Procure-to-Pay (P2P): The Process from Order to Payment, and Why Account Assignment at the Time of Ordering Is Crucial

The order was delivered long ago, but the invoice is stuck in accounting because the cost center or general ledger account is missing. In many companies, the greatest amount of rework in the procure-to-pay process doesn’t occur at the payment stage, but right at the beginning. This guide explains the six phases of the P2P process and shows how the account assignment is automatically determined at the time of ordering.

Procure-to-Pay (P2P) refers to the end-to-end process from requisition through purchase order, goods receipt, and invoice verification to payment. To ensure that the accounting department does not have to rework orders, the cost center and general ledger account should be automatically determined at the time of ordering, based on rules defined by user, product group, and item.

Key points at a glance:

• Procure-to-Pay and Purchase-to-Pay refer to the same process: six phases from the purchase requisition to payment.
• Accounting errors occur at the beginning but are not noticed until the end, during invoice verification and month-end closing.
• Automatic account assignment during ordering pre-assigns cost centers and general ledger accounts based on rules derived from the user profile, product category, or individual item.
• Account assignment upon invoice receipt corrects errors retroactively. Account assignment during ordering prevents them.
• The three-way match between the purchase order, goods receipt, and invoice only works if the purchase order is fully posted.

At simple system, Andy Freund supports companies that integrate their purchasing with their ERP systems, and he knows exactly where purchasing and accounting most often fail to align: account assignment. In the following, you’ll learn how the P2P process is structured, where account assignment errors occur, and which systems prevent them.

What is Procure-to-Pay?

Procure-to-Pay is a company’s operational procurement process, which begins with a purchase request and ends with payment to the supplier. It connects line departments, procurement, goods receiving, and accounting into a single process chain.

Definition: Procure-to-Pay (P2P), also known as Purchase-to-Pay, refers to the end-to-end process from the requisition of goods through approval, ordering, goods receipt, and invoice verification to payment to the supplier.

P2P differs from Source-to-Pay (S2P) in scope. Source-to-Pay additionally includes the strategic steps that precede it: supplier sourcing, competitive bidding, negotiation, and contract management. P2P begins once the supplier and terms have been determined and the order is placed.

The 6 Phases of the P2P Process

The P2P process consists of six phases. Each phase generates data that is required for the next phase. If something is missing, the process stalls—often not until several phases later.

The table illustrates the fundamental problem: The account assignment is created in Phase 1, but it is verified in Phase 5. Anyone who lacks reliable data in Phase 1 shifts the work to the accounting department. According to the study “Managing Indirect Purchasing” by HTWK Leipzig, a reference company processes approximately 3,000 incoming invoices per year for indirect materials alone. Each of these requires a correct account assignment.

Why the accounting department has to rework purchase orders

The accounting department has to correct purchase orders because the cost center and general ledger account are missing, selected incorrectly, or hidden in a free-text field when the order is placed. The person placing the order usually isn’t familiar with the chart of accounts—and they don’t need to be.

Definition: Account assignment refers to the allocation of a business transaction to the accounts in accounting. For a purchase order, it primarily includes the cost center that bears the expense and the general ledger account to which it is posted, supplemented, if necessary, by a project or internal order.

In practice, account assignment errors occur in three areas:

• Missing Information: The purchase order does not include a cost center. The accounting department must inquire who placed the order and for what purpose.
• Incorrect selection: The person placing the order selects the general ledger account that sounds plausible from a long list. They decide based on intuition whether to post a tool as a consumable or as a low-value asset.
• Account assignment only upon receipt of the invoice: The order was placed via an online store or by email, and it is not until the invoice is received that someone considers where the amount should be posted.

According to HTWK Leipzig, around 40% of companies still use tools like Excel—which aren’t designed for this task—for indirect procurement. Accounting rules cannot be enforced in these tools.

Account assignment at the time of ordering or upon receipt of the invoice?

Accounting errors can be corrected at two points: when placing an order or upon receipt of an invoice. Both approaches are common, but they address different problems.

For materials from indirect procurement—such as office supplies, tools, occupational safety equipment, spare parts, or IT accessories—account assignment at the time of ordering is the more effective approach. For invoices without a prior purchase order, a solution for invoice receipt remains useful. Many companies combine both approaches.

How automatic account assignment works when placing an order

Automatic account assignment at the time of ordering means that a procurement system pre-selects the cost center and general ledger account based on fixed rules as soon as an item is added to the shopping cart. The rules are coordinated with the accounting department once and then apply to every order.

The person placing the order sees the account assignment in the shopping cart and only needs to intervene if a case deviates from the rule. Such exceptions can be reviewed using the approval workflow in Purchasing, so that no one has to go through an additional step.

Tip: Align the G/L account mapping by product group, not by supplier. A supplier such as an industrial distributor may supply tools, safety equipment, and office supplies, and each of these product groups belongs to a different G/L account.

Which systems automate account assignment?

Account assignment during the ordering process is primarily automated by the systems where the order is created: e-procurement platforms, procurement modules in ERP systems, and source-to-pay suites. Solutions for invoice processing come into play later.

In any case, the connection to the ERP system is crucial. Cost centers and general ledger accounts must be posted to the correct locations; otherwise, the rework will simply shift to another area. Our page on SAP Integration.

Three-Way Match: Where Accurate Account Assignment Pays Off

The three-way match is the automatic reconciliation of a purchase order, goods receipt, and invoice. If the quantities and prices match, the invoice can be sent for payment without manual verification.

Definition: In the P2P process, the three-way match verifies whether the purchase order, goods receipt document, and supplier invoice match in terms of item, quantity, and price before the invoice is approved for payment.

The reconciliation only works if the purchase order is complete. If the account assignment is missing, the quantity may match, but the invoice still cannot be posted. Therefore, accurate account assignment when placing the order is a prerequisite for automatic invoice verification.

5 Steps to Automatic Account Assignment

Automatic account assignment can be implemented in five steps. Purchasing and accounting work together to set it up; an IT project is usually not necessary.

1. Make rework visible

Have the accounting department track, for one month, which invoices require rework due to missing or incorrect account assignments. Note the product group and the ordering department. The results will show where the rules are most effective.

2. Assign general ledger accounts to product groups

Work with the accounting department to determine which product group should be posted to which general ledger account. For indirect purchasing, just a few general ledger accounts are usually sufficient, such as office supplies, tools, occupational safety, maintenance supplies, and IT accessories.

3. Assign cost centers to users and departments

Assign a default cost center to each user or department. Users who place orders for multiple cost centers will see a limited selection rather than the full cost center list.

4. Include exceptions in the approval process

Specify when an account assignment must be verified: for a different cost center, for free-text orders, or for orders exceeding a certain amount. These cases are routed through the existing approval process; all other orders proceed without an intermediate step.

5. Verify Transfer to the ERP and Measure Key Metrics

Verify that the cost center and general ledger account are fully transferred to the ERP system. Then measure the following on a regular basis:

• Accounting error rate: The percentage of invoices that require rework due to accounting errors.
• Percentage of free-text orders: Rules apply only to a limited extent here.
• Invoiceverification turnaround time: from invoice receipt to payment approval.
• Duration of the month-end closing: Indicates whether adjustment entries are decreasing.

This is how simple system automatically assigns accounts

simple system automatically pre-assigns cost centers and general ledger accounts when creating a purchase order, based on rules that are set once. The account assignment is transparent to both the person placing the order and the accounting department; exceptions remain the responsibility of the purchasing department.

• Rule-based account assignment during ordering: Cost centers and general ledger accounts are set when the purchase order is created, not just upon receipt of the invoice.
• General ledger account mapping at the item level: Items are automatically assigned to the correct general ledger account. Deviations can be manually corrected during the approval process.
• Accounting by Order Channel: For connected vending machines and external ordering systems, cost centers, general ledger accounts, and project codes can be configured on a per-system basis.
• Approvals based on value limits and product groups: Exceptions are reviewed at the same stage where approvals are typically processed.
• Transfer to ERP: via OCI to SAP, Microsoft Dynamics, and other systems, with account assignment and automatic reconciliation of purchase orders, goods receipts, and invoices.
• Over 1,000 connected suppliers: Catalog items already include their product group, which serves as the basis for general ledger account mapping.

The use case below illustrates how this works in practice Automating Account Assignment. The use case Automating Purchase-to-Pay.

Checklist: Is Your P2P Process Ready for Automatic Account Assignment?

• Do you know how many invoices per month require rework due to account assignment?
• Is there a standardized mapping of product groups to general ledger accounts?
• Does every user have a default cost center?
• Do purchase orders arrive in the ERP system with a cost center and general ledger account?
• Are free-text purchase orders the exception rather than the rule?
• Are non-standard account assignments checked during the approval process rather than in accounting?
• Is the reconciliation of purchase orders, goods receipts, and invoices automated?

If you checked fewer than four boxes: Then a large portion of your accounting work arises at the beginning of the process and can be resolved there as well.

Conclusion: Bookkeeping starts with the purchase order

In the procure-to-pay process, account assignment errors occur in the first phase and cost time in the last. If you pre-assign cost centers and general ledger accounts using rules based on the user, product group, and item right at the time of ordering, you relieve the accounting department of rework without requiring the person placing the order to have accounting knowledge. This requires a one-time coordination between purchasing and accounting, as well as a procurement system that fully transfers the account assignments to the ERP.

FAQ: Frequently Asked Questions About Procure-to-Pay and Account Assignment