Practical definitions: purchasing, procurement, and accounts payable (AP)
Purchasing is the operational activity of buying a specific good or service: selecting a supplier, placing an order, and ensuring delivery at the agreed price, quantity, and time.
Procurement is the broader set of controls and decisions that govern buying: policies, approvals, sourcing strategy, supplier management, and ensuring purchases align with business goals (cost, risk, compliance, sustainability where applicable). Purchasing is usually a subset of procurement.
Accounts Payable (AP) is the function that verifies supplier invoices and pays them accurately and on time, using agreed terms and proper accounting. AP protects cash, prevents duplicate/incorrect payments, and ensures expenses are recorded correctly.
Course scope in one sentence
This course focuses on converting an internal need into an approved purchase and a paid supplier invoice, using a controlled end-to-end cycle that creates reliable documentation for operations, compliance, and accounting.
The simple process map: Request → Approve → Source → Order → Receive → Invoice → Pay
Think of request-to-payment as a chain where each step produces evidence that the next step can trust. Skipping steps usually saves minutes now and costs hours later (rework, disputes, audit findings, or stockouts).
- Listen to the audio with the screen off.
- Earn a certificate upon completion.
- Over 5000 courses for you to explore!
Download the app
| Step | Main output | Why the step exists |
|---|---|---|
| Request | Requisition (what is needed, why, when) | Captures business need; enables budgeting and planning |
| Approve | Authorization to spend | Cost control; policy compliance; prevents unauthorized buying |
| Source | Selected supplier and commercial terms | Best value; supply assurance; risk and compliance checks |
| Order | Purchase Order (PO) or contract call-off | Creates a clear, auditable commitment and instructions to supplier |
| Receive | Goods Receipt Note (GRN) / service acceptance | Confirms delivery; triggers inventory/asset records; prevents paying for non-received items |
| Invoice | Validated invoice ready for posting | Accurate accounting; detects price/quantity errors; tax correctness |
| Pay | Payment and remittance | Supplier relationship; cash management; closes the transaction |
Running example used throughout the course: laptop chargers for new hires
Scenario: HR has 12 new hires starting next month. IT needs 12 compatible laptop chargers (USB-C, 65W) to include in onboarding kits. The company wants to buy from approved suppliers and pay on net-30 terms.
We will reuse this example to illustrate documents, controls, and common issues (wrong model, partial delivery, invoice mismatch, urgent requests, and how to handle exceptions).
Step-by-step walkthrough with the running example
1) Request (Requisition)
What happens: A requester documents the need in a requisition (in an ERP, purchasing system, or a controlled form). The requisition is not an order; it is a request for permission and action.
Why it exists: It creates a single source of truth for what is needed and supports budget checks and planning.
Example: IT submits a requisition for “Laptop chargers, USB-C 65W, quantity 12, needed by: 15th of next month, cost center: IT Onboarding.”
- Key fields that prevent rework: clear specifications (wattage, connector type), quantity, required date, delivery location, cost center/project, justification (“new hires”), and any preferred/approved supplier if policy allows.
- Common failure: vague description (“chargers for laptops”) leading to wrong items and returns.
2) Approve (Spend authorization)
What happens: The requisition is reviewed and approved according to the organization’s approval matrix (by amount, category, or department). Some organizations also require budget confirmation.
Why it exists: It prevents unauthorized spend, supports cost control, and enforces policy (e.g., buy from approved suppliers, follow thresholds).
Example: The IT manager approves the requisition because it is within budget and aligned with onboarding needs.
- Practical check: Is the quantity reasonable (12 hires = 12 chargers)? Is the required date realistic? Is the category correct (IT peripherals)?
- Common failure: “urgent” bypasses approval, creating compliance issues and later payment disputes.
3) Source (Select supplier and terms)
What happens: Purchasing/procurement identifies the best way to buy: use an existing contract/catalog, request quotes, or run a competitive process depending on value and policy.
Why it exists: It drives best value, reduces risk (counterfeit goods, warranty issues), and improves supply assurance (availability, lead time).
Example: Procurement checks the approved supplier catalog and finds Supplier A offers the exact model at $28 each with 5-day delivery; Supplier B offers $26 but 3-week lead time. Because the need date is soon, Supplier A is selected.
- Practical checks: compatibility (65W), warranty/returns, delivery lead time, and whether the supplier is in the approved vendor list.
- Common failure: choosing the lowest unit price without considering lead time, causing onboarding delays and emergency purchases.
4) Order (Purchase Order)
What happens: A PO is issued to the supplier. The PO is the formal instruction and commitment: item, quantity, price, delivery address, delivery date, payment terms, and PO number for invoicing.
Why it exists: It prevents misunderstandings, provides an auditable commitment, and becomes the reference point for receiving and invoicing.
Example: A PO is created for 12 chargers at $28 each, delivery to the IT storeroom, requested delivery by the 15th, payment terms net-30, and “invoice must reference PO number.”
- Practical tip: Ensure the PO line description matches what will be received and invoiced. If the supplier invoice description differs, matching becomes harder.
- Common failure: ordering by email without a PO, then AP has no reference for matching and approval.
5) Receive (Goods receipt / acceptance)
What happens: When goods arrive, the receiving team verifies quantity and basic condition, then records a receipt (often a GRN). For services, this is an acceptance confirmation.
Why it exists: It confirms the company actually received what it will pay for, updates inventory/asset records, and provides evidence for invoice matching.
Example: The storeroom receives 12 boxes. They open and spot-check: correct model and wattage. A GRN is posted against the PO for quantity 12.
- Practical checks: count items, check model number, note damages, record partial deliveries correctly (e.g., 10 received now, 2 later).
- Common failure: not recording receipt in the system; AP cannot match the invoice and payment is delayed.
6) Invoice (Invoice capture and validation)
What happens: The supplier sends an invoice referencing the PO. AP captures it (email, portal, EDI, scanning) and validates it before posting for payment.
Why it exists: It ensures accurate accounting, correct tax treatment, and prevents overpayment or duplicate payment.
Example: Supplier A invoices 12 chargers at $28 each plus shipping. AP checks that shipping is allowed per PO/terms and that the invoice references the correct PO number.
- Practical checks: supplier name matches the vendor master, invoice number uniqueness, PO reference, line prices, quantities, tax, freight, and payment terms.
- Common failure: invoice comes from a different legal entity name than the vendor master record, causing processing delays until corrected.
7) Pay (Payment execution)
What happens: After validation and any required approvals, AP schedules payment according to terms and cash policy (e.g., net-30). Payment is issued (bank transfer, ACH, etc.) and remittance advice is sent.
Why it exists: It protects cash (pay only what is due), maintains supplier relationships, and closes the transaction with a clear audit trail.
Example: AP pays Supplier A on day 30 from invoice date, referencing the invoice and PO, and records the expense to the correct cost center.
- Practical checks: bank details from controlled vendor master process (not from an email request), correct payment date, and correct invoice selection.
- Common failure: paying early without discount justification or paying late due to missing receipt/invoice mismatch.
Why each step matters: the four control goals
1) Cost control
- Requisition + approval prevents unplanned spend.
- Sourcing compares options and avoids “whatever is fastest” pricing.
- Invoice validation prevents overbilling and duplicate payments.
2) Compliance and auditability
- Approvals demonstrate authorization.
- POs and receipts create traceable documentation.
- Vendor master controls reduce fraud risk (e.g., fake suppliers or changed bank accounts).
3) Supply assurance
- Sourcing considers lead times, availability, and supplier reliability.
- Ordering and receiving ensure the right items arrive when needed.
4) Accurate accounting
- Receipts support correct timing of expense recognition and inventory/asset updates.
- Invoice checks ensure correct amounts, taxes, and coding (cost center, account, category).
Glossary of key terms used throughout the course
- Requisition (Purchase Requisition): An internal request to buy something; starts the process and triggers approval and sourcing.
- PO (Purchase Order): A formal order sent to a supplier specifying items/services, quantities, prices, delivery details, and terms.
- GRN (Goods Receipt Note) / Goods Receipt: Record that goods were received (or services accepted), usually referencing the PO.
- 3-way match: A control where AP matches PO + receipt (GRN) + invoice before paying, to confirm the company ordered, received, and was billed correctly.
- Vendor master: The controlled database of supplier records (legal name, address, tax info, payment terms, bank details). Used to prevent errors and fraud.
- Spend category: A classification of what is being purchased (e.g., IT peripherals, office supplies). Used for reporting, policy rules, and sourcing strategies.
