Shorten P2P cycles: Best practices for the purchase-to-pay process

A well-designed purchase-to-pay (P2P) process orchestrates the purchasing cycle within an organization. It keeps your procurement operations on track, helps build stronger vendor relationships, and saves you time and money. The P2P process guides every step, from the initial purchase request to the final payment, ensuring efficiency, transparency, and control.

This guide is your resource for understanding and optimizing your P2P process. We’ll cover each step in detail, providing insights into:

• Step description: What happens at each step of the P2P process.
• Common challenges and obstacles: Typical issues at each step and their potential impact.
• Best practices and solutions: Proven strategies to address challenges and improve workflows.

Whether you want to understand the P2P process better or find ways to improve your existing workflows, this guide will give you the knowledge and tools you need.

What is the P2P process?

The P2P process is a systemic approach to managing the entire P2P cycle. It starts when an employee or department identifies a need for a good or service and ends with the final payment to the supplier.

A good procure-to-pay process is the foundation of effective procurement, ensuring your organization purchases the goods and services it needs in the most efficient and cost-effective way possible.

Benefits of procure-to-pay optimization

Finance teams face increasing pressure to reduce costs and provide strategic insights. As one of the largest expenses in any organization, purchasing is a major area of focus.

In a recent study by Amazon Business, the 2024 State of Procurement Report, 95% of procurement decision-makers said procurement has “room for optimization.” This highlights a widespread recognition that P2P optimization is a key priority.

But why is P2P process efficiency so crucial?

An optimized P2P process unlocks significant benefits like cost-saving opportunities, better control over spending, and informed decision-making. Here’s a breakdown of how a solid P2P system can have a positive impact on your organization:

Reduced costs

A streamlined P2P process improves labor productivity and minimizes bottlenecks and errors to reduce processing costs.

Greater budget compliance

Improved visibility and control over spending patterns lets you ensure spending is within allocated budgets.

Stronger vendor relationships

Accurate orders, timely payments, and clear communications build trust and help establish a resilient supply chain.

Improved compliance and risk mitigation

By enforcing internal controls and providing a complete audit trail, the P2P process reduces the risk of fraud and errors.

Now that we’ve looked at the benefits of having a good P2P process, let’s look at how it’s all put together.

Procure-to-pay process steps and best practices

There are typically eight steps in the P2P process:

1. Purchase requisition
2. Purchase approval
3. Purchase order creation
4. PO issued to vendor
5. Delivery and receipt
6. Accounts payable processing
7. Three-way matching
8. Invoice approval and payment

The P2P process can be customized to fit an organization’s specific needs or structure. However, the core elements generally remain the same.

Step 1: Purchase requisition

The P2P process begins when an employee or department completes a purchase requisition (PR) — a formal request for the organization to purchase a good or service. The purchase requisition contains the purchase details, including the business requirements for the purchase and the requester’s name. 

The thing you want to keep in mind is that purchase requisitions are not the same as purchase orders! A purchase requisition is an internal document that initiates the purchasing process, while a purchase order is an external document sent to a vendor to authorize the purchase.

Common challenges with purchase requisitions

Many organizations rely on manual, paper-based purchase requisition processes. While they have the advantage of being low-cost and simple, manual processes come with a cost. They are slow, error-prone, and vulnerable to insider fraud.

Best practice: Standardize purchase requisition forms

Switch to a standard form for all purchase requisitions. Standardization reduces errors and ensures consistent request information, leading to faster approvals and reduced processing time.

Best practice: Automate purchase requisitions

Implement purchase requisition software to streamline PR creation and approval routing, saving time and reducing errors. The software also provides a central repository for easy tracking and auditing of purchase requests.

After the employee completes the purchase requisition, they submit it to a manager for approval.

Step 2: Purchase approval

Once the purchase requisition has been submitted for approval, the approver reviews the details to ensure they comply with purchasing guidelines and confirms that the purchase is within the approved budget. Then, they either approve the PR and send it to the procurement team or reject it and return the PR to the requester.

Common challenges with purchase approvals

Purchase approvals can often become a bottleneck in the P2P process. Common challenges include unclear or inconsistently applied approval workflows or spending policies, a lack of visibility and tracking, or overloaded approvers struggling to keep up with requests. These issues can lead to delays, errors, and frustration for approvers and requesters.

Best practice: Set clear approval workflows

Create and document an approval and expense policy setting out approval levels and routing for purchases. For example, instead of routing all approvals to the finance director and overloading them, create a policy to route all purchases under $25,000 to the requester’s direct supervisor. Doing this reduces the burden on the director while ensuring they keep oversight over large purchases.

Best practice: Automate approval routing

Implement procure-to-pay software to streamline routing, tracking, and approving purchase requisitions. Automation eliminates manual handoffs and provides real-time visibility into the approval process, including automated reminders to help ensure PRs aren’t languishing in approvers’ email inboxes.

After the PR is approved, the process moves to purchase order creation.

Step 3: Purchase order creation

After receiving the approved purchase requisition, the purchasing department starts the purchase order process.

First, the procurement manager has to find a supplier who can fulfill the order. This might involve selecting a supplier from a list of approved vendors or finding and vetting a new supplier.

After they find the right supplier, the procurement manager negotiates the price, delivery, and payment terms. Then, they create a purchase order (PO) to formalize the purchase. The PO is a legally binding contract that clearly outlines the purchase details. To ensure the PO is complete, the procurement manager includes the details from the purchase requisition, like what’s being purchased, along with the negotiated prices, delivery date, and payment terms.

Common challenges with purchase orders

The purchase order is a legal contract protecting both the buyer and seller. It must be accurate and complete to ensure orders are processed correctly. If the PO contains errors or omits necessary details, it can lead to problems. For example, incorrect item descriptions can lead to the supplier delivering the wrong product or shipment delays.

Manual PO processes are slow and error-prone. They’re also not scalable, meaning increased PO volumes can cause higher error rates and slower processing times.

Best practice: Improve purchase requisition accuracy

Centralize your purchase requisition process, use standardized templates, and implement a PR numbering system. Doing this reduces errors and provides the procurement department with the correct information for creating complete and accurate purchase orders, ultimately reducing PO cycle times.

Best practice: Automate the PO process

Implement a procure-to-pay solution to automate PO creation and processing. Automation minimizes manual data entry, enables real-time PO tracking, and reduces the risk of errors, leading to faster purchase cycles.

After the procurement manager creates the PO, they issue it to the supplier to officially authorize the purchase and start the order.

Step 4: PO issued to vendor

Once the vendor receives the PO, they confirm receipt and review it. If they don’t have any questions, they begin fulfilling the order. This may involve picking and packing goods, scheduling a kickoff meeting or service appointment, or starting production.

Common challenges with issuing POs

Clear and effective communication is crucial when issuing a PO. Unclear or inaccurate purchase orders can confuse vendors, leading to delays, incorrect orders, or even disputes. For example, if the tax information in the PO is incorrect, the vendor may inadvertently charge the wrong prices, leading to potential billing disputes.

A lack of clear communication channels can cause miscommunications, delayed responses, and difficulty tracking order status. Unresponsive or difficult-to-reach sellers can also create bottlenecks that frustrate buyers and slow order processing. Furthermore, without a centralized system to track POs and communications, it can be difficult to track progress or flag and address issues with vendors.

Best practice: Establish clear communications channels

Specify a centralized communications method, such as a central email address or vendor portal, and designate contact persons for buyer and vendor. Centralizing communications prevents misunderstandings and ensures timely responses.

Best practice: Track purchase orders

Implement PO tracking software to monitor PO status, delivery dates, and communications. Or, you can even use an Excel spreadsheet as a simple and effective tracking tool. Tracking POs gives visibility into the PO process and lets you proactively respond to issues.

Step 5: Delivery and receipt

After processing the PO, the vendor delivers the goods or services to the buyer. Upon receipt, the buyer verifies the delivery against the PO to ensure that what was ordered was delivered. During verification, they also inspect the goods for damage or confirm the services were rendered, informing the supplier of any discrepancies like incorrect quantities, damaged products, or incompletely delivered services.

Common challenges with delivery and receipt

Receiving departments face a major challenge in ensuring orders arrive on time, undamaged, and match the PO. Any delays or shipping discrepancies can disrupt production schedules or lead to costly corrections. Relying on manual, paper-based receiving processes increases the risk of lost or misplaced documents, illegible handwriting leading to miscommunications and manual data entry errors — further complicating shipment and PO reconciliation.

Best practice: Formalize receiving processes

Establish a dedicated receiving area and train employees on standard inspection and receiving procedures. Use technologies like barcode scanners or RFID tags to verify incoming goods against POs and document any discrepancies or damage to ensure prompt resolution.

Best practice: Digitize documentation and automate workflows

Transition from paper-based processes for transmitting POs and shipping documents to electronic systems and implement automated receiving and document management platforms. Digitization improves accuracy, reduces errors, and makes it easier to track and verify deliveries.

After shipping the products or services, the supplier sends an invoice to the buyer.

Step 6: Accounts payable processing

Once they receive the supplier invoice, the buyer’s accounts payable (AP) department enters the invoice details into their accounting system. This includes information like the invoice number, date, vendor name, items purchased, quantities, and total amount due. The AP team also assigns the appropriate general ledger (GL) codes to the invoice, allowing for accurate expense tracking and financial reporting.

Common challenges with accounts payable processing

Manual invoice capture and data entry are tedious and time-consuming. They can lead to errors in invoice amounts, quantities, or other critical invoice details, which, if undetected, can lead to late or incorrect payments and financial losses. Slow invoice processing also jeopardizes month-end close. If invoices aren’t processed by the end of the month, they can’t be reconciled. Without invoice reconciliation, management can’t get a clear picture of the organization’s financial health which undermines their ability to make informed financial decisions.

Best practice: Centralize document management

Establish a single, dedicated email address for receiving supplier invoices and store invoices and documentation in a centralized document management system. Doing this will reduce lost documents, improve invoice processing cycle times, and make it easier to verify, approve, and pay invoices.

Best practice: Automate AP processing

Implement an AP automation solution to replace manual invoice data entry and coding. Process automation significantly reduces errors and speeds up invoice processing, eliminating late payments and ensuring efficient month-end closing. Learn how Stampli helped Beyer Mechanical process invoices 60% faster and get their books closed on time.

Before submitting the invoice for approval and payment, the AP team verifies the invoice details by comparing them to the PO and shipping documents.

Step 7: 3-way matching

After entering and coding the invoice, the AP team validates the invoice details through the three-way matching process. They compare the invoice to the PO and goods receipt to confirm that the order details are the same on all three documents. If the documents match, the AP team forwards the invoice for approval. If discrepancies are found, the team investigates and addresses them with the supplier.

Common challenges with PO-to-invoice matching

Matching POs to invoices requires meticulous attention to detail. AP clerks must go through each document, compare every line item, and investigate any discrepancies. If they are relying on manual, paper-based processes, the matching process can be extremely time-consuming and prone to errors, especially when dealing with lengthy or complex invoices. This can lead to employee burnout and increased errors as overtaxed AP clerks struggle to maintain accuracy under the pressure of a heavy workload. Relying on manual matching creates significant risks for the organization, including incorrect payments, disputes with suppliers, and strained supplier relationships.

Best practice: Centralize procurement documents

Organize and store POs, invoices, and goods receipts in a central document management system, using PO numbers to link associated documents. This facilitates tracking and ensures AP teams can easily locate up-to-date versions of the correct documents for three-way matching, thus expediting the process.

Best practice: Use PO matching automation

Invest in a procure-to-pay software solution with intelligent data capture and matching capabilities. These solutions automatically extract and compare invoice, PO, and goods receipt data and flag any exceptions for review, significantly improving match efficiency and accuracy. Learn how Superior Masonry used Stampli Cognitive AI™ PO Matching to achieve 100% PO matching rates — and reduce their invoice processing cycle time by 93%.

Once they verify the invoice, the AP team forwards it for approval and payment.

Step 8: Invoice approval and payment

The final step in the P2P process is obtaining payment authorization. The AP clerk forwards the verified invoice to the approver, who reviews and either approves or rejects it. The invoice is returned to the AP department upon approval for payment processing. They schedule the payment according to the PO terms and the vendor’s chosen payment method. Once the payment is made, the AP department records the transaction in the accounting records.

Common challenges with the invoice approval and payment process

The primary challenge with invoice approval and payment is delayed approvals. Delays can occur when approvers are unavailable, or the approval routing policy is unclear. Another challenge is the risk of unauthorized payments, which can happen if there are insufficient controls or gaps in the approval process. Both these challenges can lead to late payments, damaged supplier relationships, and financial losses.

Best practice: Streamline approval processes

Establish a clear approval process with defined approval levels to ensure invoices are routed to the correct approver before payment. To further streamline approvals and relieve pressure on approvers, establish matching thresholds. Set thresholds to automatically approve invoices that meet specific criteria. For example, set a 3% price matching threshold to automatically approve all invoices under $10,000 with prices within 3% of those on the PO. This allows approvers to focus their time on higher-value or more complex invoices.

Best practice: Use an integrated payment platform

Implement payment processing software platforms that integrate with your ERP, accounting system, or AP platform. Integration allows invoice data to flow automatically into the payment system, eliminating manual data entry and improving payment accuracy. These payment systems also centralize payment methods on a single platform, simplifying vendor payments and improving payment cycle times. For example, learn how the Los Angeles Area Chamber of Commerce used Stampli Direct Pay and Stampli Card to pay vendors on time and reduce payment processing costs.

Now that we’ve explored the steps of the P2P process, let’s look at the steps you can take, right now, to start optimizing your workflows.

Next steps to optimize your procure-to-pay cycle

Here are some things you can do to get started optimizing your entire P2P process:

Track P2P KPIs

Track key performance indicators to measure the effectiveness of your P2P processes, identify bottlenecks, and evaluate efficiency gains. Implement an AP analytics tool like Stampli Insights to get accurate, real-time visibility into these metrics.

Implement procure-to-pay software

Many businesses are considering automating the procure-to-pay process. In their 2024 procurement survey, Amazon Business reported that 98% of procurement leaders plan to invest in analytics and automation tools soon. The majority (80%) said they were willing to integrate AI into their procurement processes within the next two years.

Evaluate how evolutionary P2P automation solutions like Stampli can help optimize your P2P workflows, reduce errors, and improve visibility and control.

Evolve your purchase-to-pay process with Stampli

Stampli’s evolutionary P2P solutions are the best way to optimize your P2P workflows, save time and money, and gain total visibility and control over spending. Customers rave about how Stampli has transformed their business, making it the ideal solution for modernizing their procurement process.

“All in One Invoicing and Payments is Unbelievable!”

Trust your P2P workflows to the #1 AP automation solution. This accounting manager highlights the ease of use, cost savings, time savings, and exceptional customer service that Stampli provides: “Ease of use and processing payments directly from the portal. No more lengthy payment process and printing checks through Stampli actually saves us money. I also love the automated coding feature which saves a ton of time with manual entry. The customer service chat feature is the best. I always get a response right away and they actually work to solve the problem quickly. Overall awesome customer service!”

Ready to transform your P2P processes with the leading solution? Contact us today for a free demo of Stampli.