1. Identify Need
2. Initiate Purchase
3. Issue PO
4. Take delivery/Create Receipt
5. Process Invoice
6. Pay
7. Track and Improve
It is the primary authorized buying method. A P.O. streamlines the typical transaction by requiring a requisitioner to be specific when ordering; legally committing funding the purchase; allowing a supplier to deliver as requested; and, ultimately, when matched to a supplier invoice, enabling to pay the supplier within specific days. The process can be viewed as a series of linked steps in which different participants play a role. The chart below provides an overview of who participates in each step, and the color-coded listing to the right provides a definition for each role. Each participant in the process plays an important part in making a transaction proceed smoothly - from a customer's informed purchasing behavior and a P.O. manager's accuracy and vigilance, to a supplier's cooperation in sending invoices directly to Accounts Payable.
PO: PO manager/ Pur: Purchasing service
Step 1 :
Identify Need
The Procure-to-Pay (P2P) process begins when a member decides a product or service is needed—at that moment, he or she becomes the customer.
Step 2 :
Initiate Purchase
The requisitioner must determine the authorized buying method if not already identified by the customer. Some of the authorized buying methods—purchase order, the purchasing card, C-form, and T&E reimbursement—the purchase order is primary.
If a purchase order (P.O.) is the appropriate buying method, a requisitioner acts as agent for the customer to ensure that the P.O. is initiated correctly in the business and financial system and the purchase adheres to procurement and disbursement financial policies. To the basic purchase specifications provided by the customer, the requisitioner adds details—such as line types (for non-catalog orders), source and funding information (if known), special instructions, and/or unique requirements for hazardous materials or equipment—needed to create and process the request for purchase (requisition) prior to the creation of a P.O. in Step 3.
Step 3 :
Issue PO
The financial and legal commitment to purchase requested products or services is formalized in a purchase order (P.O.) to a supplier. Once a P.O. is issued, it is committing its funds and agreeing to pay the supplier within the specified terms. A supplier should not provide the requested products or services until the P.O. has been received. A supplier's invoice cannot be processed and paid in a timely manner without a corresponding P.O.
When the customer has identified a need (Step 1) and the requisitioner has initiated the purchase in Step 2, the P.O. manager logs on to Financials in order to:
Verify or enter the funding source
Ensure that sufficient funds are available
Review all information and details related to the purchase
Approve (or reject) the P.O. which will either:
o Transmit the P.O. to the supplier either via Electronic Data Transfer (EDI) or fax
o Forward the P.O. to the next approver in the approval hierarchy
Step 4 :
Take delivery/Create Receipt
Delivery of requested products or services marks a transition in the Procure-to-Pay (P2P) process from Purchasing activity to Accounts Payable activity. For this transition to be successful, two important actions must be taken:
• The customer must properly take delivery of the order.
• When necessary, the P.O. manager must create a receipt for the order in the business and financial system
When the supplier delivers the products or services specified on the purchase order (P.O.), the customer (or requisitioner in his or her stead) has a responsibility to inspect, verify, and sign for satisfactory delivery—or, in the case of unsatisfactory delivery or performance, to initiate a claim and/or a return directly with the supplier and inform the business office of that action. Once the products or services have been received in good order, the customer or requisitioner should notify his or her departmental business administrator or local authorized staff so that the supplier's invoice can be processed and paid (Steps 5 and 6).
Step 5 :
Process Invoice
A supplier invoice is received by A/P, scanned into the A/P system either electronically or manually, and matched with its corresponding P.O. Provided the invoice and P.O. are consistent, the invoice is approved for payment and the funding source account charged. Delayed payments usually have one of two causes:
• The supplier did not send the invoice directly to A/P. An invoice cannot be considered submitted until it has been received by A/P personnel for processing. Suppliers cannot send invoices directly to the customer or requisitioner; they must send invoices directly to A/P as instructed on the P.O. to avoid unnecessary delays.
• The P.O. manager did not release an "invoice hold." If there is a discrepancy between an invoice and its corresponding P.O.—product ordered, quantity, price, or other variable does not match—the invoice is automatically placed on hold. The P.O. manager will receive an alert to clear the hold and to approve the invoice for payment. The P.O. manager must proactively manage and clear invoice holds to avoid unnecessary delays in invoice payment.
Step 6 :
Pay
Once an invoice has been entered and approved, and any holds appropriately cleared in the University's business and financial system (BEN Financials) in step 5, payment activities are completely automated. Each evening, the system selects invoices from the queue for payment according to supplier terms—typically 30 days for most suppliers and 7 days for EDI (electronic data interchange) suppliers. A University check is produced according to terms and sent the next day.
Adherence to the P2P process outlined in these simple steps makes it easier to conduct business at the University. Deviations from the process (e.g., orders placed by phone, invoices sent to the customer's department rather than to A/P, etc.) are not acceptable. They create unnecessary "invoice holds," delaying payment and negatively affecting the University's relationships with its suppliers.
Step 7 :
Track and Improve
To ensure the Procure-to-Pay process is functioning according to design, measurements and metrics are essential. Continuous process improvement can be guided by meaningful measurements such as compliance with requisitioning requirements, reduction of invoice holds, use of preferred suppliers, and percentage of payment within terms. Monitoring and resolving unnecessary process exceptions reduces administrative time and costs for both the customer and suppliers.
Matching of Invoices:
What is 2 way, 3 way and 4 way matching?
Making payments to the suppliers in 3 ways.
what ever you have ordered for the PO we will make the
payment for the suppliers in 2- way(we will compare two
documents PO and Invoice).
eg:Suppose we Had given PO for 100 items ,for that we will
receive invoice for 100 items. so that we will make payment
for that 100 items.
2) In 3-Way we will compare 3 documents
PO+reciept+Invoice
Eg:Suppose we have ordered 100 items in PO. But we had
received only 80 items ,But we had received invoice for
100 items. so, we will make payment for only 80 items
3)IN 4-Way we will compare 4 documents
PO+Receipt+Invoice+Inspection
Eg:Suppose we have 100 items in PO. Suppers send us 80
items We will do inspection on those items what ever we
have received, If 10 items got damaged. finally, we are
going to
make payment to the 70 items only.
2-Way Matching:
The process of verifying that purchase order and invoice
information matches within accepted tolerance levels.
Receivables uses the following criteria to verify two-way
matching:
Invoice price <= Order price
Quantity billed <= Quantity ordered
3-Way Matching:
The process of verifying that purchase order, invoice, and
receiving information matches within accepted tolerance
levels. Receivables uses the following criteria to verify
three-way matching:
Invoice price <= Purchase Order price
Quantity billed <= Quantity ordered
Quantity billed <= Quantity received
4-Way Matching:
The process of verifying that purchase order, invoice, and
receiving information matches within accepted tolerance
levels. Receivables uses the following criteria to verify
four-way matching:
Invoice price <= Order price
Quantity billed <= Quantity ordered
Quantity billed <= Quantity received
Quantity billed <= Quantity accepted
