The Procure to Pay Process: All Eight Steps, Explained

Procure to pay, often shortened to P2P, is the operational cycle that runs from someone asking for something to the supplier being paid for it. It is the transactional backbone of a procurement function, and when it works badly the cost shows up as maverick spend, late payments and invoices nobody can match.

The eight steps

1. Requisition. A user raises a request for goods or services. The quality of this step decides much of what follows, because a vague requisition produces a vague order.

2. Approval. The request is authorized against a delegation of authority. Approval thresholds that are set too low create bottlenecks and push people around the process; set too high they remove control.

3. Supplier selection. Either the requirement goes to an existing contracted supplier, or it triggers a sourcing exercise. If a contract already exists, this step should be automatic.

4. Purchase order. The order is issued to the supplier. This is the point at which a legal commitment is usually made, which is why orders raised after the fact are a control problem rather than an administrative one.

5. Goods or service receipt. Someone confirms that what arrived matches what was ordered. For services this is harder and is often skipped, which is why service spend is where most invoice disputes originate.

6. Invoice receipt. The supplier invoices. Ideally this arrives electronically and quotes the purchase order number.

7. Matching. The invoice is matched against the purchase order and the receipt. A three way match compares all three. Where they disagree the invoice goes into exception handling, which is where most of the cost of a P2P process sits.

8. Payment. The invoice is paid on the agreed terms.

Where it breaks down

Orders raised after the invoice arrives. The single clearest symptom of a broken process. It means the commitment was made without approval and the purchase order is being created to regularize it. It is common and it is worth measuring.

No goods receipt for services. If nobody confirms that a service was delivered, the matching step has nothing to match against and finance is left approving invoices on trust.

Spend outside contracts. Buying from a supplier at list price when a negotiated agreement already exists. This is usually a symptom rather than a cause: people go around the process because the process is slower than their deadline.

Exception handling as the norm. A healthy process matches most invoices automatically. When a large share go to exceptions, the team is doing manual work that the design should have removed.

Procure to pay versus source to pay

Source to pay, S2P, is the wider cycle. It includes everything in P2P and adds the strategic work in front of it: spend analysis, market research, sourcing strategy, tendering, negotiation and contract management.

Put simply, P2P starts when a requirement already has a supplier. S2P starts earlier, with the question of who the supplier should be. A team that has automated P2P but not S2P has made its transactions efficient without improving what it buys or from whom.

What good looks like

A healthy procure to pay cycle has a few consistent characteristics, and they are easier to check than to achieve.

Most invoices clear without anyone touching them. Purchase orders are raised before the commitment, not after it. Requisitions for contracted goods route to the contracted supplier automatically rather than relying on the requester to remember. Exceptions have a named owner and a target resolution time rather than sitting in a shared mailbox. And the people approving spend understand what they are approving, which is a function of how much information the requisition carries.

Compare that list against your own process and the gaps usually identify themselves without any formal assessment.

What to fix first

If the process is not working, resist the urge to buy software before diagnosing. Three questions usually locate the problem.

What share of invoices match automatically? What share of purchase orders are raised after the invoice date? What share of spend runs through contracted suppliers?

Those three numbers point at whether the issue is control, data quality or process speed. Software fixes the third and can make the first two worse if the underlying rules are wrong. We cover the tooling question in digital procurement platforms and procurement software compared.

For the strategic layer above P2P, see procurement explained. Building the capability itself is what the CIPP program is for.

Frequently asked questions

What are the steps in the procure to pay process?

Requisition, approval, supplier selection, purchase order, goods or service receipt, invoice receipt, matching, and payment.

What is a three way match?

Comparing the invoice against the purchase order and the goods receipt. If all three agree the invoice can be paid automatically. Where they disagree it goes to exception handling.

What is the difference between procure to pay and source to pay?

Source to pay includes everything in procure to pay and adds the strategic work in front of it: spend analysis, sourcing strategy, tendering, negotiation and contract management.

Why do purchase orders get raised after the invoice?

It usually means a commitment was made without going through approval, and the order is created afterwards to regularize it. It is a control problem and worth measuring as a percentage.

Should we automate procure to pay?

Diagnose first. Measure automatic match rate, orders raised after invoice date, and share of spend under contract. Software improves process speed but will not fix control or data problems on its own.