The procure to pay process: a step-by-step guide for B2B companies

What is the procure to pay process?

The procure to pay process (often written P2P, or purchase to pay) is the full cycle of buying goods or services for a business, from the first internal request to the payment that settles the supplier’s invoice. It joins two functions that often sit apart: procurement, which decides what to buy and from whom, and accounts payable, which records and pays what’s owed.

Three terms are often confused:

• Purchasing is the transactional part: raising and issuing purchase orders.
• Procurement is wider: sourcing, supplier selection, negotiation and contracts, as well as purchasing.
• Procure to pay is the end-to-end chain, including receiving, invoicing and payment.

Why it matters: in a trading or project-supply company, purchases are usually the largest outflow of cash. Weak P2P shows up as overpaying, paying for goods that never arrived, stock values nobody trusts and a month-end that takes a week. Its mirror image on the sales side is the quote-to-cash process.

The procure to pay process at a glance

Step 1: Identify the need and raise a requisition

A purchase requisition is an internal request to buy. It shouldn’t commit the company to anything; it asks permission. A useful requisition answers four questions: what is needed, how many, where it should be delivered and by when.

Add a purpose. In a trading company, most requests fall into three groups: replenishing stock, buying for a specific customer order and internal use (consumables, tools, office supplies). Purchases for a customer order should reference that order, so sales can see what’s been bought and procurement can see what’s urgent.

Approval comes next. Smaller companies often use one approver per department; larger ones add amount thresholds and budget checks. Whatever you choose, write it down: who can approve, up to what value and what they’re checking.

Step 2: Ask suppliers for prices with an RFQ

A request for quotation (RFQ) asks suppliers to price exactly what you need. Send every supplier the same document so their replies can be compared fairly. A good RFQ includes:

• item codes or clear descriptions, quantities and units;
• the delivery location and the date you need the goods;
• whether prices should exclude VAT or sales tax (it’s common to ask for prices before tax; VAT is 5% in the UAE and 15% in Saudi Arabia, for example);
• the information you want back: validity, lead time, payment terms and the supplier’s own quotation reference;
• a clear line that the RFQ is not a purchase order.

Keep internal details off it. Target prices, the customer’s name and buying instructions don’t belong on a document that leaves the building.

Step 3: Compare quotes and award

Quote comparison puts the replies side by side, line by line. Compare like with like before you compare prices:

• Units and pack sizes. A price per box of 12 isn’t a price per piece.
• Currency. Foreign suppliers often quote in USD, EUR or CNY. Convert at a stated rate, or compare the commercial terms rather than the headline price.
• Validity. An expired quote is an invitation to renegotiate, not an offer.
• Lead time and payment terms. A cheaper supplier with 60-day lead times may cost more than a dearer one that delivers this week.

Then award, line by line if needed, and record why. “Lowest valid price” is a reason. So is “only supplier who can deliver before the site deadline”. The reason is what protects the buyer when someone asks later.

Many companies set a minimum number of quotes, often scaled to the order’s value. Decide whether that minimum is a rule or a guideline, and who may approve an exception.

Step 4: Issue the purchase order (LPO)

The purchase order is the document that commits you to buy. In the UAE and across the Gulf it’s commonly called an LPO, or local purchase order. Some companies also use a quicker local purchase request (LPR) for small local buys. Read LPO, PO or LPR? for the differences.

A complete purchase order carries:

• your legal name, address, tax registration number (TRN) and commercial registration or trade licence;
• the supplier’s name and tax number;
• item codes, quantities, units, prices and tax per line, with totals;
• the delivery address, the expected delivery date, and the payment and delivery terms;
• a number, a date, a revision number if it’s been changed and an authorised signature.

Issue it, then control changes. Once a purchase order is with the supplier, every change to quantity or price should create a numbered revision with a reason, so both sides hold the same version.

Unpriced orders. In project supply and some imports, goods are sometimes ordered before the final price is agreed. It’s a real commercial need, but a risk: stock arrives with no agreed cost. If you allow it, value the receipt provisionally (for example at the last purchase price) and track every unpriced order until the price is agreed and the stock revalued.

Step 5: Receive the delivery against the delivery note

Goods arrive with the supplier’s delivery note, which lists what the supplier says they sent. At the gate, stores should check:

• that the delivery is from the right supplier and for an open order;
• the PO numbers written on the delivery note (one delivery often covers several orders);
• the vehicle and driver details, if your site records them;
• the number of packages, before anyone signs.

Sign for what you can see, not for what the paperwork says. “Received subject to inspection” is a common and sensible annotation when cartons can’t be opened on the spot.

Step 6: Record the goods received note (GRN)

The goods received note (GRN) is your own record of what arrived. It’s the document stores and accounts will refer to if anything is disputed, so make it complete:

• the supplier, the order or orders it relates to and the delivery note number;
• the quantity counted on each line, and any damaged or unexpected items;
• a scan or photo of the signed delivery note and of any damage;
• an outcome: accepted as is, or accepted with comments that someone senior must review.

Consider blind receiving. With blind receiving, storekeepers count the delivery without seeing the ordered quantity. It takes slightly longer, but it stops “counting to the PO”, where the order quantity is copied rather than the boxes counted.

Step 7: Inspect quality and handle rejections

Counting isn’t checking. Depending on what you buy, inspection might be a visual check, a measurement against specification or a test certificate review. Record the result on each line.

When goods fail, record three things: how many were rejected, why and what happens next. The usual dispositions are returning them to the supplier, scrapping them or holding them while the supplier decides. Rejected goods should never enter usable stock, and the rejected quantity should stay open on the purchase order until it’s replaced or the remainder is cancelled.

Step 8: Post the receipt and recognise GRNI

Once goods are accepted, two things should happen at the same moment: stock goes up, and the books recognise that you owe something for it. The usual entry is:

• Debit Inventory (at the purchase order price, before tax);
• Credit Goods received not invoiced (GRNI), a liability for goods you’ve received but haven’t yet been invoiced for.

GRNI is the bridge between receiving and accounts payable. It’s cleared when the supplier’s invoice is booked. A GRNI balance that keeps growing, or holds lines older than 30 or 60 days, means invoices are missing, receipts were wrong or something was invoiced against the wrong delivery. Review it every month-end close. For more, read GRNI explained.

If you buy in foreign currency, value the receipt at the exchange rate on the receipt date. Any difference when the invoice is booked at a later rate is an FX gain or loss.

Step 9: Receive and check the supplier invoice

The supplier’s purchase invoice is a claim for payment, not proof that you owe it. Before booking, check that:

• it’s a valid tax invoice, showing the supplier’s tax registration number, your details, the date, a unique number, the net amount, the tax rate and the tax amount;
• the invoice number hasn’t been booked before for that supplier;
• it relates to goods you’ve actually received and accepted;
• the prices match the purchase order, or the difference is understood.

In many VAT systems, including the UAE and Saudi Arabia, recovering input VAT generally depends on holding a valid tax invoice from the supplier, so missing details matter. Saudi suppliers registered for VAT issue e-invoices under ZATCA’s rules, and the UAE’s e-invoicing programme begins in 2027 for the largest businesses. Keep the supplier’s original invoice with your booking.

Step 10: Match order, receipt and invoice

Matching compares what you ordered, what you received and what you were billed before the invoice is approved for payment. There are three common levels:

A three-way match is the standard for stocked goods. Many systems apply tolerances, such as a small percentage of the line value, and send anything outside them to an exceptions queue for approval.

An alternative is receipt-based invoicing: the invoice lines are built from the posted receipt, so quantities match by design, and the price is checked against the order. Any price difference is recorded with a reason and posted to its own invoice price variance account. Whichever method you use, the principle is the same: explain every difference before it reaches the ledger.

When the invoice is booked, the entry is:

• Debit GRNI (clearing exactly what the receipt credited);
• Debit Input VAT;
• Credit Accounts payable;
• with any price difference to invoice price variance.

Step 11: Pay the supplier

Payment closes the cycle. Pay on the agreed terms: no earlier than you need to, no later than you promised.

• Know your due dates. Credit days may run from the invoice date, the delivery date or the end of the month in which the supplier’s statement falls. Agree the basis when you set up the supplier.
• Reconcile with the supplier. Compare their statement with your payables ledger regularly. Differences are usually missing invoices, unrecorded credits or payments allocated to the wrong invoice.
• Protect bank details. Hold a bank letter on file for every supplier and treat any request to change bank details as suspicious until it’s verified by phone with a known contact.
• Approve payments separately. The person who books invoices shouldn’t release the payment.

Payment methods vary by market: bank transfer is standard almost everywhere, and in parts of the Gulf, cheques, including post-dated cheques, are still common.

Controls and segregation of duties

Segregation of duties means no single person controls a purchase from start to finish. The pairs below are the ones that matter most.

In a small team, perfect separation isn’t always possible. Compensate with review: an owner or finance lead who looks at every award reason, every receipt variance and every new supplier each week, using an audit trail that shows who did what and when.

Other controls worth having:

• an approved supplier list, with trade licence or company registration, tax certificate and bank letter on file;
• a written approval matrix, even a simple one;
• reasons required for every award, revision, short delivery, rejection and price difference;
• unique supplier invoice numbers, so the same bill can’t be booked twice;
• month-end review of GRNI aging and of orders still waiting for prices.

Procure-to-pay KPIs worth tracking

Pick a handful you can measure reliably, and review them monthly.

Avoid benchmarking against published averages until your own numbers are stable. Trends inside your own business are more useful.

Procure-to-pay checklist

Use this to check your process today. Tick items as you go; your progress stays in this browser, and Print gives you a paper copy.

How software helps

Spreadsheets can hold a procure-to-pay process together for a while, but they can’t enforce one. Software helps when it makes the right step the easy one. Look for:

• Connected documents. Each document should be created from the one before, without re-keying.
• Permissions per step, so request, approval, ordering, receiving, invoicing and payment can sit with different people.
• Required reasons on awards, revisions, variances, rejections and price differences.
• Receipts that post stock and GRNI together, so the warehouse and the ledger stay in step.
• One delivery against several orders, because that’s how suppliers deliver.
• A way to order before prices are agreed, with provisional costing that’s tracked.
• Local documents and tax: the document names your suppliers use (such as LPOs and GRNs), registration fields and dated tax rates.
• Several companies in one system, with separate books.
• Matching or receipt-based invoicing, and payment and payables tools if you need them in the same system.

Procure to pay software: how 1flux runs the cycle

1flux is procure to pay software for companies in B2B trade. It runs the cycle as seven connected documents and then the supplier payment. Each document is created from the one before, carries its own status and permission, and records its history in plain sentences, so the record never splits between the buyer, the stores and accounts.

Three ways in, one way through

Not every purchase deserves three quotes. 1flux offers three routes to a purchase order, and from the order onwards they all follow the same receiving and invoicing path:

• Sourced: requisition, approval, RFQ, quotes, comparison and award, with one draft order per awarded supplier in the quote’s currency.
• Quick local purchase: a local purchase request (LPR), printed as an RFQ and converted straight into an order.
• Direct: a new purchase order for a known supplier, with a warning if it looks like a recent order.

Any route can produce a priced order or a “PO without price”, where receipts carry a provisional cost until the buyer agrees prices. A “Customer demand” requisition must name the sales order it serves, and the link carries onto the purchase order, so sales can see what’s been bought for their customer.

Separate lanes for each duty

1flux gives each step its own permission, so you separate duties through the roles you define. People only see the buttons they can use, and the server refuses the action anyway.

Controls at every hand-off

• No RFQ without approval. The RFQ PDF and quote recording open only on an approved requisition.
• No award without a reason, and no award on an expired quote.
• No silent changes. Issued orders are revised with a reason and a numbered revision; short-closes and cancellations need a reason too.
• No undocumented deliveries. A note marked Checked & approved needs the delivery note attached; one Checked with comments waits for an approver.
• No unexplained variances. Every short, over or rejected quantity needs a reason, and over-receipts are refused.
• No double billing. Supplier invoice numbers are unique per supplier, and a received line can be invoiced only once.
• No guessed costs. Receipts at a provisional cost are invoiced only once prices are agreed.

Issued orders feed each item’s Awaiting receipt figure, only a posted goods receipt report moves stock, and GRNI older than 30 days shows as a Needs action row on the Accounting overview. Every document belongs to one legal entity, with its own numbering, warehouses, currency and books.