A Working Capital Hub Best Practice Manual
Purchase to Pay -
Working Capital Hub's
Self Assessment
Framework
Author: Alexander Flach
Last updated: August 13, 2025
Table of Content
- Procurement Strategy, Budget and Forecast Process
- Sourcing, Supplier Selection and Contracting
- Requisition and Order Management
- Goods and Invoice Receipt and Evaluation
- Invoice Processing
- Terms
- Dispute Management
- Payment Issuance
Introduction
The Cash Conversion Cycle is often approached through one of three separate processes, namely Purchase to Pay, Forecast to Fulfill and Order to Cash.
How well a company manages these processes has a direct impact on its Operating Working Capital requirements.
Purchase to Pay (P2P) covers the procurement lifecycle, from purchasing goods or services to paying suppliers. Key steps include supplier selection, purchase order creation, goods receipt, invoice receipt and matching and payment processing.
The Purchase to Pay process is crucial for working capital management as it directly influences cashflow and liquidity.
By optimizing each step of the cash conversion cycle – from procurement to payment -companies can control expenses, improve supplier relationships, and ensure timely payments, ultimately freeing up cash and enhancing financial flexibility.
What is the Purchase to Pay Cycle?
The Purchase-to-Pay (P2P) cycle covers the end-to-end process of acquiring goods and services and settling supplier obligations - from purchase requisition and order placement, through goods receipt, invoice processing, and final payment.
It integrates procurement, operations, finance, and supplier management, making it a critical driver of both working capital efficiency and supplier relationships.
Why the Purchase-to-Pay Cycle Matters
A well-managed P2P process directly influences operating working capital, liquidity, and overall business performance:
- Optimizes cash outflows → ensures supplier payments are made accurately and on time, while avoiding unnecessary early payments that reduce liquidity.
- Strengthens supplier relationships → builds trust and reliability through transparent, consistent, and timely payment practices.
- Reduces process costs → automation and standardization minimize errors, duplicate invoices, and administrative overhead.
- Improves compliance & control → enhances visibility into spend, reduces fraud risk, and enforces policy adherence.
- Supports working capital efficiency → maximizes the use of agreed payment terms and aligns supplier financing strategies with business needs.
- Boosts resilience → ensures supply continuity through reliable procurement and payment practices, even during disruptions.
- Enables better decision-making → provides data-driven insights into supplier performance, cash requirements, and procurement efficiency.
When executed effectively, the Purchase-to-Pay cycle is more than a back-office function - it is a strategic enabler of liquidity, supplier trust, and long-term growth.
Purchase to Pay - Self Assessment Framework
Unlock the full potential of your Purchase to Pay process with Working Capital Hubs’ self-assessment framework.
This excel-based tool helps you evaluate each stage of your Purchase to Pay workflow – from strategy to execution and follow-up – identifying strengths, gaps, and areas for improvement.
Rate your organization's performance on each sub-category on a 4 graded scale ranging from: Not at all to Complete.
This will help you identify your problem areas, as well as understand where your strengths lie.
Gain control over your procurement and payment cycle efficiency and streamline operations with insights designed to enhance your Purchase-to-Pay maturity
Areas of Review in Working Capital Hub's P2P Self Assessment Framework
1. Procurement
Strategy, Budget and Forecast Process
1.1. Sourcing & Procurement Strategy
- Strategy defined and in place, including standardized setup with dedicated resources.
- Central sourcing policy include guidelines for supplier selection, e.g., quality, price, standard payment terms, lead time, compliance, and risk.
- A structured PLC policy and process in place guiding product development, growth, and discontinuation.
- Policy guidelines are aligned with overall business goals and market trends.
- Robust tools and dedicated cross-functional teams (e.g., R&D, sales, production) in place to ensure efficient workflows and seamless execution.
1.2. Supplier Categorization & Control
- Formalized material & supplier categorization in place, with dedicated category managers.
- Budgets and forecasts by category are regularly updated, monitored and controlled.
- Accurate Bills of Materials (BoMs), including material requirements and standard costs, are maintained and continuously updated for each SKU (Stock Keeping Unit).
- BoM revisions are documented and effectively communicated to all relevant stakeholders across the organization.
- BoMs are seamlessly integrated with key systems such as ERP (Enterprise Resource Planning) and MRP (Material Requirements Planning) to ensure alignment and efficiency.
1.3. Spend
Consolidation
- Approved supplier- and purchase item lists are developed and maintained.
- Preferred supplier lists developed and communicated.
- Regular spend analysis in place to drive consolidation decisions.
- Demand profiles and profitability by SKU are continuously analyzed and evaluated, providing critical input to the Product Life Cycle (PLC) process.
- Clear guidelines are established and actively enforced to determine when a product should be replaced or discontinued.
- Structured processes and guidelines are in place to ensure that discontinued or replaced products are effectively phased out and removed from the assortment.
2. Sourcing,
Supplier Selection
and Contracting
2.1. Supplier Selection
& Appraisal
- Formalized process and method for supplier evaluation and selection defined, based on sourcing policy guidelines.
- Guidelines and decision-criteria for use of frame agreements defined and communicated.
- Formalized process in place to ensure sales forecasts and demand plans are regularly generated using the best available historical data and market insights.
- Sales forecasts and demand plans are separate from the overall sales plan and provide an unbiased view of gross demand (i.e., without accounting for current inventory levels).
- The time horizons, frequency, and level of granularity of the forecasts are aligned with operational demand planning requirements and serve as key inputs to recurring S&OP (Sales and Operations Planning) meetings.
2.2. Negotiation Guidelines & Execution
- Negotiation guidelines and standard contract templates are accessible to organization.
- Method for weighing cost vs. lead time and terms defined and communicated.
- Authorization levels defined.
- Advanced tools and technologies (e.g., predictive analytics or AI) is used to enhance forecasting capabilities.
- The forecasting and demand planning tool can handle various level of granularity (e.g., SKU, region, time horizon) and accommodate scenario planning.
- Forecasting and demand planning tools are integrated with key systems like ERP or supply chain management tools.
2.3 Contract Mgmt. & Supplier Master Data
- Centralized supplier- and contract database in place with restricted system access.
- Process to ensure continuous supplier master record update and maintenance in place.
- Forecasts and demand plan accuracy are tracked and reviewed regularly, with updates made to reflect real-time changes in customer behavior or market conditions.
- Feedback loops are in place to identify forecasting errors and implement corrective actions.
3. Requisition and Order Management
3.1. Preferred Supplier & Spend Control
- Standardized requisition tools in place and used for the majority of purchases.
- Tracking in place to ensure majority of spend is through standard requisition tool and with preferred suppliers.
- A formalized process (e.g., Integrated Business Planning) is in place to evaluate future capacity requirements based on the overall business plan, updated forecasts, and current supply chain conditions and constraints.
- Current resource capacity constraints, including labor, equipment, and facilities, are thoroughly mapped and understood.
- Strategies and contingency plans, such as capacity buffers, adding shifts, outsourcing, or capital investments, are defined and readily available for both short- and long-term capacity adjustments.
3.2. Purchase Order Management
- Purchase Order usage policy established
- Control in place to ensure PO adherence to contracts (e.g., price, discounts and terms).
- Tracking in place to to ensure POs are used on majority of transactions.
- A formalized process is in place to ensure supply plans are generated using the latest demand plans, available capacity, inventory levels, and service level requirements, and serve as key input to recurring S&OP (Sales and Operations Planning) meetings.
- Supply plans are aligned with procurement to confirm material availability, considering replenishment lead times and potential supply chain risks.
3.3 Order Types, Timing & Frequency
- Electronic order system in place and used for a majority of transactions.
- Order frequency and volumes are based on demand patterns and replenishment lead-times to ensure optimized inventory levels and availability.
- Available systems provide visibility of inventory levels, capacity and production schedules across multiple locations.
- Advanced tools and technologies (e.g., workflow and capacity planning) is used to enhance supply planning capabilities.
- Demand plans are automatically converted to material requirements, based on latest available bill of materials (BoM).
4. Goods and Invoice Receipt and Evaluation
4.1. Supplier Performance Management
- Formalized and mandatory supplier performance measurement system established including key supplier metrics.
- Regular and structured performance evaluation in place with feedback loop to supplier.
- A formalized S&OP process is in place, with meetings held at regular intervals and cross-functional participation from Sales, Production, Purchasing, Logistics, and Finance.
- The S&OP process reviews customer demand and supply resources, delivering a consensus plan across an agreed rolling horizon.
- The S&OP meetings also routinely evaluate the execution of the consensus plan and adjust plans as needed based on outcomes.
4.2. Goods & Service Receipt
- Standard process in place for receiving, accepting and recording goods or services received, including 3-way match.
- Tracking in place to ensure process compliance.
- All agreed-upon plans align with overall business strategy, and conflicts or disagreements are resolved collaboratively with focus on achieving the best outcome of the business.
- All S&OP meeting decisions are documented, with clear ownership and timelines assigned for action items.
- All agreed-upon action items are tracked and followed up in subsequent meetings.
4.3 Invoicing Method, Posting & Trigger
- System in place to receive invoices electronically or via EDI.
- Payment trigger based on invoice receipt in cases where this can be negotiated.
- Tracking in place to identify posting delays.
- Relevant S&OP metrics, such as forecast accuracy, service levels, inventory, capacity utilization and plan attainment, are reviewed and discussed during S&OP meetings.
- Deviations from plans or targets are identified and addressed as part of the S&OP process, with corrective actions agreed upon, implemented, and followed up.
5. Invoice Processing
5.1. Consolidated Invoicing
- Policies in place for requesting consolidated invoices from large or often used suppliers.
- In cases where consolidated invoices are used, they are entered into systems with clear reference to underlying POs.
- Formalized process in place for production planning and scheduling, including frozen time horizons (where no changes are allowed).
- Production plans and scheduling are aligned with agreed consensus plan, with little or no changes to volume or product type.
- Critical parameters such as base quantities, set-up times, lead times and bottle necks are understood and actively used in production planning and scheduling.
5.2. Invoice Control & Matching
- Automated process for 3-way match installed, comparing at PO, Packing Slip and Invoice.
- Tracking in place to identify discrepancies and prevent duplicate entry or faulty invoices.
- Unplanned downtime of production assets are minimized through proactive maintenance and effective scheduling.
- Robust quality control measures in place to address issues early in the process. Production output generally meets quality standards with minimal rework or defects.
- Continuous improvement initiatives are common to enhance production reliability, throughput and quality.
5.3. Terms Application vs. System Terms
- Process of checking applied invoice payment term versus system terms in place.
- Automated overruling of invoiced terms if not matching contract / master data terms.
- Production planning software is in place, integrating inventory, sales, and production data.
- Relevant metrics, such as Overall Equipment Effectiveness (OEE), capacity utilization, plan attainment, and plan stability, are visibly displayed on performance boards, and reviewed and discussed during daily and weekly planning and production meetings.
- All productivity targets are defined and set to avoid incentivizing production volumes above planned levels.
6. Terms
6.1. Standard Payment Terms
- Standard supplier payment policy in place and always used as base in negotiations.
- Supplier payment policy include: specified payment terms, trigger date for payment and guidelines for term application.
- Differentiated stock holding and replenishment strategy and service level requirements set by SKU category, where parameters are defined based on e.g., demand profile, volume and value (e.g., ABC, XYZ).
- Formalized process in place to ensure inventory replenishment parameters such as lead time, batch sizes, production rates and minimum order quantities (MOQ) are continuously updated to reflect reality.
- Formalized process in place to ensure planning assumptions such as re-order points, re-order frequencies, and safety stock requirements are continuously reviewed and updated.
6.2. Prepayments vs. Milestone Payments
- Policy in place to minimize the use of supplier prepayments.
- In cases where suppliers ask for prepayments (e.g., large volumes or Capex investments), milestone payment plans are negotiated to greater extent.
- Integrated real-time inventory management system is used to monitor and identify slow moving and obsolete stock (SLOB).
- Documented and applied clearance processes are in place.
- Sales incentive structures include performance on SLOB clearance.
6.3. Early Payment Discounts
- Policy re: use of early payment discounts in place.
- Such discounts are analyzed on the basis of a trade-off analysis against the weighted average capital cost (WACC) .
- Senior level approval is required for early payments.
- Integrated real-time inventory management system with automated replenishment alerts is used to manage inventory mix and levels.
- Relevant inventory management metrics, such as days inventory outstanding (DIO), service level, SLOB%, stock out rates and cassation are reviewed and discussed during planning meetings.
- Inventory targets set and continuously monitored and updated.
- Inventory records are accurate, regularly updated, and reconciled with physical stock.
7. Dispute
Management
7.1. Dispute Management Setup
- Formalized dispute mgmt. process defined, including roles & responsibilities.
- Tracking in place to capture number of disputes, type of disputes and dispute resolution times.
- Warehouses are positioned at strategic locations to balance proximity to demand centers and cost efficiency.
- Warehouse layout and processes are optimized for efficient picking, packing and storage.
- Inventory storage systems, such as shelving and pallets, are designed to maximize space utilization, optimize first-in-first-out (FIFO) and reduce handling time.
7.2. Part Payments
- Policy regarding part payments of disputed invoices in place.
- For disputes regarding invoice amount, suppliers are required to credit faulty invoices in full and subsequently re-invoice with the correct amount.
- Transportation routes and schedules are optimized to minimize lead times and delivery costs.
- Contingency plans are in place to manage delays, disruptions, or unexpected demand spikes.
- Any third-party logistics (3PL) providers, if used, are continuously evaluated for cost-effectiveness and service quality.
7.3. Credits & Duplicate Payment Recovery
- Recovery of discounts or duplicate payments are performed according to established dispute management processes.
- System setup blocks duplicate payments. Also, PO matching discovers invoice mistakes before payments are released.
- Warehouse and logistics planning systems are integrated with inventory management systems to synchronize stock updates.
- Transportation, warehousing, and handling costs are regularly tracked and analyzed for potential improvements.
8. Payment Issuance
8.1. Payment Timeliness
- Approved invoices due are automatically included in bank run.
- Process in place to ensure that no invoices are paid before due date, including periodic follow up.
- Invoices due on weekends and holidays are paid the following bank day.
- Warehouses are positioned at strategic locations to balance proximity to demand centers and cost efficiency.
- Warehouse layout and processes are optimized for efficient picking, packing and storage.
- Inventory storage systems, such as shelving and pallets, are designed to maximize space utilization, optimize first-in-first-out (FIFO) and reduce handling time.
7.2. Transportation
- All supplier invoices are processed and paid electronically.
- Process determining payment run frequency in place, including differentiated process for domestic versus international payments.
- No check payments allowed
- Transportation routes and schedules are optimized to minimize lead times and delivery costs.
- Contingency plans are in place to manage delays, disruptions, or unexpected demand spikes.
- Any third-party logistics (3PL) providers, if used, are continuously evaluated for cost-effectiveness and service quality.
8.3. Authorization & Cash Management
- Streamlined approach for approval of invoices in place.
- Controlled payment authorization process with proposed payment listing review and approval prior to payments.
- Warehouse and logistics planning systems are integrated with inventory management systems to synchronize stock updates.
- Transportation, warehousing, and handling costs are regularly tracked and analyzed for potential improvements.
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