In procurement, the Procure to Pay (P2P) process is fundamental to efficient operations and financial control. As a buyer in training, understanding P2P, alongside Source-to-Pay (S2P), will equip you with the basic insights for operative procurement management. This blog post will provide an explanation of Procure to Pay, highlight the differences between P2P and S2P, and include examples, reflective questions, and learning support to enhance your comprehension.

What is Procure to Pay (P2P)?

Procure to Pay, often referred to as P2P and the process begins with identifying the need for goods or services and concludes with the payment to the supplier. Its primary goal is to streamline procurement activities, enhance financial control, and ensure compliance.

The P2P Process Steps

1. Requisition Creation
2. Purchase Order Creation
3. Goods Receipt
4. Invoice Verification
5. Payment Processing

Let’s explore the procure to pay process steps with detailed examples, reflective questions, and learning support.

Requisition Creation

After selecting the supplier, a purchase requisition is created. This internal document outlines the details of the required goods or services and seeks approval from the relevant authorities within the organization.

Example: You create a purchase requisition for 1,000 microchips, detailing the specifications, supplier information, and estimated cost. This requisition is then sent to the procurement manager for approval.

Reflective Question:

• What information should be included in a purchase requisition?

Learning Support:

• Ensure the requisition includes detailed specifications, quantity, estimated cost, supplier details, and required delivery date.
• Familiarize yourself with the approval workflow within your organization to expedite the process.

Purchase Order Creation

Once the requisition is approved, a purchase order (PO) is generated and sent to the supplier. The PO is a formal agreement that outlines the terms and conditions of the purchase.

Example: The procurement manager approves the requisition, and a PO is generated. This PO is then sent to the selected supplier, specifying the quantity, price, delivery date, and payment terms for the microchips.

Reflective Question:

• Why is it important to have a well-defined purchase order?

Learning Support:

• A clear and detailed PO helps avoid misunderstandings and disputes with suppliers.
• It serves as a legal document that binds the supplier to the agreed terms, protecting both parties.

Goods Receipt

Upon delivery of the goods, the receiving department checks the shipment against the PO and verifies the quantity and quality. Any discrepancies are reported to the procurement team for resolution.

Example: The supplier delivers the microchips. The receiving department inspects the shipment and finds that everything matches the PO specifications.

Reflective Question:

• What steps should be taken if there are discrepancies in the received goods?

Learning Support:

• Implement a thorough inspection process to verify the received goods against the PO.
• Establish a protocol for handling discrepancies, including communicating with the supplier and resolving issues promptly.

Invoice Verification

The supplier sends an invoice after delivering the goods. This invoice is verified against the PO and the goods receipt to ensure accuracy before processing payment.

Example: The supplier’s invoice is received and compared with the PO and the goods receipt. All details match, confirming the accuracy of the invoice.

Reflective Question:

• What are the consequences of inaccurate invoice verification?

Learning Support:

• Ensure invoices are cross-checked with POs and goods receipts to avoid overpayments and financial discrepancies.
• Utilize automated systems to streamline the invoice verification process and reduce errors.

Payment Processing

The final step in the P2P process is processing the payment to the supplier. Once the invoice is verified, payment is made according to the agreed terms.

Example: After verifying the invoice, the finance department processes the payment within the agreed 30-day payment terms.

Reflective Question:

• How can timely payments benefit your relationship with suppliers?

Learning Support:

• Timely payments build trust and strengthen supplier relationships, potentially leading to better terms and discounts.
• Implement a system to track and manage payment schedules to ensure compliance with payment terms.

These are the basic procure-to-pay process steps.

Understanding Source-to-Pay (S2P)

Source-to-Pay (S2P) is a broader process that encompasses the entire procurement lifecycle, starting from sourcing suppliers to making the final payment. The key steps in the S2P process include:

1. Sourcing and Supplier Identification
2. Supplier Onboarding and Evaluation
3. Contract Management
4. Procure-to-Pay (P2P)

While P2P focuses on the transactional aspects of procurement, S2P includes strategic sourcing activities, supplier relationship management, and contract management.

Key Differences between P2P and S2P:

• Scope: P2P is a subset of S2P. S2P covers the entire procurement lifecycle, while P2P focuses on the transaction and payment process.
• Focus: S2P includes strategic activities such as supplier selection, negotiation, and contract management, while P2P is concerned with the execution of procurement transactions.
• Integration: S2P provides a holistic view of procurement activities, enabling better decision-making and supplier management, whereas P2P is more about operational efficiency.

Conclusion

Understanding both P2P and S2P processes is crucial for effective procurement management. As a buyer in training, mastering these processes will enable you to manage procurement activities efficiently, ensure compliance, and build strong supplier relationships.

Reflect on each step of the P2P process and consider how you can improve and adapt to changing business needs. Use real-world examples and engage in continuous learning to deepen your understanding and apply these insights in your daily work.

By integrating these practices, you’ll become a proficient procurement professional capable of navigating the complexities of both P2P and S2P processes with confidence and expertise.

What is an example of a P2P process?

P2P (Procure to Pay) and e-procurement web shops for indirect material and services procurement are two important terms in procurement. E-procurement web shops allow organizations to purchase goods and services through a dedicated online platform. P2P, on the other hand, is the process of managing the entire procurement cycle from the initial procurement request to payment processing.

Learn more about procure-to-pay solutions in the blogpost e-Procurement which greatly can enhance your Procure to Pay in Indirect procurement.

Procure-to-pay cycle is the processes connected to the Operative buyer role. Learn more about the basic operative processes in a bundle of courses. More about the Purchase Order, PO acknowledgment or Financial Transactions in Procurement in other of LHTS’ blogpost.

Learn about the Sourcing process, and the Sourcing part of S2P, in The sourcing engine room.

Visit LHTS introduction course to get started learning about our way of working.

Note: Illustration to the blogpost “Procure to Pay introduction for buyers” was created by DALL-E on June 2, 2024 

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