Explain Accounts Payable cycle or Procure to Pay flow

Discussion RoomCategory: Interview QuestionExplain Accounts Payable cycle or Procure to Pay flow
Admin Staff asked 1 year ago

Procure-to-Pay (P2P) is a process that involves several steps for a company to purchase goods or services from a supplier.


Here is the basic flow of the Procure-to-Pay process:

  1. Need identification: The process begins when a department within a company identifies a need for goods or services. The department sends a purchase requisition to the procurement department.
  2. Vendor selection: The procurement department selects a vendor based on the requirements of the purchase requisition. The procurement department may also negotiate prices and payment terms with the vendor.
  3. Purchase order: The procurement department creates a purchase order, which includes the details of the purchase, such as the items to be purchased, quantity, delivery date, and price. The purchase order is sent to the vendor.
  4. Goods receipt: Once the vendor delivers the goods or services, the receiving department receives the goods or services and confirms the delivery. The receiving department creates a goods receipt note (GRN) to acknowledge the receipt of goods.
  5. Invoice receipt: The vendor sends an invoice to the accounts payable department, which matches the invoice with the purchase order and GRN. If everything matches, the invoice is approved for payment.
  6. Payment: The accounts payable department pays the vendor according to the agreed-upon payment terms. Payment can be made through various methods such as electronic transfers or checks.
  7. Reconciliation: The accounts payable department reconciles the payments made with the invoices received to ensure accuracy and prevent any discrepancies.
  8. Reporting and analysis: The company analyzes its spending patterns, vendor performance, and other relevant data to identify opportunities for cost savings and process improvement.

By following these steps, the Procure-to-Pay process ensures that a company purchases goods or services efficiently and effectively, while also managing its spending and relationships with vendors.

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