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Resources   /   Glossary

P2P Accounting

Nearly every kind of business requires goods or services of some kind from an outside supplier, or more likely, many different outside suppliers. In order to facilitate these transactions efficiently, businesses rely on effective procure-to-pay (P2P) accounting.

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What is P2P in Accounting?

Procure-to-Pay (P2P) is a process in accounting that refers to the entire cycle of obtaining goods and services for a business, from the initial requisitioning of goods to the actual payment of the vendor. It encompasses all the steps involved in procurement, including purchasing, receiving, and payment.

Effective Procure-to-Pay accounting helps organizations streamline their procurement processes, control costs, and ensure compliance with internal policies and external regulations. Automation and technology play a significant role in optimizing the efficiency and accuracy of the P2P process. Many companies use enterprise resource planning (ERP) systems and other software solutions to manage and automate various aspects of the Procure-to-Pay cycle.

What is a P2P Transaction in Accounting?

Here’s a simple example of a P2P transaction for a manufacturing company: The production manager identifies a need for a specific quantity of raw materials to meet the production schedule. The production manager creates a purchase requisition, specifying the type, quantity, and specifications of the required raw materials. The purchase requisition is reviewed and approved by the relevant stakeholders in the manufacturing company, including procurement and finance. The procurement team selects a supplier based on factors such as the quality of materials, pricing, and delivery capabilities. A purchase order is generated, detailing the agreed-upon terms, quantities, and specifications of the raw materials.

Next, the supplier delivers the ordered raw materials to the manufacturing facility. The receiving department checks the delivered materials against the details in the purchase order to ensure they meet the specifications and are in the expected quantity. The receipt of goods is recorded in the manufacturing company’s inventory management system.

Third, the supplier sends an invoice for the delivered raw materials to the finance department of the manufacturing company. The finance department compares the invoice with the purchase order and the records of goods receipt to ensure accuracy. Any discrepancies are addressed and resolved before approving the invoice for payment.

Last, once the invoice is verified and approved, the finance department processes the payment to the supplier. Payment may be made through electronic funds transfer, check, or another agreed-upon method. All relevant documents, including the purchase order, goods receipt, supplier invoice, and payment records, are maintained for auditing, compliance, and financial reporting purposes. The transaction is recorded as a journal entry to reflect the increase in supplies and decrease in cash or accounts payable account.

P2P Cycle Journal Entries

Just like any other type of transaction, your transaction between your business and your suppliers should be recorded in P2P journal entries that can easily be compared and looked back on for future reference. When it comes to comparing journal entries, you can either use a two-way match or a three-way match. Like it sounds, 3-way match journal entries are more effective than two-way matches because they are comparing three things (purchase order as well as invoice and sales receipt) rather than two.

Having a well-kept and detailed procure-to-pay process, as well as source-to-pay process with journal entries can help to ensure that you are in the best position to improve your P2P process and make sure that your suppliers are getting paid on time and effectively. A software solution like AvidXchange can help you do this, and with its over 225 integrations with common accounting software solutions, it can work with P2P cycle journal entries in SAP, P2P cycle journal entries in Oracle R12, and more so that you do not have to give up your current system to gain the benefits of using its tools.

Procure To Pay Best Practices

Procure to pay best practices may extend beyond 3-way match journal entries. Accounts payable teams could improve their procure to pay process by implementing an automated P2P software solution and by adhering to procure-to-pay best practices. AvidXchange can offer software solutions that can enable accounts payable teams to standardize P2P best practices in their procure to pay process with the use of digitization and automation. AvidXchange can allow accounts payable teams to create custom digital workflows. This could make it possible to process every invoice, bill, purchase order, or other procure to pay example in the same way.

Using procure to pay software can allow accounts payable teams to create consistent workflows and standardize P2P best practices, which can enable a more effective procure to pay process. AvidXchange can help standardize an accounts payable team’s procure to pay process with automation and digitization and enable procure-to-pay best practices.

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