Exploring the Procure-to-Pay Process (2024)

Some of the accounts payable accounting documents of Jennifer's company are originated by the purchasing department of the company. Jennifer would like to understand the process flow leading to the posting of these FI documents. For her, it's not important to create purchases by her own or to post a goods receipt, but to understand the process how the FI documents are created. This will also help to coordinate with logistics colleagues in the event of need for clarification.

Now we introduce the procure to pay process, which requires the materials management purchasing component to work in tandem with the financial accounting accounts payable process.

In most cases, when making any purchase, your company has a strict procurement policy that requires the procurement department to manage or at least be made aware of all purchases, whether these are fixed assets such as machinery, materials for production such as tires, or office supplies such as toner cartridges.

The procure to pay process starts with a request to purchase something and ends ultimately with the final payment for the goods or services. This integrated process ensures an uninterrupted supply of everything the company needs to achieve your business objectives.

1. Demand Determination: After checking the purchase requisitions of the individual departments of the company by the purchasing employee, the employee checks the possible sources of supply and determines a suitable vendor.

2. Purchase Order: Then the purchasing employee uses these parameters to create a purchase order.

3. Goods receipt: Your vendor ships the ordered items, and they now arrive at your company. The goods receipt will check the purchase order for the quantity ordered and we'll update the purchase order history with this information.

4. Invoice Verification: You receive the invoice from the supplier and accounts payable. The invoice is posted with the reference to the purchase order. This is called invoice verification. The accounts payable clerk will enter the information from the invoice and the system will refer back to the purchase order for the pricing information.

5. Payment Processing: If everything is fine, no differences occurred, and there is no payment block, the vendor invoice is usually paid using the payment program.

Three-step verification is the process of comparing the purchase order, invoice, and goods receipt to make sure they match, prior to approving the invoice. This ensures that the customer's order, the supplier's delivery, and the goods receipt note all reflect the same information. Steps of the three-step verification:

1. Purchase order: Create a purchase order in purchasing

   A materials document is generated.

   NO finance document is generated.

2. Goods receipt: Post a goods receipt:

   To update the receipt of inventory or consumable material, a material document in purchasing is generated.

   At the same time, a finance document is created that posts the value of the goods to the merchandise account as a debit and the goods receipt/invoice receipt.

   (GR/IR) to the clearing account as a credit in the general ledger.

3. Invoice Verification: Post a supplier invoice with reference to a purchase order.

   This automatically generates a finance document. The accounting document contains the invoice amount that gets posted to the GR/IR account (debit) and the vendor account (credit).

Check of the quantity in Step 2: The system checks whether the delivered quantity matches the quantity from the purchase order.

Check of the price in Step 3: The system checks whether the invoiced amount matches the price from the purchase order.

The GR/IR account stands for Goods Receipt / Invoice Receipt and is the G/L account used in the SAP system to track the reconciliation between goods deliveries and invoices received from suppliers. Ideally, the GR/IR account should be balanced out (that is, it should stand at zero), as each goods receipt should be offset by a corresponding invoice. If this is not the case, this indicates discrepancies between the goods delivered and the invoices received. For example, this could be due to missing invoices or differences between the quantity of goods delivered and the quantity invoiced.

The GR/IR account is thus an important control instrument in the procurement process. It helps companies quickly identify and correct discrepancies and deviations in the process.