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Procure to Pay and Source to Pay: A Complete Guide

Procure to Pay and Source to Pay
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Despite the ubiquity of procure to pay and source to pay processes in the world of procurement, some still confuse the two, let alone S2C or P2O or the several other acronyms we’ve coined for parts of these processes.

So, let’s set the record straight, shall we?

While procure-to-pay typically sidesteps supplier identification/onboarding, etc. and starts with raising a purchase requisition for a product or service & ends with payment to the vendor for the goods or services purchased, source-to-pay covers a larger milieu, including strategic sourcing activities such as supplier onboarding & management, and contract management.

Our guide explores the key difference between source to pay and procure to pay to help you get the best out of both processes, for your organization.

Procure to pay (P2P)

Procure-to-pay integrates two important functions – procurement of goods or services and accounts payable. It encompasses all the steps a business engages in when buying a product or service from an external vendor to the time the vendor dues are settled. The various stages in procure-to-pay process comprise:

1. Identifying the need: The need to procure goods or services may be triggered by many factors such as low inventory levels, new project requirements etc.

2. Vendor selection: For a P2P purchase, vendors have typically been contracted & onboarded. All a requisitioner needs to do is pick from the catalog, and proceed.

3. Generating a purchase requisition: Once the vendor is identified, a purchase requisition is raised with details of the item to be purchased (quantity, price) and sent to the respective department heads and the buyer group for approval.

4. Purchase order creation: The next step is to raise a purchase order to send to the vendor mentioning the details of the items required (quantity, price) and terms of payment.

5. Receiving goods: On receipt of goods the buyer inspects and verifies the goods against the purchase order.

6. Processing the invoice: Once the supplier sends the invoice the accounts payable team matches it with the corresponding purchase order. If your AP invoice processing is sophisticated enough, a 3-way, or even 4-way matching is conducted.

7. Releasing the payment: The final step is to release the payment as per the terms agreed.

Though the process may seem straightforward the complexity increases given the various external parties involved and many other variable factors. Procure-to-pay primarily focuses on the operational aspects of procurement.

To dive deeper check out, P2P Process | The Ultimate Transformation Guide. Explore more insights here!

Source to Pay vs Procure to Pay

Source-to-pay includes all the functions of procure-to-pay but has an additional arm of strategic sourcing activities including supplier onboarding & management and contract management among others. S2P essentially starts two steps ahead of P2P and typically comprises of the following steps:

1. Strategic Sourcing: This entails identifying, assessing, selecting, and building a pool of dependable suppliers based on pricing, quality, market feedback, and compliances with an objective to forge long-term partnerships with them. The identification & assessment procedure is where the ‘strategy’ comes in, with organizations introducing constraints such as vendor proximity, reputation, ESG considerations, etc. to narrow down the list.

2. Contract Management: Once the supplier is deemed suitable, the negotiation phase begins. This involves working out details regarding price, delivery, payment terms, quantity, and quality of goods/services. It’s crucial to establish clear expectations on both sides.

3. Supplier Onboarding: The next step is to onboard the identified suppliers. This entails registration on a supplier portal, and reviewing critical information.

4. Supplier Management: Procurement typically ‘manage’ two aspects of suppliers risk & performance.

Risk to ensure the organization is sufficiently guarded against any unexpected disruptions to supply.
Performance to ensure suppliers are meeting standards of quality & punctuality

5. Procure-to-Pay (P2P): Now comes procure to pay software which is essentially all the steps explained above.

The analytics capability of source-to-pay provides data that enables procurement teams to negotiate better prices and payment terms with suppliers and manage cash flows in an efficient manner.

Advantages of using an integrated Procure to Pay and Source to Pay Suites

An AI-led procure to pay and source to pay suites comes with a plethora of benefits making it a perfect fit to meet the multifarious expectations from procurement nowadays –

1. Automates & augments erstwhile manual tasks: While basic RPA automates tasks, AI significantly boosts efficiency by categorizing and tracking of expenditures, identifying potential suppliers based on specific criteria, scanning contract terms and conditions for risks and discrepancies, verifying and matching invoices with purchase orders and delivery receipts etc.

2. Savings from the get-go: AI helps organizations set up autonomous sourcing events, offering great customization in the constraints/parameters they’d like for their suppliers to meet, creating a competitive environment, optimizing for your best outcome.

3. Builds compliance: Access to your contract repository & being up-to-date on the latest regulations & laws helps AI ensure your buyers never stray out of contract, minimizing maverick spend, and ensuring your legal reputation remains intact.

4. Facilitates collaboration and communication: The suppliers and internal business teams are on a common platform which ensures transparency in communication and processes leaving no room for any leakages, frauds, and unnecessary delays.

5. Minimizes risk: Early detection of risk-incurring events, and intelligent recommendations on courses of action or alternate suppliers ensure your supply chain is pristine.

6. Analytics: Perhaps the biggest advantage is the Cognitive Analytics potential that an AI-led solution lays the bedrock for, making the overall procurement function more efficient and ensures exponential benefits.

Discover Zycus’ comprehensive S2P & P2P suites now!

The Zycus advantage

Zycus prides itself on a fully organic, built-on-a-single-codebase suite of solutions, ensuring seamless transfer of data & functions between modules. What’s more, our cutting-edge Merlin AI, whose development is guided by our customers’ most pressing concerns, ensures a new level of performance.

Dream Live a Cognitive Future Present with advancements such as:-

1. Merlin Assist, a guided buying AI-powered chatbot, ready to ameliorate your procurement troubles right from your Microsoft Teams console.

2. Merlin AP SmartDesk, a turbo-powered tool to drive AP efficiency for all types of PO & non-PO invoices, vendor query management and fraud prevention.

3. Merlin InstaReview, ensuring faster turn-around from authoring to signing of all contracting (Sales, Purchase etc.) needs with tighter risk management and analytics.

Want to see Merlin AI in action? Book a free demo to witness procurement revolution!

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Pranav R is a Content Marketer with expertise and experience in creating & curating content for audiences of all ages. Graduating with an MBA from IITM in 2021, he explored his PM inclinations for a year, before joining Zycus. He’s been writing about procurement & paraphernalia for 1.5+ years and is passionate about bringing new perspectives, pointers & puns to what he writes. Outside work, he’s an Arsenal fan, and is a quiz & word games enthusiast.
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