P2P over Blockchain offers enhanced benefits as security and privacy will improve. The risk rating assists the organizations in making effective decisions. There is increased transparency and visibility that is added to the process. The involvement of the hash functions on every block ensures that the issues around security breaches and mishandling of the information are avoided.
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