What is the P2P Process in Accounts Payable?

The P2P procedure covers the purchasing of products and services through payment accounts payable. It starts with drafting a purchase order, followed by receiving the goods or services, comparing them to the invoice and order, and is finally concluded with payment.

Nowadays, most businesses prefer electronic payments over cheques because of their ease of use, security, and low cost. They increase cash flow management and payment visibility.

Steps Involved in Accounts Payable Service

The business must understand the steps involved in the P2P process to facilitate a smooth acquisition of products or services by completing the payments to dealers. These steps are as follows –

Step 1- Requisition

The initial step is identifying the business needs for any particular product or service. The procurement department must send the needs so that the request can proceed further for approval and purchase of such needs.  

Step 2- Supplier Selection

The senior management and the procurement department analyze the market and vendors to compare their prices, quality, and the time required for delivery. After analyzing all the details, the management decides to choose the vendor.

Step 3- Purchase Order

The order is made to the selected vendor with the details of the order. It includes the type, quantity, quality, time limitation, etc (whichever is applicable). The order is executed based on the agreed terms between the two parties.

Step 4- Order Execution

The vendor must comply with the terms already agreed upon and fulfil its duty by delivering the same quality of the order in the desired time frame.

Step 5- Order Receipt

The vendor, on delivering the order to the business organization, must provide the receipt for the said order to the entity to receive the payment. The business entity checks the delivered order and the quality of the work before receiving and acknowledging such payment receipt.

Step 6- Processing of Invoice

After checking the invoice, the business solves any discrepancies with the vendor. If anything else, they initiate the payment.

Step 7- Payment Authorization

The payment needs to be authorized by the senior management and the payment order has to be made to the accounts department of the organization.

Step 8- Payment Execution

The payment is executed in favour of the vendor through the modes acceptable by both parties. The payment can be done through any online mode, cheque, RTGS, NEFT, cash, or another mode as accepted.   

How to Record Accounts Payable?

Every transaction in double-entry accounting needs an equivalent credit and debit entry made in the general ledger. The asset or expense account for the products or services that were purchased is debited by the accountant when they report accounts payable.

When bills or invoices are received, the accounts payable account is credited simultaneously. By ensuring that all debits and credits are equal, the balance in the accounting records is maintained.

For Example, suppose, your business organization has made a credit purchase of Rs 1000. As soon as the organization’s bookkeepers receive the invoice for said purchase, they record this amount as credit in accounts payable and debit the same amount in office expenses. A purchase transaction is recorded even though there has been no debit from business accounts. A Rs 1000 credit to business cash account and Rs 1000 debit to business accounts payable is recorded by the bookkeepers as soon as the bill is paid on the payment due date.