CIPS Knowledge BYTES

Purchase to pay cycle documentation

This Knowledge Byte helps us to understand the different terms used along the purchase to pay cycle and what part they play in the process.

From the point of defining a need for goods and/or services to the point of payment there are many standard documents used by purchasing and supply management (P&SM) professionals. The purchase to pay or req (requisition) to cheque process is a standard for most organisations and spend types; the diagram below shows the process and the green boxes depicts some of the more common documents involved at each stage.

Where the goods or services are complex a specification document may also be attached with measurements or drawings etc. 2. Obtain quotes The purchasing team receive requisitions from departments and may wish obtain some quotes from suppliers. A request for quotation (RFQ) will be sent to a number of suppliers detailing the information received on the requisition and/or specification document. Again RFQs can be sent on paper or electronically eRFQs 3. Assess offers Once the procurement team have received the quotations they may want to tender the work to a selected number of suppliers. Tenders are often carried out where the cost is high, or a large volume of goods are required, or where the work is specialist and items may need to be bespoke. (Note that public sector organisations have strict regulations on the tendering of goods and services.) Invitations to tender (ITT) are sent to suppliers for them to quote their best price and details of how they will satisfy the requirements. Again these can be paperbased or electronic in their format. 4. Negotiate and formalise the agreement Once a supplier has been selected and a price agreed a contract is put in place to add some security to the supply. A contract is an unambiguous legal agreement with a company, another party, person or supplier to agreed terms and conditions. It is a useful tool to refer to should either party feel that there has been a change in circumstance.

5. Place an order Once there is a contract or agreement in place orders can be placed; purchase order documents usually have a generic reference number and are sent to the supplier detailing the quantities required and the deliver to details. Purchase orders (POs) are often approved by managers or the procurement team prior to being sent to the supplier. They often have the buying organisations terms and conditions printed on and can again be either paper based or electronic through an e-procurement system. 6. Receive the goods When goods are delivered they are often accompanied by a delivery note. This is a summary of all the items in the package and acts as a checklist for the buyer to ensure that no items are missing. It may also detail items that are out of stock and an expected delivery date. Once the items have been checked the buyer must confirm receipt of these to confirm that payment can be made. This can be by either completing a paper-based goods received note and forwarding it to procurement or accounts, or electronically confirming the receipt of the goods through an e-procurement system. Note services are more difficult to track this way as there is often nothing physical to deliver. Other means of confirming that the work has been carried out satisfactory are often used such as inspection, questionnaire or feedback etc.

7. Pay the supplier Invoice and remittance advice

1. Identify a requirement Requisition and/or specification

6. Receive goods Delivery and/or goods received note

Purchase to Pay Cycle

2. Obtain quotes Request for quotation

5. Place order Purchase order 4. Negotiate and formalise the agreement Contract

3. Assessment of offers Invitation to tender

1. Identify a requirement Departments within organisations are often asked to submit a requisition to the procurement team when they request goods or services. This can either be paper format or electronically through an e-procurement system. A requisition document will contain information such as item description, possibly a preferred or known supplier and the quantity required.
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Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org

PPT0063 FEB 07

Purchase to pay cycle documentation

This Knowledge Byte helps us to understand the different terms used along the purchase to pay cycle and what part they play in the process.

CIPS Knowledge BYTES

7. Pay the supplier The final steps in the process is of course the payment. The accounts team will now have information regarding the original purchase order number and details, a copy or confirmation of the delivery note and goods received information. If all these documents correspond to the invoice sent in from the supplier then payment can be made. A remittance note will be sent with the payment in order for the supplier to allocate the money received to the correct invoice. Rather like the tear off slip that we send with our cheques for utility or credit card bills. Summary There may be different steps included or omitted depending on the type of goods or services required or from one organisation to another. This Knowledge Byte helps us to understand the different terms used along the purchase to pay cycle and what part they play in the process.

FEB 07 PPT0063

Tel +44(0)1780 756777 Fax +44(0)1780 751610 Email ckw@cips.org Web www.cips.org