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Friday, February 22, 2008


Processes in procure to pay cycle may differ from company to company but the process more or less remains the same. Here I provide the exhaustive list of various steps involved in Procure to Pay cycle

Identification of requirement: At this stage the team member of user department (Maintenance, Production, Sales and distribution, administration etc) identifies the requirement and raises the Purchase requisition /Purchase request (PR). This document normally contains description of material, quantity, approx cost, material requirement date, preferred or Standard vendor etc

Authorisation of Purchase Request/ Purchase Requisition : If the purchasing value of the PR is higher than that of approval limit of originator then this document is sent to the next higher level (normally immediate supervisor of the originator) for approval. At this stage, the supervisor may return the PR to the originator for modification or can approve it.

Final Approval of PR/Role of Inventory Controller: Once the PR has been authorised by user department then it is available to the inventory controller. Inventory controller shall review the PR and shall check the Open Purchase orders (PO), any other scheduled or planned delivery for the material. If there is any planned delivery or any existing open PO then Inventory controller can return the PR or request the user department to revise the quantity of the material. After the approval of Inventory controller, the approved PR is available to the Procurement department

Procurement: After final authorization of PR, it is available to Buyer. Buyer shall check for any existing Annual Rate Contract or any other contract for the material. If any contract exists then a Call-Off shall be generated and shall be sent to the supplier. In case no contract exists then the Buyer shall initiate supplier search and floating enquiries.

Identification of Suppliers: Buyer shall interact with the user for the possible suppliers, search on the Internet, use referrals, search data base, etc. to identify the suppliers for the material.
Floating of Enquiries: Once the suppliers are identified, Buyer shall send the Request For Quotations/Proposal ( RFQ/RFP) to the supplies. RFQ normally contains Description, Technical Specifications of the material, quantity of the material, term and conditions, delivery date of the material, date of submission of the RFQ,Quality standards, Validity of the suppliers offer, etc.

Receipt of Technical Quotations: After sending the RFQ/RFP to vendors , the buyer shall receive the quotations from the suppliers. Normally, vendors are instructed to send their quotation in a sealed envelope, mentioning only RFQ reference no on it. Quotations are normally opened and signed by 2 or more persons of the department.

Technical Evaluation of Quotations : Quotations are sent to technical department for technical evaluations of the quotations. Here, technical department shall shortlist the quotationsa based on the technical specifications
Receipt of Commercial Quotations: Once the Technical Evaluation is over, the buyer shall send the advice to shortlisted suppliers for commercial quotations, After receiving the commercial quotations, these shall be opened by two people. Quotation comparison statement is prepared by the buyer to compare all the quotations of the supplies and suppliers are short listed for negotiations.

Negotiation: Short listed suppliers are invited for negotiations. In negotiation buyer can negotiate with the supplier for :
Reduction in the prices of the materials
Year on year reduction in prices
Quantity and Price breaks
Delivery Terms and conditions
Year on year improvement in the quality
Quality i.e. reduction in the nos of defects per lot etc
Freight charges
Insurance charges
Payment terms—for extended payment terms

Selection of the Vendor: After negotiations with all the selected vendors revised quotations are prepared and vendor is finalized for award of contract based on the weightage to the commecial, technical parameters, previous performance of the vendor, delivery dates of the material, etc.
Award of Contract : After the vendor is finalized LOI can be sent to him and he may be asked to deposit security or bank guaranty before signing the agreement. Agreement can be of Fixed or Blanket (the same can be mentioned in the RFQ)

Purchase Order : The buyer shall raise the call offs against contracts (Fixed or Blanket). If the value of the PO is more than that of his approval limit he shall forward it to his supervisor for approval else he shall approve and send the purchase order to the supplier.

PO acknowledgement: After receiving the PO the supplier send the acknowledgement to buyer and buyer records the acknowledgement. If any ERP is being used for procurement functions then supplier can remotely download purchase orders and can acknowledge the PO

Advance Shipment Note : The supplier sends the Advance Shipment to buyer as soon as he ships the material to the buying organization. This note normally contains Ship Date, Transporter’s name , Airway Bill No, No of packages, weight of the packages, receiving location address, PO No, description of goods, etc

Goods Receipt : When the goods are received at the warehouse of buyer organization, the receiving staff checks the delivery note, PO no etc and acknowledges the receipt of material. After the material is received the same is checked for quantity in case of discrepancy the same is reported to the vendor.
After the quantity verification the material is kept at inspection locations and material inspector is called for inspection of material. If material is rejected by the inspector the same is sent back to the vendor or the vendor is asked for the rectification at the site. The sound material is moved to respective warehouse locations.

If the buying organization is using
ERP then stock account gets debited and liability account gets credited.

Invoice Recording : Vendor send the invoice to accounts department of buying organization for claiming payment. This invoice is entered in to the system, After the entry of invoice in the system, supplier account gets credited and liability account gets debited.

Payment to Supplier : After the supplier account gets credited the payment is released to the vendor


  1. Very Helpful Information, Thanks!

  2. Neat information. Thanks "

  3. Very short and informative..very useful..

  4. Hi. Please tell me how the P2P cylce must be evaluated as a metric for financial and operational health. Ideally, should the length of P2P cycle be short for a business or does it have not effect and rather O2C must be short?

  5. Nice description. There is some great detail on the procurement end of the process at


  7. This process flow is very detailed and educative.Thanks for the detailed flow.

  8. Hi

    I read this post 2 times. It is very useful.

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  9. Thanks! It was very helpful detail information

  10. Thank you!!! its really Awe some...

  11. concise and really useful

  12. thank you very much

  13. thanks , a very structured information

  14. Thanks for providing learning materaials.

  15. Very well written.

    Is this the SAP procure to pay process??

  16. No, these are generic processes. Not specific to SAP

  17. its awesome information thanx allot

  18. good info...

    SAP is an ERP application..
    it supports most of the business processes..

  19. Excellent notes on P2P. Thanks a lot :)

  20. Simple and process is clearely narrated

  21. very well covered, thanks

  22. Very useful to me!! Thanks knowscm.blogspo!!:)

  23. Helpful Information ...

  24. Help ful information & process flow chart...

  25. A very good explanation

  26. Thanks for the detailed explanation. Legend

  27. Really useful and clear, thanks

  28. Good One, It was helpful information. This is basic P2P process and differs from company to company. I am clear on process now.Thanks alot

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