Setting up a Purchase to Pay Process

The Purchase to Pay Process (P2P) is the complete cycle from identifying a need to purchase an item, through selection of supplier, receipt of goods, invoice and payment.

It ensures there are the right controls and processes in place to achieve the outcomes an organisation has highlighted as key to them.

This could be low cost, best service, longest payment terms, etc. It’s important that what is identified as the key requirements align with the company’s operational goals, on which more later.

When an owner managed business is starting up its very likely that the owner manages all the purchases and that it’s not viewed as a process. The business owner has a need, they call a supplier or two, they decide, order the goods, and if they are happy with them they pay.

This is the P2P process.

However, when a business scales it isn’t practical for the business owner to manage all these stages themselves. With other people involved in the process how does an organisation ensure it is meeting it’s purchasing goals and requirements?

The only way to do this is through process and controls. These can be system driven and managed or they can be manual processes, depending on the organisation’s growth rate and investment in accounting software.

Many mid-tier accounting packages will have a process which takes the documentation trail from raising the PO (purchase order), to receiving the goods (Good received note – GRN) to entering the invoice and finally payment.

It doesn’t however help you decide which supplier to select and what payment terms you are willing to accept.

As a business grows it is very likely that people will have segregated responsibilities and whilst the admin team might be responsible for placing the order, they are unlikely to have the authority to do so without the approval of a Director.

Any processes, both automated and manual, should allow for the right approvals to be given before a commitment to spend is made.

These are the stages:


What does the company require of its suppliers – is it best value, lowest price, quickest delivery time, locally sourced or ethically sourced?

There are many considerations and it’s important to have clear guidelines on what the priorities are for an organisation.

Once these are known it’s best practice to look for three quotes or if it’s a large purchase you would send out a RFQ (Request for Quotation).

Then once you have identified a suitable supplier, they should be added to your PSL (Preferred Supplier List) so that you don’t have to repeat this step each time.

Adding a supplier to a PSL should mean you can negotiate favourable terms as you are indicating your intention to make future purchases from them. At this stage a contract should be agreed to support the current and any future purchases. This should include pricing, payment terms, lead times and what the supplier is going to provide you with.

The final selection of the supplier should be approved by an appropriate person in the business; this could be an Office Manager, Purchasing Manager or a Director.

Making the Purchase

Once the Supplier has been identified and contracts have been signed, a purchase can be made.

This should be supported by a Purchase Order (PO). This can be issued via a purchasing system or can be manual (via Excel or Word).

The critical part is that it is clear who the supplier is, what is being ordered, the price and payment terms. As long as it contains the critical information there is no set format for Purchase Orders.

Usually each PO has a unique number and this number should be shown on the GRN and on the invoice raised by the supplier.

This provides evidence that the order has been approved and it enables the matching of PO, GRN and invoice, especially where there are multiple deliveries.

POs should always be approved by those who are authorised to commit the business to spend.

Goods Receipt Note (GRN)

The same process is required for Services purchased.


When the invoice is received it should be matched with the PO and the GRN, in a three-way check. If this agrees then the invoice can be processed.


Depending on the volume of transactions in a business you may have a weekly or a monthly payment run.

Care should be taken when deciding upon how often you pay suppliers as you want to maximise the use of your payment terms and take advantage of any early settlement discounts to maximise your cash position.

Payments to suppliers shouldn’t be made on a shorter turnaround period that the time it takes for your customers to pay you.

It’s best practice for a payment to be processed by one individual and for other authorised signatories (on the bank mandate) to process the payment.

Benefits of an automated system

It is possible to complete these steps manually and for smaller business who are keeping costs down, this may be the correct approach.

It is however open to risk, prone to error and is inefficient.

Automating the process means the keying of information tends to happen at PO only, with invoice numbers being the only item added when converting to invoice from PO.

It also allows for system controls to ensure the correct people are approving the PO, receiving goods and making the payment.

Being automated makes it possible to access supplier information and data. This enables the periodic reviews of pricing and purchasing activity to support continued monitoring of spend and the negotiation of volume discounts.

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