Procure to Pay Process Explained Step by Step

Arish Siddiqui Published: Jul 31, 2026 12 mins read Dynamics 365 Finance and Operations

What Is Procure to Pay (P2P)?

Procure to pay, often shortened to P2P, is the process that connects everything from the moment a business identifies a need to buy something, through to the moment the vendor gets paid, and the transaction is closed in the books. It touches purchasing, receiving, accounts payable, and finance, four functions that in a lot of Canadian businesses still run on separate spreadsheets, email chains, and disconnected software.

Nevertheless, Dynamics 365 Finance is procure to pay software built to bring these pieces into a single connected system, which is really the whole point of running P2P through an ERP rather than managing it manually.

Key takeaways:

P2P runs from purchase requisition through to vendor payment, seven steps in total, and sits downstream of source-to-pay (S2P), which covers vendor selection and contracting
Manual invoice processing costs Canadian businesses roughly $13 to $20 per invoice versus about $3 with procure to pay automation, according to Ardent Partners benchmarking
Every vendor invoice is a potential GST/HST input tax credit, but only if it meets CRA documentation thresholds at $30 and $150
Three-way matching (PO, receipt, invoice) should be the default for any business handling meaningful invoice volume, not an optional extra
Dynamics 365 Finance automates provincial tax treatment across Ontario, British Columbia, Alberta, and Quebec, but only if the vendor master and tax groups are configured correctly from go-live

Also Read: Sales Tax Set up in Business Central

What the Procure to Pay Process Actually Covers

P2P starts after a business decides it needs to buy something, and it ends once the vendor has been paid and the transaction is recorded. That's a narrower scope than people sometimes assume. Sourcing, contract negotiation, and vendor evaluation belong to a separate process called source-to-pay (S2P), which happens earlier. Procure to pay picks up once a vendor is already selected and buying can begin.

A typical procure to pay process includes seven connected steps:

Purchase requisition: An employee or department requests goods or services and gets internal approval before anything is committed externally
Request for quotation (RFQ): Used when pricing is not already agreed and the business wants competitive bids
Purchase order (PO): The first document with actual legal weight, sent to the vendor once terms are confirmed
Goods or service receipt: Confirmation that what was ordered arrived
Invoice matching: The vendor's invoice gets checked against the PO and the receipt before it is approved
Invoice approval and posting: The payable gets recorded in the general ledger
Payment: The vendor is paid and the liability clears

Note: Most of the actual trouble sits between steps 4 and 6. That is where a mismatch, wrong quantity, wrong price, missing tax details, stalls a payment for weeks while someone chases down what went wrong.

Why Manual Procurement Costs More Than It Looks Like It Does

Here is the thing about manual procurement, it does not look expensive day by day. It looks like normal work. Someone forwards a PO by email, someone else keys in an invoice, someone chases an approval that is stuck in a manager's inbox. None of it looks like a cost line item.

But add it up. Ardent Partners' benchmarking, cited across recent procure to pay automation research, puts manual invoice processing at somewhere around $13 to $20 per invoice once you count the labour and the error-chasing. Automated processing runs closer to $3. For a business handling a couple of thousand invoices a year, that's not a rounding error, that's tens of thousands of dollars, every year, just in processing cost. Before you even get late payment penalties or the early payment discounts that get missed because nobody processed the invoice fast enough to take them.

Then there is the part that's specific to Canada and does not show up in most procure to pay process content written for a US audience. Every vendor invoice is a potential input tax credit. Under the Input Tax Credit Information (GST/HST) Regulations, invoices over $30 need the supplier's GST/HST registration number on them. Over $150, the buyer's name and a proper tax breakdown are required too. Miss those details, and the ITC cannot be claimed full stop, regardless of whether the purchase itself was completely legitimate. Businesses running procurement through disconnected spreadsheets tend to catch this at the worst possible time, during a CRA review, not during month-end closing. It's worth noting this is a separate calendar from the one AP teams already track for CRA payment dates on GST/HST remittances and payroll's CPP and EI deductions, but it's the same regulator, and a business that's disciplined about one usually is about the other.

How Dynamics 365 Finance Handles the Cycle

Dynamics 365 Finance treats procurement as part of its broader Source to Pay business process, and it splits purchasing into two buckets that matters how you set things up. Direct procurement is production material, tied to manufacturing schedules where timing is tight. Indirect is everything else, IT, professional services, facilities, office supplies. Indirect spending is usually bigger than leadership expects, and it's almost always the least controlled part of the budget. That's where off-contract purchasing quietly accumulates.

Requisition

This starts in Procurement and Sourcing. An employee submits a request, and it routes for approval based on department, category, and dollar amount, so a $200 supply order and a $60,000 services contract don't travel through the same review chain. D365's workflow tools let approvers act straight from an email notification, no login required, which matters more than it sounds like for a business with managers split across offices in Toronto, Vancouver, and everywhere in between who aren't sitting in front of D365 all day.

Sourcing and the PO

If pricing is not confirmed, an RFQ goes out and vendors respond through the collaboration portal. Once a bid's picked, or if terms were already agreed, the purchase order goes to the vendor. This is the point where the deal becomes binding. D365 handles multi-currency POs and applies provincial tax treatment automatically depending on where the vendor and the purchase sit, which saves a real amount of manual tracking for anyone buying from vendors across Alberta, Quebec, and Ontario in the same month.

Receiving

Goods arrive, the warehouse checks them against the open PO, and a product receipt gets posted. Two things happen here at once: the first accounting entry in the cycle fires, and the record that invoice matching depends on gets created. Skip this step, or get it wrong, and AP has no clean way to confirm delivery happened before releasing payment.

Matching

This is where most breakdowns happen, more than any other stage. Two-way matching checks the invoice against the PO. Three-way adds the receipt into the mix. For most Canadian businesses handling any real invoice volume, three-way should be the default, not the exception, because it's the only version that confirms goods arrived before money leaves the business. D365 also catches duplicate invoice numbers and flags missing GST/HST registration numbers before posting, which is the system doing, automatically, the exact check that gets skipped manually under deadline pressure.

Approval and posting

Once matching clears, the invoice moves through an approval chain, AP clerk, then supervisor, then controller, however it's configured. Every action gets time stamped. That trail is exactly what a CRA review, or an internal audit will ask to see.

Payment

Dynamics 365 generates payment proposals based on vendor terms and supports EFT through Canadian banking rails, plus cheque printing and wire transfers where needed. Once payment posts, the liability clears, and the whole trail, requisition through payment, stays traceable in one place instead of scattered across three systems and an inbox.

Where This Usually Falls Apart

None of the above holds up if the setup underneath it is shaky, and this is the part that does not get talked about enough. A vendor record with the wrong tax group means every single invoice from that vendor posts with the wrong GST/HST or PST treatment, and it often doesn't get noticed until someone's reconciling months later and can't figure out why the numbers do not tie out. A workflow rule that is missing a step means invoices can slide through without proper approval, and that's not a one-time glitch, it is a hole that keeps letting things through until someone fixes the configuration.

Provincial tax adds another layer that's worth getting right at go-live rather than fixing after the fact. Ontario runs HST. British Columbia runs GST plus PST separately, which matters just as much for a business based in Vancouver as one based in Toronto. Quebec layers QST on top of GST. Dynamics 365 Finance can be set up to apply the correct treatment automatically based on where the vendor and transaction sit, but that configuration needs to be right from day one. Correcting a year of transactions with the wrong tax group applied is a lot more painful than spending the extra hour getting it right before go-live.

Procure to Pay vs the Processes People Confuse It With

Worth being precise here, since the terms get thrown around loosely. Source-to-pay includes P2P but also covers the earlier work, finding vendors, negotiating contracts, and evaluating suppliers. Order-to-cash (O2C) is the mirror image from the seller's side, running from a customer's order through to receiving payment, rather than paying one out. A business selling to other businesses runs O2C on the sales side and P2P on the purchasing side, usually with different teams handling each and very little overlap between them.

Dynamics 365 Finance and Dynamics 365 Business Central are both procure to pay solutions, but they're built for different scales. Finance tends to fit larger or more complex Canadian organizations running multi-entity or multi-currency operations, essentially enterprise procure to pay software for businesses that have outgrown a simpler system. Business Central fits growing mid-market businesses that need solid procurement controls without the full weight of Finance and Operations behind them. Either way, the tax setup, vendor master data, and workflow configuration matter more than the software choice itself, which is where working with an established Microsoft Dynamics 365 partner in Canada pays off, getting it right before going-live instead of cleaning it up after.

Need help setting up procure to pay in Dynamics 365 Finance?

Dynamics Square Canada works with businesses across Ontario, British Columbia, Toronto, Vancouver, and the rest of Canada to configure Dynamics 365 Finance procurement workflows that reflect how provincial tax rules and CRA compliance requirements apply to their purchasing. Whether you're starting from a manual process or fixing gaps in an existing implementation, getting the vendor master, tax groups, and approval workflows right from the start saves a lot of cleanups later.

Conclusion

None of this is complicated in theory. Requisition, order, receive, match, approve, pay. The difficulty is in the handoffs, the point where a spreadsheet stops talking to an inbox, or where a vendor record was set up with the wrong tax group two years ago and nobody's checked it since. That's where Canadian businesses lose money, not on any single step, but on the gaps between steps that a disconnected process can't catch and a connected one can.

Getting procure to pay right in Dynamics 365 Finance isn't really about the software. It's about the setup underneath it, the vendor master data, the tax groups, the approval workflows, done properly before going-live rather than patched after something goes wrong. Businesses that treat that setup work seriously tend to stop thinking about P2P entirely, which is really the point. The process should be quiet enough that nobody notices it until they need to.

If you have any doubt, feel free to contact us via call at +1 778 381 5388 or drop a mail at info@dynamicssquare.ca.