Sourcing To Pay Vs Procure To Pay - What’s The Difference

Alok Suman
September 4, 2022

In this modern progressive world, technology is constantly automating several business operations. Automating the business purchase process is one of the quickest methods to improve the efficiency of a company.

Source-to-pay is a useful modern technology that expedites the procurement cycle and reduces procurement expenses. It might not be wrong to say that an optimized source-to-pay process is essential for the success of an enterprise. 

Source-to-pay is usually an online journey that leads to online procurement and begins with discovering the vendor of goods and ends when the business receives the final procurement payment. It can practically manage sourcing, expenditure, and all functions like contracting and bargaining.

In this blog, we'll cover everything about the source-to-pay process and software. 

So let's get started, shall we?

What is Source to Pay?

Source-to-pay, commonly known as S2P, is a process that starts with finding, bargaining with, and dealing with a product supplier and finishes with receiving the final payment for those products. Source-to-pay software employs big data, modern technology, and advanced networks to improve procurement effectiveness. 

Therefore, companies that incorporate dynamic source-to-pay software usually have a competitive edge over their competitors and can effectively have all their spending and vendors in one location. 

This kind of software incorporates the complete source-to-pay operation internally and throughout the process to improve business performance, online visibility, and importance.

In addition, source-to-pay software that requires comprehensive data sets usually works on AI-based principles to obtain the required information and make procurement more seamless. 

It combines complicated operations of purchasing goods and services using networking abilities into a centralized forum that promotes transparency in the procurement procedure.

Sourcing, spend estimation, contract administration, and vendor management (which comprises vendor data, threat, and performance control) are all elements of the source-to-pay cycle, along with invoice automation, purchase orders, and accounting payable functions.

Therefore, companies who adopt source-to-pay software can: 

  • Improve sourcing savings through improved visibility into purchase and procurement
  • Reinforce regulatory, procedural, and contractual adherencef
  • Combine crucial functions into a single medium to obtain signed contracts faster
  • Bargain more reasonable pricing and have more precise predictions
  • Enhance cooperation, faith, and spending among business partners

Apart from that, source-to-pay software transforms a tedious and inefficient procurement function into an opportunity to increase productivity, reduce expenses and enhance transparency.

Cooperation between customers and vendors improves, contracts are accomplished faster, and manual mistakes are lowered or eliminated when you incorporate source-to-pay best practices. Furthermore,this source-to-pay cycle further concentrates on the following: 

  • Enhanced working capital and cash flow access due to improved decision-making and reporting/forecasting, reinforced by complete spend visibility.
  • Reduced turnaround time for approvals on purchase orders and enhanced invoice processing accuracy as every sourcing process gets automated. 
  • Operation automation, comprehensive transactional data clarity, and on-demand payment examination analysis facilitate seamless value-focused cost management.
  • Real-time actionable insights delivered by master data governance on a cloud-based server

What are the Steps Involved in Source to Pay?

The primary objective of source-to-pay software is to enhance internal management, supplier relationship control, and supply chain efficiency to digitize the procurement process and allow a more proactive and strategic approach. 

Usually, the source-to-pay process begins with goods and service requisition and ends with the accounts payable department settling the payment with the supplier.

Below are some of the steps involved in a source-to-pay process:

  • Measuring the Demand

A frequent demand emerges for purchasing new goods and the latest services or for more reasonable costs and terms on existing ones. Also, once the demand comes in, the sales and procurement team can collectively work to fulfill it. 

  • Sourcing the Suppliers

Future suppliers are discovered and assessed utilizing data examination based on historical spending, recent market trends, and overall administrative objectives for product expansion. Vendors that seem fit get onboarded for supplier master data accumulation and engagement with the customer's procurement workflows and tools.

  • Request for Bidding

All appropriate "RFx" documentation, including requests for proposal (RFP), requests for quote (RFQ), requests for information (RFI), and so on, is drafted, examined, and approved before being circulated.

  • Examining the Bids

Suppliers are invited to present the required bids. Bidding is available to all interested vendors. The vendor who offers the lowest and the most compelling bid usually get the order. 

  • Vendor Assessment and Reward

Vendors are assessed for practicality, and the final selection is made. A contract, purchase order, or both will get created depending on the vendor's intended role.

  • Contract Negotiation and Administration

The customer bargains to attain the required contract provisions and costs with suppliers who will get added to the source-to-pay software as selected vendors with an association expanding beyond the existing request.

  • Contract Plan, Assessment, and Approval

Once both parties agree on the same page, a contract is made, checked for statutory and informative precision by both parties, and signed.

  • Completion of the S2P Process

The source-to-pay function can move normally, with reasonable pricing and payment provisions for the required goods and services.

Source to Pay vs. Procure to Pay

Modern companies must consider various tools and strategies when digitizing their accounts payable and procurement operations.

While earlier, businesses only focused on procure-to-pay (P2P), more and more companies are now shifting towards source-to-pay (S2P) to improve operational effectiveness while lowering expenses. 

The fundamental difference between S2P and P2P is that an S2P procedure is a more extensive and powerful form of a P2P procedure.

Below is a tabular representation of the differences between procure-to-pay and source-to-pay:

Procure-to-Pay Source-to-pay
Procure-to-pay processes begin with determining internal requirements and offering inter-department approval requests The source-to-pay process moves ahead by adding a higher-level component into the procurement cycle.
Contemporary procure-to-pay processes are commonly facilitated through purchase-to-pay enterprise resource planning (ERP) software, utilizing up-to-date procurement solutions and cost estimation to enhance process automation, precision, and efficiency across the procurement process. Source-to-pay processes generally add exceptional value by providing proactive optimization. Furthermore, procurement divisions can gain valuable insights from the data accumulated and examined by employing their current sourcing technology to embark on supplier assessment and onboarding, strategic sourcing, and contract administration.

These suppliers will thus always remain an integral part of an optimized system from the time they join the company's supply chain.
P2P usually lowers purchase order process duration, and invoice processing efficiency improvements usually get accomplished through e-invoicing, three-way matching, and internal procurement process optimization. S2P usually makes it seamless to examine and evaluate supplier performance against key performance indicators (KPIs) such as costs, on-time supplies, and process durations for e-invoicing and purchase orders (POs). This helps revamp the supply chain based on the result to drive constant enhancement as the complete supply chain remains connected over time.

Benefits of Source to Pay

The S2P approach is exceptional at accomplishing these purposes when companies must determine new suppliers who deliver more reasonable provisions, reduced expenses, or new entities that existing vendors don't offer.

In addition, source-to-pay, along with procure-to-pay processes, can integrate a complete supply chain, ending in improved procurement efficiency.

Other advantages of source-to-pay comprise being able to:

  • Merge necessary operations into a single procurement and sourcing platform.
  • Accomplish more precise and constant forecasting
  • Boost coordination and spending among vendors and other trading associates.
  • Enhance regulatory, contractual, and procedural compliance

Vendors can also be assessed against numerical benchmarks using S2P tools, some of which are as follows:  

  • Cycle duration for purchase orders and e-invoicing
  • Number of on-time deliveries
  • Real-time data analysis
  • Pricing
  • Long-term price savings
  • More accurate spending analysis
  • Operation automation
  • Less processing costs
  • More seamless cash flow analysis
  • Company procedures are simpler
  • Supplier information is easier to track
  • Streamlined supply chain management
  • Risk management is more efficient
  • Overall user experience is improved

Apart from that, the advantages of a well-defined source-to-pay cycle are usually split into four classifications.

1. Eliminate: Stop transmission mistakes and specification change control problems by keeping track of primary projects and interacting with vendors effectively.

 2. Streamline: Cooperation and coordination between the Quality, R&D, and purchasing departments can be streamlined.

  • Discovering and cooperating with internal company partners spread across diverse locations, technological hubs, and centers of excellence
  • RFx champions are compared and selected based on optical TCO charts, which begin with total project value and improvement.

3. Standardize: Build a strong connection with direct vendors to standardize the complete sourcing process. On the contrary, indirect procurement tools must deal with a vast spectrum of expenditures responsible for ongoing development.

4. Automatize: 

  • Gathering supplier bids for BOM to deliver a recommendation to your client 
  • Establishing objectives on complicated projects for better negotiation preparation

When Does a Business Use Source to Pay?

Modern companies usually use a source-to-pay process to determine new potential suppliers to fulfill the need for new raw materials or finished goods.

They further use S2P to determine aids that fall outside their current supply chain or seek to find more significant savings, less threat, and boosted productivity by adding new suppliers to their existing supply chain. 

As modern companies are now moving towards automation, businesses are planning to shift toward modern S2P technologies when they think there is a need to digitize their procurement cycle.

Some of these latest S2P technologies that businesses can use during procurement automation are as follows: 

  • Robotic process automation (RPA)

Robotic process automation (RPA) uses fundamental regulations to simulate repeatable techniques that human employees would keep working on during business procurement. 

Moreover, unlike the traditional system integration processes, which need entry to the underlying principle of each appropriate software, RPA bots that accomplish different jobs only require access to other software that manual employees would need.

Therefore, it might not be wrong to say that RPA can help companies bind their existing systems while limiting manual interventions and eventually restricting operational inefficiencies. 

  • Natural language processing (NLP) 

NLP (Natural Language Processing) technologies read textual information and let customers record provisions without using structured checklists or drop-down alternatives.

This technology has already been in use in diverse customer environments, driving clients to appropriate technical-support aids or drawing details regarding product performance to systematize unstructured data in procurement.  

Many businesses are also already utilizing such technologies (in concurrence with RPA) to automate their sourcing process for long-term spending—a lengthy list of small transactions that may account for some parts of their spending budget. 

The Bottom Line 

To sum up, we can say that automated source-to-pay software can resolve various hindrances that procurement and sourcing managers grapple with, including enhanced sourcing effectiveness, expenditure reduction, and procurement rate, without jeopardizing non-compliance.

Other crucial advantages that make incorporating a source-to-pay software lucrative include responsible procurement visibility, improved management and security, and better supplier optimization.