Purchasing is where money leaves the company, so it is also where mistakes and misuse hide. A supplier is paid twice, an order is approved by the person who raised it, goods arrive short but the full invoice is paid. A purchase-to-pay (P2P) process puts a few simple gates between a need and a payment. It does not have to slow the business; with the right ERP settings each gate takes seconds. Here is how to design it.
The six steps
- Requisition: a person asks for goods or services, stating item, quantity, reason and, where relevant, the project or cost centre.
- Purchase order (PO): purchasing selects a supplier, agrees price and terms, and issues a numbered order. A manager approves it according to value.
- Goods or service receipt (GRN): the store or the requester confirms what actually arrived, with quantities and condition.
- Supplier invoice: accounts records the invoice against the PO.
- Three-way match: the system compares PO, receipt and invoice. Matching lines are approved automatically; differences go to a person.
- Payment: approved invoices are paid on the due date by a payment run, with a second person approving the bank file.
Approval limits that work
| Order value (example) | Approver |
|---|---|
| Up to a small limit | Department manager |
| Medium | Department manager and finance lead |
| Large or unbudgeted | General manager or owner |
| Capital items and contracts | Owner, with quotes attached |
Set the real amounts for your business. Always name a deputy for each approver, and use a phone notification so approvals do not wait for someone to open a laptop.
The three-way match, explained
Suppose you ordered 100 units at AED 50. Fifty-eight arrived. The invoice says 100 units at AED 50. The system flags a difference: the invoice quantity exceeds the receipt. Your options are to hold payment for the missing 42, ask the supplier for a corrected invoice, or approve a partial payment. Without a match, accounts would see an invoice that looks correct and pay it.
Set tolerances so small differences do not block work: for example a price difference of up to 1% or a quantity difference of up to 2%, outside which a person must decide. Review tolerances every quarter.
Controls on the supplier list
- Only authorised staff can create or change suppliers, and not the same people who approve payments.
- Verify the supplier's tax registration number and company details from their documents before activating them.
- Any change to bank details is confirmed by phone with a known contact, not by replying to an email.
- Deactivate suppliers who have not been used for a long period.
- Check for duplicate suppliers with similar names, which are a common cause of double payment.
VAT on purchases and imports
You can generally recover VAT on business purchases only with a valid tax invoice, and some categories are restricted. Record the VAT treatment on each bill line. Purchases from abroad can create a self-assessed VAT entry; make someone responsible for checking it. For imported goods, add freight, duty and clearing to the item cost so margins are right. See the tax invoice requirements checklist and ERP for trading companies.
Services and non-stock purchases
Not everything has a physical receipt. For services, the requester confirms completion in the system, or the invoice is matched to an approved contract or schedule. For recurring costs such as rent or subscriptions, set up recurring invoices and approve the arrangement once, with a review date.
Payment runs and cash planning
- Pay on due dates, not on request, unless a discount makes early payment worthwhile.
- Generate the bank payment file from approved invoices only, and have a second person release it.
- Track post-dated cheques issued, so the cash forecast shows when they will clear.
- Keep a supplier statement reconciliation each month for your largest suppliers.
Warning signs to watch
- Orders raised after the invoice arrives.
- Payments without a purchase order.
- Many invoices just below an approval limit.
- The same person requesting, approving and receiving.
- Round-number invoices from new suppliers.
A good ERP reports each of these. See access controls and audit trails for how to separate duties, and the month-end close checklist for how P2P data feeds your accounts.