Purchase-to-pay (P2P): Benefits, challenges & best practice

The purchase-to-pay (P2P) process links the procurement process and accounts payable in enterprise finance. This includes everything from requisition through receiving to supplier payment. 

McKinsey recently found that companies with higher procurement maturity, where P2P is tightly integrated, deliver EBITDA margins at least five percentage points higher than peers. 

This metric matters because procurement isn’t siloed. It’s orchestrated through invoice and payment workflows, allowing companies to reduce bottlenecks and free up working capital. 

In plain terms, a streamlined P2P process means fewer delays, clearer cash flow visibility, and reduced procurement risks. In enterprise planning, that nuance turns procurement from a cost center into a performance lever. 

This article explores the purchase-to-pay process, highlighting key steps, best practices, and strategies to streamline procurement and reduce financial risks.

What is purchase-to-pay? 

In large enterprises, purchase-to-pay (P2P) governs the vendor management journey from requesting supplies to settling invoices. It’s a nuanced process that aligns procurement activities with financial controls. 

Purchase-to-pay ensures every purchase request, order, receipt, and payment is tracked, validated, and optimized for cost efficiency. It works by integrating data, automating approvals, and connecting supplier portals directly to accounting systems. This creates a flow that reduces procurement challenges and strengthens cash-flow predictability.

For example, data from Ardent Partners shows the average cost to process an invoice is $9.87 with an average cycle time of 10.1 days. A well-run P2P process can lower those costs and shorten timelines by using consistent procedures, matching documents accurately, and moving invoices straight from approval to payment.

Why is the purchase-to-pay process important? 

The purchase-to-pay (P2P) process matters because it directly shapes how money moves through an organization. 

When managed well, it gives finance leaders clear visibility over commitments, cash flow, and supplier performance. It prevents duplicate payments, delays, and maverick spending that can easily erode margins. 

For suppliers, timely, accurate payments strengthen trust and improve negotiation leverage. Internally, it frees teams from chasing paperwork, allowing them to focus on value-added work. 

In competitive markets, the difference between a 10-day and 20-day payment cycle can decide whether a business captures early payment discounts, maintains liquidity, or misses growth opportunities entirely. In short, the purchase-to-pay process makes that difference measurable.

Purchase-to-pay vs. source-to-pay vs. procure-to-pay 

Before delving deeper, it is helpful to clarify the distinctions between three commonly confused terms. Understanding the differences between purchase-to-pay, source-to-pay, and procure-to-pay will give you a clearer grasp of the process and its role in procurement.

Let’s take a closer look at purchase-to-pay vs. source-to-pay vs. procure-to-pay: 

Purchase-to-pay

Purchase-to-pay covers every step from requesting goods or services to paying suppliers. It links procurement with accounts payable, ensuring that orders are approved, deliveries are confirmed, and invoices are settled. The goal is to control spending, avoid errors, and maintain healthy supplier relationships through a streamlined, traceable process.

Source-to-pay

Source-to-pay starts earlier than purchase-to-pay. It begins with identifying suppliers, running tenders, and negotiating contracts, before moving on to ordering and payment. This broader approach combines strategic sourcing with transactional purchasing. It gives businesses more control over supplier selection and value creation in procurement.

Procure-to-pay

Procure-to-pay is another term for purchase-to-pay. It describes the same end-to-end process of ordering, receiving, and paying for goods or services. The term is often used interchangeably, especially in software and process documentation, to describe the standardized workflow that links procurement activities to payment execution.

What are the key steps of purchase-to-pay? 

Understanding the key steps of purchase-to-pay reveals how each stage contributes to controlling costs, improving cash flow, and strengthening supplier relationships. Breaking the process down makes it easier to see where efficiency gains and risk reductions can be achieved.

Let’s take a closer look at the key steps of the purchase-to-pay process: 

Identifying a need

Every purchase begins with recognizing that something is required to keep operations moving. It could be materials for production, new software, or routine supplies. Being clear about what’s needed, when it’s needed, and why prevents misunderstandings later. The more specific the request, the easier it is to source the right fit.

Requisitioning and approval

Once the need is defined, a formal request is made and sent for review. Managers check that it aligns with the budget and complies with company rules. Approving quickly keeps work flowing, but careful checks make sure only worthwhile purchases move forward. It’s a balance between speed and responsibility.

Sourcing

Finding the right supplier isn’t only about price. Reliability, quality, and delivery times are equally important. This stage involves gathering quotes or agreeing on terms that work for both sides. Strong supplier choices at this point set the tone for smooth transactions in the future.

Purchase order (PO)

The purchase order is a written agreement that confirms the terms agreed upon, including what will be delivered, the cost, and the expected delivery date. Sending a precise PO avoids confusion, gives everyone the same reference point, and forms the basis for checking deliveries and payments later.

Receiving

When goods or services arrive, they’re checked carefully against the order. Quantity, quality, and condition all matter. Noticing problems early means they can be fixed before they cause disruption. It’s also how a business makes sure it’s only paying for what it actually ordered.

Invoicing and matching

The invoice from the supplier is compared with the order and delivery records to make sure everything lines up. This step helps catch errors, such as overcharging or duplicate billing, before money changes hands. It’s a safeguard for the business and a reassurance for the supplier.

Payment

Paying on time maintains healthy supplier relationships and can lead to more favorable terms in the future. It also helps maintain trust and stability in the supply chain. Predictable payment practices give the finance team a clearer picture of cash flow and upcoming obligations.

Who is involved in the purchase-to-pay cycle? 

Knowing who’s involved in the purchase-to-pay cycle can make a huge difference. It’s the people behind the process who keep orders, approvals, and payments flowing without delays. 

Let’s take a closer look at who is involved in the purchase-to-pay cycle: 

Accounts payable

Accounts Payable makes sure suppliers are paid correctly and on time. They check invoices against orders and deliveries, resolve mistakes, and schedule payments. Their work maintains a healthy cash flow, prevents overpayments, and builds supplier trust, while ensuring that financial records are clear for audits and internal review.

Procurement

Procurement finds and manages suppliers, negotiates terms, and issues purchase orders. They focus on cost, quality, and reliability to get the best value. Making smart choices here prevents mistakes later on and ensures the organization gets what it needs efficiently and responsibly.

Treasury

The treasury manages the company’s finances, ensuring there are sufficient funds available to pay suppliers without compromising operations. They coordinate with accounts payable to plan cash outflows and maintain liquidity. This has a knock-on effect, ensuring that payments occur smoothly and financial stability remains intact.

Internal control

Internal Control sets and enforces rules to protect company resources. In P2P, they make sure approvals, checks, and responsibilities are clear and followed. This reduces mistakes and fraud, maintains a fair process, and establishes confidence in the accuracy and integrity of financial reporting.

What are the benefits of purchase-to-pay? 

To get the most out of implementing the purchase-to-pay process, it is helpful first to note the benefits. Seeing what it can achieve makes it easier to focus on the improvements that matter most, from saving time and money to building stronger relationships with suppliers.

Let’s take a look at the benefits of the purchase-to-pay: 

Improved efficiency

A good purchase-to-pay process helps work move smoothly from start to finish. Fewer manual steps and faster approvals mean less waiting around. Teams can spend time on meaningful work instead of repetitive tasks, making the organization faster, more responsive, and more reliable in its purchasing decisions.

Lower administrative costs

Automating and standardizing tasks reduces the time and effort needed to handle orders and invoices. Fewer errors and less chasing paperwork mean lower costs for the company. Staff can focus on building stronger relationships with suppliers. 

Better financial controls

The purchase-to-pay process maintains a clear record of every purchase and payment. This makes it easier to watch budgets, prevent overspending, and follow company controls. With this level of oversight, leaders can trust that funds are being used responsibly and avoid financial missteps.

Procurement transparency

Every request, order, and payment can be tracked. This gives managers a clear view of spending, helps spot problems early, and ensures all purchases fit the company’s goals. It creates accountability without slowing down the business’s operations.

Cost savings

Efficiency, automation technology, and clear oversight all combine to save money. Errors are reduced, approvals are faster, and unnecessary spending is avoided. The savings can then be put to better use, helping the company grow and invest in important projects.

What are the challenges of purchase-to-pay? 

Before implementing purchase-to-pay, it’s important to understand the obstacles that can slow progress. Recognizing common pitfalls helps organizations anticipate issues and implement safeguards to keep the process aligned with business goals.

Let’s take a closer look at the challenges of purchase-to-pay: 

Limited scope

Some P2P programs focus only on basic ordering or invoice processing. This narrow view leaves gaps across finance, procurement, and operations. Without full integration, businesses miss efficiency opportunities and struggle to align purchases with broader goals, limiting the process’s overall value.

Inability to address strategic sourcing

When P2P is treated as just transactional, companies miss chances to strengthen supplier relationships or negotiate better deals. This limits long-term value and prevents smarter purchasing decisions that could reduce costs and improve quality over time.

Lack of data

Without clear, up-to-date information, organizations cannot see spending trends, predict needs, or measure supplier performance. Data siloes create blind spots that can lead to overspending, mistakes, or poor supplier choices, reducing the benefits of the P2P process.

Redundant tasks and poor communication

Inefficient digital workflows often require repeating approvals, double-checking invoices, or chasing missing details. Teams working in isolation slow the process and cause frustration. Poor communication between departments further delays purchases and limits the organization’s ability to act quickly.

Risk of fraud and noncompliance

Weak controls in the purchase-to-pay process leave businesses vulnerable to unauthorized spending or policy breaches. Missing approvals, unclear responsibilities, or inconsistent tracking increase the risk of financial loss and regulatory penalties, making strong oversight essential to protect both money and reputation.

What are purchase-to-pay best practices? 

To get the most value from a purchase-to-pay process, it helps to follow proven practices that keep operations efficient and secure. Understanding these approaches enables enterprises to ensure that every purchase aligns with their strategic goals.

Let’s take a closer look at purchase-to-pay best practices: 

Standardize procedures and automate operations

Effective communication between finance, procurement, and operations ensures smooth operations. A company might use a shared dashboard where everyone can see updates in real-time. This prevents duplicate requests, speeds up approvals, and ensures that production or projects don’t stop due to delayed purchases.

Improve interdepartmental communication and collaboration

Internal controls prevent mistakes or rule-breaking. For example, a retailer may require additional approvals for large purchases. If something unusual appears, it’s automatically flagged. This ensures spending follows company rules, budgets are respected, and leaders can trust that money is used correctly.

Strengthen internal controls and compliance

Strong internal controls go beyond rules and provide confidence. Automated workflows flag irregularities, guide approvals, and maintain alignment with organizational policies. Leaders can monitor spending and processes in real time, ensuring resources are used responsibly and reducing risk without slowing down operations.

Enhance cybersecurity measures

Cybersecurity protects sensitive information and prevents fraud. A healthcare company might use multi-factor logins and encryption for approvals. If someone attempts to approve a large payment without proper verification, the system prevents it, keeping money and data safe from unauthorized access.

Develop strategic supplier management

Treating suppliers as partners helps ensure quality and reliability. For instance, a company can track supplier delivery times and quality, then prioritize top performers by offering them longer contracts. This reduces last-minute problems and often lowers costs while keeping standards high.

Track KPIs and analyze performance

Measuring key metrics shows how well the process is working. A logistics company might track how long invoices take to process or where delays happen. Reviewing these numbers enables managers to identify and address issues, ultimately enhancing speed, accuracy, and efficiency throughout the organization.

How to maximize the value of your purchase-to-pay process 

The purchase-to-pay process is compulsory for companies aiming to lead in digital transformation in finance.

Without a robust P2P system, organizations risk falling behind, losing control of spending, and missing opportunities to optimize operations. Companies that plan proactively and integrate efficient workflows experience measurable benefits in terms of financial accuracy and consistent growth. 

While implementing P2P can require significant investment, focusing on productivity gains and best practices ensures long-term value. Regularly reviewing and updating the process is essential as laws, regulations, and organizational priorities evolve. 

Continuous refinement keeps processes efficient, reduces risk, and maximizes the value of every transaction. A well-managed purchase-to-pay process is strategic and drives both business resilience and financial stability.