Procure to Pay (P2P) Glossary
Comprehensive definitions, formulas, and journal entries for EOQ inventory ordering, safety stock, DPO velocity, and three-way matching.
Economic Order Quantity (EOQ)
Optimal order quantity minimizing total annual inventory ordering and holding costs.
Safety Stock
Buffer inventory maintained to mitigate supply chain disruptions and demand surges.
Reorder Point (ROP)
Inventory threshold triggering a new replenishment purchase order.
Days Payable Outstanding (DPO)
Average number of days a company takes to pay its commercial trade vendors.
Accounts Payable Turnover Ratio
Liquidity metric measuring how many times payables are settled per year.
Three-Way Matching
Verification process comparing Purchase Order, Goods Receipt (GRN), and Vendor Invoice.
Purchase Price Variance (PPV)
Discrepancy between actual unit purchase price paid and ERP standard cost.
2/10 Net 30 Vendor Discount
Discount offering 2% price reduction if paid within 10 days, else full balance due in 30.
Goods Received Note (GRN)
Receiving document confirming physical receipt and inspection of ordered goods.
GR-IR Clearing Account
ERP interim clearing account bridging received goods (GR) and billed vendor invoices (IR).
Carrying Cost (Holding Cost)
Total cost of storing inventory including warehouse, capital, insurance, and spoilage.
Ordering Cost (Procurement Cost)
Fixed administrative cost incurred per purchase order issuance regardless of order size.
Service Level (Z-Score)
Target percentage probability of fulfilling customer demand without running out of stock.
Stockout Cost
Financial loss suffered when inventory is depleted during active customer demand.
Spend Under Management (SUM)
Percentage of total enterprise expenditure actively managed by procurement sourcing teams.
Maverick Spend
Unapproved corporate purchasing executed outside negotiated vendor contracts.
Dynamic Discounting
Early payment discount sliding scale based on the exact day an invoice is settled.
Purchase Order (PO)
Legally binding commercial document issued by buyer to seller specifying goods, quantity, and price.
Vendor Master File
Central database containing approved vendor tax IDs, banking details, and payment terms.
Lead Time Demand
Total anticipated inventory consumption during the procurement lead time window.
Quantity Discount
Unit price reduction incentive granted by suppliers for purchasing larger order volumes.
Tail Spend
Unmanaged 20% of corporate purchasing transactions representing high volume but low dollar value.
Procure-to-Pay (P2P) Cycle Time
Total elapsed time from initial requisition submission to final vendor payment disbursement.
Reverse Factoring (Supply Chain Finance)
Financial arrangement where a financial institution pays vendor invoices early at a discount.
ABC Inventory Classification
Categorization of inventory into A (high value), B (moderate value), and C (low value) tiers.
Purchase Requisition
Internal document requested by a department seeking authorization to issue a vendor PO.
Blanket Purchase Order
Long-term purchase agreement with a vendor allowing multiple delivery releases over time.
Voucher Package
Assembled audit documentation package supporting accounts payable disbursement authorization.
Trade Payables
Short-term liabilities owed to commercial suppliers for inventory and operating supplies.
Economic Order Quantity with Shortages
EOQ model variant permitting planned backorders when stockout costs are known.
Lead Time Variability (Std Dev)
Statistical variance in supplier delivery times influencing required safety stock buffers.
Vendor Performance Rating
Composite index rating vendor on-time delivery, quality acceptance, and invoice accuracy.
Early Payment Discount Capture Rate
Percentage of available vendor early payment discounts successfully captured by treasury.
Unbilled Receivables / Accruals
Accrued trade liability for goods physically received before vendor invoice receipt.
Standard Costing
Cost accounting system assigning predetermined expected costs to inventory units.
Purchase Order Volume Variance
Variance caused by ordering different inventory batch sizes than budgeted.
Supplier Consolidation Ratio
Reduction in active vendor master accounts achieved through strategic sourcing.
Net Terms (Net 30 / Net 60)
Standard trade credit term establishing full invoice payment deadline post-billing.
Order Fulfillment Cycle Time
Time required from vendor PO placement to physical receipt into warehouse stock.
Vendor Rebates
Retrospective volume discounts refunded by suppliers upon hitting annual purchasing thresholds.
Inventory Holding Rate (%)
Annual carrying cost expressed as a percentage of unit inventory purchase cost.
Inventory Shrinkage
Discrepancy between recorded book inventory and physical count due to theft or damage.
Work-in-Process (WIP) Procurement
Procured raw materials currently undergoing active manufacturing transformation.
Automated Invoice Processing
OCR and ERP workflow engine processing straight-through electronic vendor invoices.
Trade Payables Discount Rate
Annualized cost of foregoing vendor early payment discounts.
Reorder Point with Safety Stock
Comprehensive ROP model combining mean lead time consumption with safety stock.
Purchase Order Approval Matrix
Governance delegation table assigning PO dollar authorization limits to managerial roles.
In-Transit Inventory
Goods purchased under FOB shipping terms in transit from vendor warehouse.
Two-Way Matching
Verification process comparing Purchase Order and Vendor Invoice quantities/prices.
Vendor Onboarding Compliance
Verification protocol collecting W-9/W-8BEN, TIN validation, and OFAC sanction checks.
Procurement ROI
Efficiency metric measuring total annual procurement cost savings against operating budget.
Working Capital Impact of DPO
Amount of cash unlocked or consumed by changing trade payables DPO velocity.