The 10 standard steps

The flow

Requisition → Req approval → PO → PO approval →
Goods receipt → Invoice receipt → 3-way match →
Invoice approval → Payment → Bank reconciliation

Ten steps. Three of them post journal entries (steps 5, 8, 9). The other seven are controls. Skip a control and the accounting still happens — just wrong.

Step-by-step

1. Purchase Requisition

Demand is identified. The source is typically one of four:

• Production planning — MRP runs against the master production schedule and calculates net requirements; a shortage on mango concentrate triggers a requisition automatically
• Sales forecast — demand planning anticipates next period’s orders and asks procurement to pre-position stock
• Inventory replenishment — a reorder point is breached on citric acid; the system auto-creates a requisition
• Operational request — maintenance needs a pump seal; facilities needs toner; a direct user requisition is created

In each case, the output is a requisition document with: item, quantity, estimated cost, justification, required-by date.

No GL impact. This is a request, not a transaction.

2. Requisition approval

The department head or budget owner approves. Multi-level approvals kick in if the amount exceeds a threshold (e.g., under 1,000 SAR → manager; over → CFO).

Budget check happens here too: is there still money in the department’s budget for this line?

3. Purchase Order (PO)

Procurement converts the approved requisition into an outgoing PO. They select a supplier, confirm the price, agree a delivery date, and send the PO out.

Still no GL impact. A PO is a commitment, not a transaction. It shows up on the commitment report (liability you’ll incur when goods arrive).

4. PO approval

Final sign-off, usually by procurement manager or CFO. Some companies skip this if step 2 already had senior approval — that’s a policy call.

5. Goods receipt

The supplier delivers. Warehouse inspects quantity and quality, marks the PO as “received.”

Here’s the first GL impact:

Account	DR	CR
Raw Material Inventory	X
AP Accrual (goods received, not yet invoiced)		X

Why the accrual? Because the goods are now yours (you owe the supplier) but the invoice hasn’t arrived yet. If you wait until the invoice to post anything, your month-end balance sheet lies.

6. Invoice receipt

The supplier sends their invoice — could be a physical copy, an e-invoice XML, or a PDF by email. The AP clerk enters it (or scans it for OCR).

7. Three-way match

The single most important control in P2P.

System compares three documents:

• PO — what you agreed to buy, at what price
• Goods receipt — what you actually received
• Invoice — what the supplier is asking you to pay

The three must agree on quantity, price, and item, within a configurable tolerance. If the supplier sends an invoice for 510L instead of 500L, the match fails. Either negotiate a correction or accept within tolerance.

8. Invoice approval

After the match passes, the invoice is approved for payment.

Second GL impact:

Account	DR	CR
AP Accrual (clearing)	X
VAT Input	Y
Accounts Payable — Supplier		X + Y

The accrual from step 5 gets cleared. The real liability (with VAT) moves to the supplier’s AP sub-ledger.

9. Payment

Treasury pays the supplier — wire transfer, check, direct debit, whatever was agreed.

Third GL impact:

Account	DR	CR
Accounts Payable — Supplier	X + Y
Bank		X + Y

If there are bank charges, they get split out: DR Bank Charges, CR Bank.

10. Bank reconciliation

At month-end, finance matches the bank statement to the payments you recorded. Every outflow should have a corresponding payment entry. Anything unmatched is investigated.

The six SMB problems

Every SMB we walk through has some subset of these:

A. Three-way match is manual. An accountant sits with a stack of POs, receipts, and invoices, eyeballing them. 5-15 hours a month of clerical work. 20-30% of invoices get paid with small discrepancies nobody bothered to chase.

B. Missed accruals. Goods arrive on day 28, invoice doesn’t come until day 3 of next month. Without an accrual at step 5, month-end liabilities are understated. Auditor finds it. Adjusting entry. Embarrassing.

C. Duplicate payments. Same invoice, paid twice — sometimes because the supplier re-sent it, sometimes because the PO number was typed wrong. Typical SMB loses 0.5-1% of annual spend to duplicates.

D. No approval trail. “Did you approve this PO?” “No.” “But it’s approved in the system.” — no user, no timestamp, no change log.

E. Wrong inventory cost. Manual cost entry into Excel, multiple operators, rounding errors, FX variance ignored. COGS drifts from reality. Pricing decisions go bad.

F. No visibility. “How much are we committed to pay next month?” The accountant says “I’ll get back to you” and spends two hours building a pivot table.

Next lesson

In Lesson 3 — How AION automates P2P, we’ll walk through each of the ten steps and show the exact AION features that automate them, plus the SLA engine that makes every journal entry appear on its own.