Source to Pay vs Procure to Pay
- Posted by: David Watters
- Category: Best Practices
The business world is full of jargon and buzzwords making it difficult to keep up with what everything means and it’s no different in the finance and procurement space. Two terms in particular that are used interchangeably, but actually refer to very different things are Source to Pay (or S2P) and Procure to Pay (or P2P). We take a bit of a deep dive into both terms to look at what they really mean.
Procure to Pay
Procure to pay refers to the process of a business requiring a good/service, raising a purchase order for that good/service, having the goods/service delivered, the invoice being received and then matched to the purchase order to be processed for payment.
This process can be largely automated through the use of technology to automate the approval of a purchase order, transmission of that purchase order to a supplier, receipt and data capture of the invoice, matching of that invoice to the purchase order and processing through to payment.
The procure to pay process has largely been driven from a financial compliance lens to ensure that spend is pre-approved, that the business is paying for goods/services that they have actually received and that the right business is paid the right amount in the right time-frame. The proliferation of procure to pay and accounts payable automation platforms has seen this process be digitised by many enterprise businesses and reap the automation and optimisation benefits. More recently smaller organisations have been able to adopt this technology as companies offer automation in a pay as you go model.
Source to Pay
Source to Pay on the other hand takes a much broader and strategic look at the whole buying process, considering not just to the approval of spend and receipt of goods but looking at who you are buying from and the price that is being paid for it.
Prior to a requisition being raised for a good/service, a structured procurement process is undertaken to:
- Understand the specifications for the good/service and suppliers that could provide them (Sourcing)
- Having the supplier prepare a formal bid or proposal to provide the good/service (Bid Preparation and Bidding)
- The subsequent review of those bids against pre-agreed criteria to select a preferred supplier (Review and Award)
- Negotiations with the preferred supplier to finalise among other things scope, price and timelines – typically this is where the buying organisation is able to ensure that they are able to effectively mitigate or manage supplier risks and push for a lower price or additional scope (Contract Negotiations)
- Finalisation of the contract, legal review and approval (Contract creation, Review and Approval)
This process has gained far more prominence over the last few years as technology has enabled the Source to Contract (S2C) process, described above, to be connected to the broader Procure to Pay process driving greater efficiencies, visibility and automation.
The Rise of Source to Pay
From Google Trends data analysis we can see that worldwide searches for Source to Pay have been trending upwards over the last 5 years and have actually overtaken procure to pay which highlights the increasing focus that businesses have not only ensuring that purchases are pre-approved and the invoice processing part is optimised but that they are focussed on looking at what they are buying, where they are buying them from and how much they are paying for them.
Interested in understanding how well your Source to Pay processes work? Try our free online benchmark assessment today!