What is Procure-to-Pay (P2P)?

P2P is short for the term procurement to pay (often referred to as purchase to pay) and is the term used to describe the process of purchasing goods and services from a vendor, from identifying a need, acquiring the goods, and paying the supplier (pay). 

When the P2P process is done right, it centralizes procurement and gives control and insight into the entire life cycle of a transaction. 

The definition of the P2P process 

Within any large organization, the P2P process consists of many steps, and there are as many ways of doing the P2P process as there are organizations. 

Still, there are some main steps and best practices to follow:

1. Planning: A need for goods or services in the organization is recognized, according to business needs. 
2. Research:  A supplier is chosen based on who has the best deal
3. Purchase order: A purchase order is submitted to the supplier. 
4. Receivables: The vendor provides the products or services, and the delivery is inspected/approved internally. 
5. Invoice: the vendor issues an invoice which is verified and cross-referenced with the purchase order and goods received. 
6. Approval: the invoice is approved.
7. Payment: the invoice is paid.
8. Documentation: the transaction is documented on the ledger/ in an ERP system. 

The P2P process can be almost fully automated when using the right software, although many organizations still struggle with manual and inefficient processes in their workflows. 

Let's take a close look at each of the steps of the process. 

1. Planning for procurement

This step sets the foundation for the entire procurement process. When the organization recognizes a need for goods or services according to its business requirements, it needs to identify quantity, quality, and the timeframe for delivery. When planning is done right, it will lay the foundation for efficient and cost-effective purchasing decisions.

2. Choosing a supplier

To find the right supplier with the right offer and price, thorough research needs to be done, both online and through talking to different suppliers, gathering information about pricing and reputation. Also, making comparisons of different supplier´s offerings and terms of service is an important part of this step. The goal is to find a supplier that offers the best deal while balancing cost, quality, reliability, and compliance with the organization´s standards and requirements.

3. Issuing a Purchase Order (PO)

When the supplier has been chosen, a purchase order (PO) is issued and sent to the supplier. The PO acts as a legal agreement between the supplier and the buyer, outlining important details such as types and quantities of items, pricing, delivery schedules, and payment terms. 

4. Receiving goods or services

Upon receiving the goods or services, they need to be verified internally and matched to the specifications outlined in the PO. This step includes a certain degree of QA, as it is crucial to check the quality, quantity, and other criteria to ensure that the delivered goods or services meet the agreed-upon standards and requirements. 

5. Checking the invoice

The supplier issues an invoice, and upon receiving the invoice, it will proceed through the internal workflow that leads to payment. This process for inbound invoices consists of several steps, the first being a cross-reference against the PO and the received goods or services, to ensure that the details are correct before the payment is processed. 

6. Approval of the invoice

After being checked, the invoice is sent for approval. Usually, a designated person within a specific department must approve the invoice. Sometimes, more people need to approve, and this complicates the process. This step approves that the invoice is accurate and that the goods or services have been satisfactorily delivered.

7. Payment of the invoice

The organization´s accounts payable department processes payment of the approved invoice, and makes sure the invoice is paid according to the terms in the purchase order. 

The supplier gets paid, and the transaction is finalized.  

8. Documentation in the ERP system 

The final step of the P2P process is documentation of all details of the transaction – from PO to delivery, invoice, and payment. Usually, this is done in the company´s ERP (Entreprize Resource Planning) system, enabling tracking and management of expenditure. Also, providing all this information in the ERP system provides a transparent audit trail for future reference. 

Automation is the future of P2P

It is common for the P2P process to have many manual steps that impose risks and possible delays. Digitalization and automation of the P2P process make the whole cycle flow easier and give new insights and increased control of the value chain. Proper management of the P2P process is essential to maintain strong supplier relationships, ensure compliance, and optimize financial performance.

Take control of your P2P process!

Do you want to make Procure-to-Pay simpler and more efficient? Download our free eBook and learn everything about P2P from A to Z. Discover how to automate processes, which KPIs to monitor, and the latest trends you need to know!