Procure to Pay (P2P)

The end-to-end process of buying something and paying for it. Also called Purchase-to-Pay or Source-to-Pay (when it includes supplier selection).

The full chain

Need ──▶ Purchase Requisition ──▶ Sourcing ──▶ Purchase Order ──▶ Confirmation
                                                      │
                          ┌───────────────────────────┘
                          ▼
                  Goods Receipt ──▶ Invoice Receipt ──▶ Three-way match ──▶ Payment
                          │                 │                                   │
                    Stock Dr           GR/IR  Dr                            AP  Dr
                    GR/IR Cr           AP     Cr                           Bank Cr

Purchase requisition (PR)

An internal request. Not a commitment to a supplier.

Created manually by a requester, or automatically by MRP, or from a reorder point
Contains: material or free-text description, quantity, required date, cost object, suggested vendor
Goes through approval workflow based on value, category, and cost centre
Creates a budget commitment on approval (see Budgeting and Commitments)
Converted to a PO by purchasing, or auto-converted if a source of supply exists

Design note: the PR is where budget control and approval belong, not the PO. By PO time you’ve already told a supplier you want it.

Sourcing

How you decide who to buy from:

Mechanism	Use
Source list	Approved vendors for a material, with validity dates and a fixed/preferred flag
Purchasing info record	The (vendor, material) relationship: last price, lead time, min order qty, vendor’s own part number
Outline agreement / contract	Negotiated terms over a period. Value contract (spend up to X) or quantity contract (buy up to N units)
Scheduling agreement	A contract with a delivery schedule — releases are sent, not new POs. Automotive standard
RFQ → quotation → comparison	Competitive bidding for one-off or high-value buys
Quota arrangement	Split volume across vendors by percentage (60% vendor A, 40% vendor B)
Auction / reverse auction	Suppliers bid down
Catalogue / punchout	Users shop a supplier catalogue; cXML PunchOut hands the cart back into the ERP

Vendor evaluation feeds this: scoring on price, quality (defect rate), delivery (on-time-in-full), and service, updated from actual transaction history.

Purchase order (PO)

The legal commitment.

PO Header:  vendor, purchasing org, purchasing group, currency, payment terms,
            incoterms, delivery address, PO type
PO Item:    material, quantity, unit, net price, delivery date, plant,
            storage location, account assignment, tax code, confirmation control
Schedule:   split deliveries across dates
Conditions: gross price, discounts, freight, duty, surcharges
Texts:      terms and conditions, item instructions

PO item categories

Category	Meaning
Standard	Buy stock into inventory
Consignment	Vendor’s stock at your site; you own it only on consumption
Subcontracting	You send components to a vendor who returns a finished part
Third-party / drop ship	Vendor ships direct to your customer; you never touch the goods
Stock transport order (STO)	Move stock between your own plants
Service	Service entry sheet instead of goods receipt
Limit / blanket	Spend up to a value ceiling over a period, no specific quantity

Account assignment categories

Where does the cost land?

Category	Debit
(blank)	Inventory — it’s stock
K — cost centre	Expense immediately
F — order	Internal order
P — project	WBS element
A — asset	Asset under construction
X — all auxiliary	Multiple account assignment, split

This choice determines whether the purchase is an asset or an expense, so it’s not a detail.

Incoterms

Who bears cost and risk, and when title passes. Directly affects when you can recognise the inventory.

Term	Risk transfers	Common use
EXW Ex Works	At seller’s door	Buyer arranges everything
FCA Free Carrier	On handover to carrier	Containerised
FOB Free On Board	When loaded on vessel	Sea freight
CIF Cost Insurance Freight	On board, but seller pays freight+insurance to destination	Sea freight
DAP Delivered At Place	On arrival, unloaded by buyer	Road
DDP Delivered Duty Paid	At destination, seller pays duty	Buyer-friendly

Why developers care: with FOB, goods on a ship for 30 days are your inventory in transit — they must be on your balance sheet, and your cut-off at period end depends on the shipment date, not the arrival date. Systems that only recognise stock on arrival misstate the balance sheet.

Goods receipt (GR)

Physical receipt → count/inspect → post

  Inventory (or expense)   Dr  actual received qty × PO price
    GR/IR clearing            Cr

Details:

Over/under delivery tolerances — configured per material and vendor
Delivery completed indicator — closes the line even if short-delivered
Quality inspection — stock goes to inspection stock, unusable until released
Blocked stock — rejected material, still owned, not available
Batch/serial capture at receipt
Goods receipt slip / material document — a separate document from the PO
Movement type governs the accounting: 101 receipt into stock, 102 reversal, 103/105 receipt into blocked then release, 122 return to vendor

Movement types are the key concept. Every stock movement has one, and the movement type determines which accounts are hit, which stock type it goes to, and what fields are required. Learn your system’s movement type list.

Invoice receipt and matching

See Accounts Payable for the detail. Summary: three-way match on quantity and price within tolerance, block if outside, auto-post price differences within tolerance.

Special processes

Subcontracting

You provide components; the vendor returns an assembly and charges for their work.

PO for finished part FP-100 from vendor V1
  Components to provide: RM-A × 2, RM-B × 1

Send components:   stock moves to "stock provided to vendor" (still yours)
Receive FP-100:
  Inventory FP-100        Dr  (subcontract charge + component value)
    GR/IR                    Cr  (the subcontract service charge)
    Stock at vendor RM-A     Cr  (consumed)
    Stock at vendor RM-B     Cr  (consumed)

Critical: components at the vendor are still your inventory and must be on your balance sheet. Reconciling “stock provided to vendor” is a real and frequently neglected control.

Consignment

Vendor’s stock sits in your warehouse. You own nothing until you consume it.

Receipt:      quantity increases in consignment stock, NO financial posting
Consumption:  Inventory/expense Dr, Consignment liability Cr
Settlement:   periodic run creates the vendor invoice from consumption

Consignment stock must be visible in your MRP (it’s available to use) but excluded from your inventory valuation. Systems that don’t separate these get it wrong in both directions.

Third-party / drop ship

Customer order → PO to vendor → vendor ships to customer
                                  ↓
              Statistical goods receipt (no stock movement)
              Vendor invoice → your customer invoice

No inventory ever touches you. Revenue and COGS both post at invoice.

Stock transport order (STO)

Moving stock between your own plants. Two variants:

One-step — issue and receipt in one movement (same-site, no transit time)
Two-step — goods issue from the sending plant creates stock in transit, goods receipt at the receiving plant completes it. Stock in transit is on the balance sheet and belongs to one of the plants — which one depends on configuration and Incoterms.

If the plants are in different legal entities, the STO becomes an intercompany sale with a billing document and a transfer price.

Service procurement

No goods, so no goods receipt. Instead a service entry sheet: the vendor (or your engineer) records what work was performed against the PO’s service lines, someone approves it, and that triggers the accounting entry. Common in construction, maintenance, and consulting.

P2P controls

Control	Prevents
PR approval by value and category	Unauthorised spend
Segregation: requester ≠ approver ≠ receiver ≠ payer	Fraud
Three-way match	Overbilling
Vendor master change control (especially bank details)	Payment redirection fraud
Source list / approved vendor list	Maverick spend
No-PO-no-pay policy	Unrecorded liabilities
Duplicate invoice check	Double payment
Blocked/sanctioned vendor screening	Legal exposure
PO change audit trail	Post-approval price manipulation

Metrics

Metric	Meaning
PO cycle time	Requisition → PO issued
On-time in full (OTIF)	Deliveries meeting date and quantity
Price variance vs contract	Are we paying agreed prices?
Maverick spend %	Purchases outside contracts/preferred vendors
Straight-through processing rate	Invoices posted with no human touch
Blocked invoice ageing	Match failures
GR/IR ageing	Process breakdowns
Days payable outstanding (DPO)	Working capital
Spend under management	% of spend covered by contracts