Last editedMay 20222 min read
The terms ‘procurement’ and ‘purchasing’ often get confused and used interchangeably, but they are pretty distinct. Knowing the differences will help all business owners and managers develop a better procurement strategy and a reliable payment system.
Here we explain the distinctions between procurement and purchasing and how you can improve your payment processes.
Procurement vs purchasing
There are some similarities between procurement and purchasing, but the differences are important. This is especially crucial for anyone involved in a business's finances or expense management.
A good place to start is considering procurement as a process, and purchasing as a function. Let's dive into a little more detail about the definitions of each.
Definition of procurement
Procurement is a strategic business process that involves sourcing a product or service. Note how the procurement strategy only involves sourcing the product or service, not buying or purchasing it. This distinction is important because of all the aspects involved in procuring a product or service.
The process of procurement consists of a number of steps that must occur before any purchase is made. These steps include:
identifying a product or service that is needed
researching potential suppliers
identifying preferred suppliers
submitting a request for quotation (RFQ)
assessing supplier quotes
negotiating terms with preferred suppliers
Once these steps have been taken, we can proceed to the actual purchase of the product or service, which involves its own set of steps. In addition, procurement can also involve arranging the delivery of the product post-purchase and initial quality checks and performance analysis.
Definition of purchasing
Purchasing is the transactional function of arranging payment to a supplier in exchange for a product or service previously identified by the procurement process. Technically, purchasing covers pretty much all payments made by a business to accomplish its goals. For example, an employee's salary counts as purchasing, as the business is paying them for their time and skills.
Of course, purchasing is mostly associated with acquiring products and services, where the steps above come in. You will notice that some of these steps overlap with those of the procurement process. This is because they would be performed simultaneously as part of both the process of procurement and the function of purchasing. These steps include:
receiving an internal purchase requisition
assessing received RFQs
creating and submitting a purchase order
quality checking received goods
arranging payment to a supplier
As you can see, the main differences separating procurement and purchasing are that the latter involves the creation of purchase orders and the payment to suppliers.
Let's look at how you can improve the payment process.
Improving payment processes
A common payment method for recurring transactions between a business and a vendor is a standing order. Still, these are time-consuming and risk human error due to repetitive manual data entry.
The solution is to use a Direct Debit service provided by GoCardless, eliminating the time required to set up and administer standing orders. It also automates the payment, so everything is paid on time.
This is an issue because even honest payers of standing orders often don't set them up on time, which means the merchant isn't paid on time, damaging the working relationship. Setting up recurring payments with GoCardless solves this issue immediately.
GoCardless also lowers the total cost of taking payments by reducing the manual administration time needed to manage payments. Research company IDC discovered that businesses using GoCardless spend 59% less time managing payments while lowering the cost of taking payments by 56%.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.