The complete guide to the procure-to-pay (P2P) process

Managing company spending can be a complicated task, especially when multiple departments are making purchases and various suppliers are involved. To keep everything organized and make sure purchases are approved, tracked, and paid for correctly, businesses use what is called the Procure-to-Pay process, or P2P for short.
This process helps businesses control their spending, improve accuracy, reduce errors, and build strong relationships with vendors. It connects the procurement team, which handles purchasing, with the finance team, which handles payments. In this article, we will explain what the procure-to-pay process is, walk through each step in detail, and share best practices to help businesses improve their P2P systems.

What is the Procure-to-Pay (P2P) Process?

The procure-to-pay process is a structured workflow that companies use to buy goods and services from outside suppliers and pay for them properly. It begins when an employee or department identifies the need for a product or service and ends when the supplier is paid.
The process includes several stages—identifying needs, getting approvals, placing orders, receiving goods or services, receiving invoices, matching them to purchase records, and processing payments. Each step needs to be accurate and well-documented to avoid delays, overpayments, or compliance issues.
When companies follow a strong P2P process, they can prevent fraud, improve budgeting, and better manage relationships with their suppliers.

Why is Procure-to-Pay Important?

The procure-to-pay process is important because it helps businesses manage their expenses in a controlled and transparent way. Without a structured P2P system, a business may face problems such as missed payments, duplicate orders, overpaying for items, and weak supplier relationships.
The P2P process improves efficiency by standardizing how purchases are made. It ensures that all purchases go through the proper channels and that each payment is made only after the right approvals and checks. It also improves tracking, making it easier to monitor company spending and ensure budgets are followed.
According to the Institute of Finance & Management, companies that automate their P2P systems reduce invoice processing costs by up to 60% and speed up payments by over 80%. These improvements can save money and reduce human error.

Key Steps in the Procure-to-Pay Process

The procure-to-pay process consists of eight main steps. Each step plays an important role in ensuring that purchases are made properly and payments are processed only when everything checks out.

Step	Name	Description
1	Need Identification	A department determines that a product or service is needed
2	Purchase Requisition	A formal request for approval is created and submitted
3	Requisition Approval	The request is reviewed and approved by the appropriate team
4	Purchase Order Creation	A purchase order is issued and sent to the supplier
5	Receipt of Goods or Services	The company receives and inspects the delivery
6	Supplier Invoice	The supplier sends an invoice requesting payment
7	Invoice Matching	The invoice is compared to the PO and receipt records
8	Payment Processing	The supplier is paid after successful verification

Let’s take a closer look at each of these steps.

Step 1: Need Identification

The process begins when a department within the company realizes it needs to purchase goods or services. This might be office supplies, new software, maintenance services, or raw materials for manufacturing. The person making the request must clearly describe what is needed, how many units are required, and why the purchase is necessary.
Clear need identification helps prevent buying unnecessary or incorrect items. It also ensures the purchase supports the business's goals and follows company policy.

Step 2: Purchase Requisition

After identifying the need, the employee fills out a purchase requisition form. This is an internal request for approval to buy the item. The form includes important details such as:

• Item name and description
• Quantity needed
• Estimated cost
• Purpose of the purchase
• Suggested vendor (if known)

The requisition form is submitted to the appropriate person or team for review, usually someone in finance or management.

Step 3: Requisition Approval

Before any money is spent, the requisition must be reviewed and approved. The approval process ensures that the purchase is necessary, fits within the department’s budget, and follows company policies.

Some companies set approval limits based on dollar amounts. For example, a manager might be able to approve purchases under $1,000, while larger purchases may require approval from the finance director or CEO.

Step 4: Purchase Order Creation

Once the purchase requisition is approved, the procurement team creates a purchase order (PO). This is a formal document sent to the supplier. It outlines the details of the order, including:

• List of goods or services
• Quantity and price
• Delivery location and deadline
• Payment terms
• Contact information

The supplier reviews and accepts the PO, making it a legally binding agreement.

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Step 5: Receipt of Goods or Services

After the supplier receives the purchase order, they fulfill the order and send the goods or deliver the service. Once the delivery arrives, the receiving department inspects it to make sure:

• The correct items or services were delivered
• The quality meets expectations
• The quantity matches the purchase order

A receiving report or delivery confirmation is completed to document the receipt.

Step 6: Supplier Invoice

The supplier then sends an invoice to the company’s finance or accounts payable department. The invoice includes a list of delivered goods or services, the total amount due, the invoice number, and payment terms.

It is important for the invoice to match the details in the purchase order and delivery receipt.

Step 7: Invoice Matching

Before making a payment, the company performs a three-way match. This means checking that:

• The invoice matches the purchase order
• The goods or services were received as expected
• The quantities and prices are correct

If any information is incorrect or missing, the invoice is sent back for correction. This step helps prevent fraud and ensures that the company only pays for what it actually receives.

Step 8: Payment Processing

If the invoice passes the three-way match, it is approved for payment. The finance team processes the payment based on the agreed terms. Payments can be made by check, wire transfer, credit card, or other methods.

Timely payment is important for maintaining strong supplier relationships and avoiding late fees or penalties.

Best Practices for the Procure-to-Pay Process

Improving the P2P process helps businesses operate more smoothly and reduce risks. Below are some best practices companies can follow.

Automate the Process

Manual P2P processes often result in errors, missed approvals, and wasted time. Businesses should use software tools to automate steps like approvals, purchase order generation, invoice matching, and payment processing. Automation reduces paperwork, increases speed, and improves accuracy.

Common automation tools include platforms like SAP Ariba, Coupa, Oracle NetSuite, and QuickBooks.

Standardize Documentation

Using standardized forms for requisitions, purchase orders, and invoices helps everyone follow the same process. It reduces confusion and ensures that important information is always included. Standardized documentation also makes auditing and reporting easier.

Create Clear Approval Workflows

Having a clear approval chain helps prevent delays and confusion. Businesses should define who can approve purchases at different levels and make sure those rules are built into the P2P system. This prevents unapproved spending and helps maintain control over budgets.

Work with Trusted Suppliers

Choosing reliable suppliers is an important part of the P2P process. Businesses should maintain an approved vendor list and evaluate suppliers regularly based on performance, pricing, and delivery reliability. Strong vendor relationships lead to better pricing, faster service, and fewer issues.

Use the Three-Way Match System

Always match the purchase order, delivery receipt, and supplier invoice before making a payment. This step prevents duplicate payments, incorrect charges, and fraud. It also ensures the business is only paying for items or services that were actually received.

Monitor Key Performance Metrics

Tracking performance helps identify areas for improvement. Useful P2P metrics include:

• Time taken to process each invoice
• Cost per purchase order
• Number of invoice discrepancies
• Payment accuracy
• On-time payment rate

These metrics help managers make informed decisions about the P2P process.

Maintain a Strong Audit Trail

Documenting every action in the P2P process is important for financial control and compliance. Businesses should keep records of approvals, receipts, invoices, and payments. This provides proof during audits and helps prevent errors or fraud.

Train Employees Regularly

All staff involved in purchasing or finance should be trained on the P2P process. This includes knowing how to submit requests, use automation tools, review invoices, and follow company policy. Regular training improves efficiency and reduces errors.

Read This- Accounts Payable Process

Ready to Streamline Spending? Start with Your P2P Strategy

The procure-to-pay process plays a key role in how businesses manage their purchases and payments. It ensures that companies buy only what they need, get proper approval, and pay vendors correctly and on time. When done well, this process helps reduce costs, improve financial control, and create strong relationships with suppliers.
If your business needs help setting up or improving its procure-to-pay system, working with an expert accounting and financial team like Global FPO can make a big difference. From automation tools to customized workflows, Global FPO offers professional services that make your purchasing and payment process faster, smoother, and more reliable.

FAQs

1. What is the main goal of the procure-to-pay process?
The goal of the P2P process is to manage company purchases in a structured way, ensuring everything is approved, tracked, and paid accurately. It reduces fraud, controls spending, and strengthens supplier relationships.

2. What is a three-way match, and why is it important?
A three-way match compares the purchase order, goods receipt, and supplier invoice before payment is made. This step ensures the company only pays for items that were ordered and received, helping prevent errors or overpayments.

3. How does automation help in the P2P process?
Automation reduces manual tasks like data entry and approvals, cutting down on errors and speeding up the workflow. It also improves tracking and makes it easier to manage documents and compliance.

4. Who is involved in the procure-to-pay process?
Several departments play a role: employees or managers request items, procurement handles purchasing, receiving staff checks deliveries, and the finance or accounts payable team processes payments.

5. What are some key benefits of a strong P2P process?
A well-run P2P system offers improved budgeting, faster payments, fewer mistakes, reduced fraud, better compliance, and stronger supplier partnerships. It also provides clearer financial data for decision-making.