Procure to Pay (P2P)

05 Jan 2024

Accounts Payable

Significance: Sourcing and paying for goods and services, accurate accounting of affected accounts.

Process Stakeholders: Accounts payable manager, purchase team

Stages in P2P Cycle

1. Purchase Planning
2. Vendor management
3. Raising Purchase Order
4. Good/Services Receipt
5. Invoicing Process
6. Accounts Payable Process
7. P2P automation

Purchase Planning

Quantity of the order for goods is determined on various factors such as: Stock levels, lead time for vendor to deliver material to plants etc., lot size, price & budget.

Purchase requisition is sent by the user department to the department head for approval. Manager reviews the requisition and approves it after being satisfied with the reason for request of goods and services. Approved requisition is then sent to the sourcing team for selection of vendors and PO Creation.

Vendor Selection

Purchase department on receiving the approved requisition form starts the process for vendor selection with whom the order is to be placed. For vendor selection, companies generally performs the following: Perform market research Conduct background information Send request for quote and receive quotations.

Maintaining Vendor Master Data

• It refers to the list of the existing vendors with their details from whom an entity procures goods or services
• Updated on a regular basis in case of new vendors

Raising Purchase Order

Purchase department after receiving the approved requisition raises a Purchase Order (PO) with the selected vendor. PO forms the contract which is a legal agreement when there is no formal agreement in place. Each PO has its own unique number

— At this point PO will be dispatched by the vendor to the customer. —

Good Receipt

After receiving the goods the customer will check the following:

1. Whether delivery is according to the PO
2. Whether quality is as per the expectation
3. Whether Quantity is as per the PO

Good Receipt Note (GRN)

Customer after verifying the purchase will acknowledge the receipt of goods with the help of a document called the Goods Receipt Note. It provides evidence that the goods has been received.

1. Accounts payable department refers to the GRN while processing the vendor’s invoice for payment.
2. hile processing the invoice for payments, the payables department will perform a three-way match (before it is recorded in the general ledger) where the invoice raised by the vendor will be matched with the PO as well as the GRN.

Invoicing Process

Invoice is a record of a sale or shipment made by a vendor to a customer. In order to receive the payment, the vendor issues the invoice for the goods supplied/services provided. Invoice should generally contain the following details:

➢ Company name, address and registration number ➢ Unit price, quantity of the purchase supplied ➢ Payment terms and purchase order number ➢ Gross amount, net amount ➢ Taxes (if any)

Business function performed by the accounts payable department. After three-way match the invoice is sent to authorized approvers to approve or reject invoices. Once approved, the invoice can than be paid on its due date according to the payment terms.

3-Way Matching

1. Purchase Order (PO)
2. Goods Received Note (GRN)
3. Invoice If the PO, GRN and the invoice matches, the invoice is then recorded in the accounting software.

Vendor Statement Reconsilation

It helps the organizations identify the differences between the vendor account as maintained by systems at their end and the vendor account Statement as provided by the supplier of goods or services. It is done at the end of the P2P cycle. It ensures that the vendor’s balance in the customers ledgers agrees with the vendor books.

P2P Automation

It is use of software to eliminate manual tasks, streamline collaboration between departments, and save money through increased accuracy and reduced labor. Most common software used includes – SAP Ariba, Oracle EPM etc.