The Seven Steps in the Procurement to Pay Process

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Paying vendors involves following a standard procurement cycle.
Paying vendors involves following a standard procurement cycle. (Image: BananaStock/BananaStock/Getty Images)

Solo company operators have a flexibility in ordering and paying bills due to the single decision-maker involved in doing business, but firms employing multiple staff members require a formal process to make decisions for purchasing equipment, services and supplies. Procurement procedures also provide a regular method to accept shipments and pay for goods and services. The sequential steps in the procurement-to-pay process (PPP) used in business establish a formal template for firms.

Forecasting General Company Needs

The general company forecast involves looking at the firm's mission statement, goals and overall financial outlook set out in the company's formal business plan. General procurement needs for companies forecast purchasing equipment, supplies, training and services, including buying items over a number of years. Purchasing a fleet of vehicles, for example, requires several years for smaller firms.

Specific Planning

The senior staff and company management meet to determine specific long- and short-term procurement plans. This involves making a detailed budget and projecting expenses for each month throughout the business year. This step requires a formal company policy to provide company vehicles for the staff.

Identifying Specific Needs

The next step in the procurement-to-pay process requires identifying specific company needs. The management teams seek input from the staff to determine specific procurement needs for the year. The company meets with the in-house staff, for example, to determine the type of vehicle, model and any special equipment required for the sales vehicles.

Locating Procurement Source

Once the company identifies a specific need, the next step requires making decisions for sourcing. This mandates research into sources for the product, sale terms, product or service quality and the estimated delivery time. Company buyers research auto vendors to identify vehicle suppliers at this point in the cycle.

Ordering

The company files an order for the product using the information from the procurement search in this step. This requires use of a legal contract or a company purchase order. Some procurement sources require special order forms, while others accept a purchase order or contract using the purchaser's in-house forms. Vehicle buyers order autos meeting the company needs at this point in the procurement-to-pay process.

Receiving Goods

Receiving ordered goods or services involves a process using the contract or purchase order to confirm the receipt of all items. If the order involves special conditions or modifications, the inspection ensures the product fills the exact order. The vehicles arrive at the company and the staff inspects each to make sure the cars match the order.

Making Payments

While companies without a credit rating typically provide a deposit with the purchase order or contract, most firms have bank endorsements or credit ratings from Standard and Poor's to order goods and send payment after the shipment arrives. The last step in the procurement process requires the company accepting the order to pay the supplier for the goods or services. The firm sends a check or transfers funds to pay for the sales vehicles in the fleet purchase to complete the PPP cycle.

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