Procure to Pay | P2P

Procure-to-pay or P2P is the process which defines how the procurement of goods or services done in any organization.

Before getting into the process let us understand some technical terms involved in this process.

Purchase Requisition (PR): Purchase requisition is an internal document which is issued by an employee or a department for taking approval from respective managers for the purchase of a product or service required for the business directly or indirectly.

Request for Quotation (RFQ): Request for quotation is the document issued by the procurement/ purchase department to the potential suppliers/ vendors, requesting them to provide their best price/rate for the required product or service with other terms and conditions.

Purchase Order (PO): Purchase order is a legal document issued by the buyer to the supplier which contains the details or goods or service to be purchased, payment terms, delivery terms, quality, quantity, delivery period and other details.
Purchase order can be treated as the legal contract which proves that the buyer is agreed to buy mentioned products or services at mentioned terms and conditions.

Goods Receipt Note (GRN): Goods receipt note is a record maintained by the store or warehouse after receiving the goods. Before issuing GRN, the store/ warehouse in charge checks the PO quantity and quality of the goods.

Reconciliation: Once the invoice is paid and payment received by the supplier, buyer and seller exchange their account statement or account ledger and both parties match their account statement with other party and rectify if any mismatch occurs.

P2P Process:
PR-> RFQ -> PO-> Delivery-> GRN -> Vendor Payment -> Reconciliation

Let us understand P2P process with an example.

In a automobile manufacturing company's assembly unit, engineer found based on current order status, they will need 100 tires by end of this month, so they issue one Purchase requisition (PR) and that PR travels through the systems of all the managers whose approval requires for finalize the purchase, all managers check and approve the PR within a given budget.

The PR reaches to the procurement desk and the procurement team takes help of sourcing team for finalizing relevant suppliers. After filtering potential suppliers RFQ floated and sent to all potential suppliers/ vendors.

Based on RFQ, all vendors provide their best quotation. Procurement team checks all received quotations and finalize one with least possible price and best delivery timeline.

Selected vendor supplies the goods within given time frame.
Once goods reach at the warehouse, the warehouse team checks quality and quantity and accept the goods if everything in order. After receiving goods, warehouse in charge creates a GRN in the system.

After delivery the vendor submits invoice. Invoice reaches to the Account payable (AP) team, and they check the invoice thoroughly. AP team match the invoice quantity unit price and total price with PO and GRN and make sure the details of vendor invoice, PO and GRN are matching which is known as 3-way match.
After 3-way match invoice gets paid and payment details are shared with the vendor.

After invoice payment, general accounting team collects the account statement from the vendor does reconciliation.