Procurement to Pay Cycle
Every organization uses some business processes that deal with its relation with vendors/suppliers. This process is captured within the Procurement to Pay Cycle which is usually refer to as P2P. This process covers all steps that occur from purchase order creation to final payments to the supplier of goods.
Following are the stages I will be explaining briefly
- Purchase Order
- Goods Receipts
- Invoice Verification
- Account Payment (AP) Invoice
- Outgoing Payment
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Purchase Order
When organization plans to buy material or finished goods, purchase order are created. This is a legal binding between the buyer and the vendor. In some businesses new purchase order may be created based on an existing purchase order or purchase requisition. Sometimes orders are booked online via web-based frontend. However, you will still have to create SAP ERP purchase orders. In purchase order you enter the procurement details e.g. materials, quantities, prices and delivery information. Since an account assignment object is assigned to the material, therefore, it provides the reporting dimension. Usually material is assigned to a profit center and therefore a common requirement to split out the stock valuation by profit center is achieved.
Goods Receipt
A goods receipt transaction is performed when goods are received in stock. Upon selection of purchase order while creating good receipt, it ensures that this item exists in the original PO. You may have multiple deliveries against one purchase order so goods receipt is used to monitor the receipt of goods into stock. Many organizations use the three-way matching process to match the original purchase order with the receipt of goods and the vendor invoice.
Invoice Verification
This process validates the vendor invoices prior to releasing for payments. Many organizations prefer to activate good receipt-based invoice verification and operate a three-way matching policy. Here system checks if the vendor invoice being entered matches with the goods that have been received. Not only that, it validates the value of vendor invoice. In case of any variance system generates variance postings. Variance postings is controlled by the configuration completed in MM automatic account determination. By such variances organizations can control the buyers and procurement staff.
AP Invoice
Invoice verification process that happens in MM generates an AP Invoice within AP sub module which is used to create a document. This document is used to make payment to the vendor. This document stores the payment information. Normally stock-related procurement is done via purchase order and non-stock procurement is dong via AP invoicing. You will be responsible for coding the invoice directly to the appropriate GL accounts if using AP invoice directly.
Outgoing Payment
Outgoing payment can be dealt with either manually by user or by Automatic Payment Program (APP). APP is configured to use the specific requirements. This program checks the open items for selected vendors to make payments. Once payments are made the AP Invoice open items are paid and get cleared.