What is the Procure to Pay Cycle? 7 Processes to Know

The procure-to-pay (P2P) cycle is a crucial series of interconnected processes that enable organizations to purchase goods and services from suppliers efficiently. As a procurement expert with over a decade of experience in e-commerce and supply chain management, I will provide an in-depth look at the 7 key steps in the P2P cycle.

The Importance of Understanding the P2P Cycle

Procurement is crucial to the success of any company. The procurement process involves everything from identifying needs, vendor selection, negotiating contracts, ordering, receiving goods and services, processing invoices, to making payments.

Managing the complex workflow from initial purchase requisition to final supplier payment is critical for organizations. An inefficient P2P cycle can lead to:

  • Missed early payment discounts
  • Late payments and damaged supplier relationships
  • Overpaying on invoices due to errors and fraud
  • Supply chain disruptions
  • Poor visibility into spend

Documenting and analyzing the procurement workflow through the procure-to-pay procedure allows businesses to identify bottlenecks, reduce costs, enforce compliance, and optimize efficiency.

Overview of the 7 Key Procure-to-Pay Processes

The P2P cycle comprises seven core processes:

  1. Budgeting
  2. Need Identification
  3. E-Purchasing
  4. Managing Employee Expenses
  5. Processing Accounts Payable
  6. Supply Chain Financing
  7. Payment

Now let‘s look at each of these steps in detail:

1. Budgeting

The budgeting process sets spending limits for procurement categories and cost centers. It provides the framework for purchasing decisions.

Setting up budgets in the procure-to-pay software ensures:

  • Requisitions and purchase orders comply with budgets
  • Alerts on budget overruns
  • Real-time visibility into remaining budgets
  • Historical data to improve future budgeting

According to a Paystream study, organizations that automate budget management reduce purchasing cycle times by 20% and maverick spend by 18%.

2. Need Identification

In this stage, internal stakeholders identify goods or services required for operations.

The procure-to-pay suite can simplify need identification by:

  • Enabling creation of purchase requisitions from catalogues or free-form entries
  • Automating approval workflows based on spend authorization policies
  • Identifying preferred suppliers through supplier master data

McKinsey estimates that optimal need analysis reduces maverick buying by 10-20%. It also decreases the risk of duplicate purchases.

3. E-Purchasing

E-purchasing facilitates the ordering process through:

Purchase Requisitions: Stakeholders can enter purchase requests through an online portal. Required fields and drop-down entries ensure accurate information capture.

Purchase Orders: The procure-to-pay system creates POs from approved requisitions. POs authorize suppliers to deliver goods or services.

Order Transmission: The P2P software enables sending POs to vendors through EDI, email, supplier portals, etc.

Automating order placement achieves straight-through processing rate of over 90%, reducing purchasing cycle time by days. E-purchasing also strengthens compliance and enhances spend visibility.

4. Managing Employee Expenses

Employees often incur business expenses for travel, meals, supplies etc. These costs need to be captured and reimbursed quickly.

The P2P system simplifies expense management by:

  • Allowing employees to enter expenses through web/mobile apps
  • Enforcing policy compliance for allowable expenses
  • Automating approval workflows
  • Integration with corporate cards to match transactions
  • Quick reimbursement processing

According to Expensify, this cuts T&E processing time by over 80% and improves spend visibility.

5. Processing Accounts Payable

The accounts payable process involves:

Invoice Receipt: Suppliers submit invoices for goods and services delivered. eInvoicing tools reduce manual data entry and errors.

2 and 3-way Matching: The system matches invoices, POs, and receipts to validate accuracy. This prevents erroneous payments.

Invoice Approval: Based on PO and policy alignment, invoices get routed for approval.

Payment Processing: Approved invoices can be paid by check, ACH, virtual card, etc.

Deloitte estimates that AP automation yields 60-80% straight-through processing, 60% lower transaction costs, and 30% faster processing.

6. Supply Chain Financing

Supply chain financing (SCF) optimizes cashflow for buyers and suppliers. SCF allows:

  • Buyers to extend payment terms to 90-120 days
  • Suppliers to get paid in 7-10 days by selling receivables to a bank

According to the World Trade Organization, SCF provides $1.9 trillion in additional capital to suppliers globally.

7. Payment

The final step is payment release to the supplier‘s bank account.

An efficient payment process provides:

  • High straight-through processing rates
  • Quick settlement times
  • Discount utilization
  • Low transaction costs
  • Stronger supplier relationships

McKinsey reports that optimizing payments can reduce costs by 60-80% while improving supplier satisfaction.

Enablers for an Efficient P2P Cycle

Along with core P2P processes, four key enablers maximize the performance of the procure-to-pay cycle:


P2P analytics provides real-time visibility into:

  • Spend analysis by category, business unit, location etc.
  • Supplier performance
  • Invoice processing KPIs
  • Budget utilization

This enables data-driven decision making for procurement optimization.

Workforce Management

Effective workforce management ensures:

  • Procurement tasks are completed on time by assigning to appropriate staff
  • Employees have adequate skills and training
  • Procurement team is adequately staffed

Proper workforce management reduces delays and errors in the P2P cycle.

Inventory Management

Integration with inventory systems enables:

  • Creating accurate purchase orders to replenish stock
  • Updating inventory in real-time as deliveries are made
  • Paying only for received items

This prevents stockouts or wasteful overstocking.

Supplier Information Management

Maintaining a centralized supplier master database provides:

  • Visibility into supplier credentials, capabilities, and performance
  • Accurate supplier data for orders and payments
  • Compliance with regulations

Supplier master data is pivotal to the procure-to-pay cycle.

Key Takeaways

  • The P2P cycle is critical for efficient procurement operations and working capital optimization.
  • It involves 7 core processes: Budgeting, Need Identification, Ordering, Expenses, Accounts Payable, Supply Chain Financing, and Payment.
  • Automating the P2P cycle with procure-to-pay software improves efficiency, compliance, and cost savings.
  • Enablers like analytics, workforce management, inventory control, and supplier master data maximize the benefits.
  • Businesses should assess their P2P cycle, identify improvement areas, and leverage technology to optimize the procurement function.


[1] The Procure-to-Pay Process: How Does Procure-to-Pay Work? (Paystream Advisors)
[2] The working capital opportunity (McKinsey)
[3] Accounts Payable Automation Market – Global Outlook and Forecast 2022-2027 (Arizton)
[4] Benefits of Accounts Payable Automation (Deloitte)
[5] Making working capital work harder (Bain & Company)