SAP Procure to Pay Cycle : Process Flow

Procure to Pay Cycle in SAP, better known as P2P is the SAP process followed in procuring Goods/ Services. This process involves activities from requesting the requirement via a PR to Invoice Verification for the Vendor’s invoice. This post intends to cover the steps in the standard SAP P2P process along with the business application.

The below process flow depicts the typical P2P flow, starting from a PR.

1. Create PR

The process initiate with a PR. PR is an internal document, which does not carry any legal validity. This document is used to communicate the requirement of an individual, to the procurement department. The requester would specify, what he wants, how much he wants & by when he wants the goods or service.

2. Approve PR

Once the PR is created, it’ll flow to an approver. This approver could be a Manager, Head of a Division, etc. depending on your company’s hierarchy. Approvals in a PR could be either single level or multi-level. In a single level, the PR is approved by only one approver. However, in a multi-level scenario a PR is approved by more than one person.

Single Level Approval

Multi-Level Approval

3. Create RFQ (Request for Quotation)

Once the PR is approved, the procurement division has the option of either converting the approved PR to a PO or to go for a Quotation process. RFQ (Request for Quotation) is the initiation point of the Quotation process. The purpose of this document is to obtain quotations from vendors for various goods and services. When issuing an RFQ, the buyer could specify the terms & conditions also, in addition to the items, quantities & required delivery dates.

4. Approve RFQ

Similar to a PR, you could configure a release strategy for a RFQ. The purpose of this approval is to get the consent from the relevant Manager, Head of Procurement, etc. to issue a RFQ to vendors. However, I’ve never seen this functionality being used by any of the companies which I’ve dealt with.

5. Maintain Quotations

The Quotations received from vendors for the RFQ, would be entered to SAP in this step. Once the details in Quotations are entered, Quotation evaluation could be carried out.

6. Evaluate Quotations

Under Quotation Evaluation, the buyer would see a comparison of the quotations entered. The comparison would also provide a ranking for each quotation, based on Price quoted, Delivery Date, etc. Once the preferred quotation is selected, the remaining quotations could be rejected, in order to prevent them from getting converted to POs.

7. Create PO

A PO could be created thereafter, with reference to the selected vendor quotation (RFQ). PO is the legally valid document, issued to a vendor. By issuing a PO, the Buyer becomes ‘liable to pay’. However, no financial entries are posted at this stage. A PO could also be created with reference to an approved PR, if the RFQ process is not followed.

8. Approve PO

Similar to the PR approval, the PO created could also be approved. Generally, the PR approvers & the PO approvers would be different since, it is not logical to approve the same requirement by the same person twice. Once the PO is approved, an output could be generated to send to the vendor.

9. GRN/ Service Entry

Once the PO is sent, the vendor would be delivering the goods. The goods should generally be accompanied with a ‘Delivery Note’ or an ‘Invoice’. This supporting document should specify the items delivered, quantities, prices (if an Invoice), etc. When raising a GRN, the Store Keeper should ensure that the quantity in PO, quantity delivered & the qty in invoice/ delivery note are in line. However, there could be scenarios where the delivered quantity is more than the PO quantity.

Eg : In Fertilizer, the PO could be for 100 MT but the delivered could be 100.5 MT due to moisture absorption. The additional 0.5 MT would become a gain, which could be accommodated with a tolerance.

If the PO was for a service, for example A/C Maintenance there won’t be any GRN. Instead, there would be a Service Entry Sheet, since there are no tangible goods as such.

This is the first point at which, a financial entry gets posted in SAP. The double entry would be as follows.

Dr Inventory/ Expense

Cr GR/IR

10. Invoice Verification

Once the invoice is received, the three-way match is carried out. The invoice is matched against the PO & the GRN prior to performing the IV. Once the invoice is posted, the liability gets booked against the vendor. The double entry would be as follows.

Dr GR/IR

Cr Vendor

The G/L accounts to which the entries are posted, is picked from the Valuation Class of the Material purchased. In this process, MM & FI integration happens through the Valuation Class.