In procurement and supply chain management, two processes often come to the forefront: Source-to-Pay (S2P) and Procure-to-Pay (P2P). Both processes are vital for optimizing procurement operations and spend, ensuring compliance, and achieving a smooth supply chain flow.
However, while the S2P and P2P processes are closely related and often used interchangeably, they are not the same. S2P provides a comprehensive view of the procurement process, from sourcing and vendor selection to payment, enhancing strategic decision-making and supplier relationship management. It focuses on maximizing value and efficiency throughout the entire procurement cycle.
P2P, on the other hand, streamlines and automates the process of purchasing goods and services to processing payments, improving efficiency, reducing errors, and enhnacing financial control.
Understanding the distinctions between S2P and P2P is essential for any business looking to optimize its procurement operations. This article aims to demystify these two key processes, highlighting their differences, individual roles, and potential impact on your overall procurement strategy.
Key Takeaways
- S2P offers a strategic, end-to-end approach to procurement that includes sourcing, supplier evaluation, contracting, and payment, going beyond the transactional focus of P2P.
- While P2P enhances operational efficiency through automation of purchasing, invoicing, and payments, S2P empowers organizations to drive long-term value by improving supplier relationships, compliance, and sourcing decisions.
- Choosing between S2P and P2P depends on your organization’s goals and maturity, but with flexible solutions like Ivalua, you can start where you are and scale as your procurement strategy evolves.
What Is Source-to-Pay?
Source-to-Pay, also known as S2P, encompasses all the activities involved in sourcing goods and services, from determining internal needs and defining requirements, to identifying and evaluating potential suppliers based on a variety of criteria.
During sourcing, organizations solicit and evaluate proposals or bids from multiple suppliers, then negotiate contracts to formalize terms and conditions. During procurement, the supplier provides the goods and services and fulfills the order.
So, what is Source-to-Pay? The S2P process culminates in accounts payable, where invoice processing, verification, and payment to the supplier occur. This stage demands accuracy and efficiency to ensure that payments are made correctly and on time, which is crucial for maintaining good supplier relationships and financial integrity.
8 Key steps in the S2P process:
| Needs Identification | Identifying and defining the requirements for goods or services |
| Sourcing | Performing market research and analysis to identify the best possible sources for the required goods or services |
| Supplier Evaluation and Selection | Evaluating potential suppliers based on various criteria such as price, quality, reliability, and compliance |
| Contract Authoring and Negotiation | Formalizing the terms of the supply arrangement, including pricing, delivery schedules, and other conditions |
| Procurement and Ordering | Creating and approving purchase orders, and ordering the goods or services from the supplier |
| Receiving and Inspection | Inspecting and verifying received goods against the purchase order and contract terms to ensure quality and compliance |
| Invoice Processing and Reconciliation | Processing and verifying supplier invoices, ensuring they align with the purchase orders and contract terms |
| Payment Processing | Approving and processing of payments to the supplier |
Throughout S2P, data is collected and managed for analysis, helping to optimize future sourcing decisions and procurement strategies. Various mechanisms must be implemented to ensure compliance with internal policies and external regulations, and manage risks associated with supply chain and procurement activities.
Effective S2P management helps to optimize spending, enhance supplier relationships, and improve overall procurement performance. Read this blog post to learn more about the S2P process.
What Is Procure-to-Pay?
Procure-to-Pay, also known as P2P is a specific part of the procurement process that deals with the ordering, purchasing, receiving, and paying for goods and services. It’s a subset of the broader S2P process and focuses on the latter half of the procurement cycle.
8 Key steps in the P2P process:
| Requisition | Creating a purchase requisition that includes details about the required items, quantity, and the purpose of the purchase |
| Receiving and Inspection | Inspecting and verifying received goods against the purchase order and contract terms to ensure quality and compliance |
| Approval | Reviewing and approving the request ensure it is legitimate and aligns with the company’s budget and needs |
| Purchase Order (PO) Creation | Creating and official document for the supplier that details the order specifics (i.e. quantities, descriptions, prices, and delivery dates) |
| Order Fulfillment | Supplier acknowledges the PO and delivers the goods or services |
| Invoice Processing and Reconciliation | Processing and verifying supplier invoices, ensuring they align with the purchase orders and contract terms |
| Payment Processing | Approving and processing of payments to the supplier |
| Record Keeping | Recording all documents and transaction details for accounting and auditing purposes |
The P2P process is critical for ensuring that procurement is carried out efficiently, cost-effectively, and in compliance with company policies and external regulations. It involves close coordination between procurement, finance, and the receiving departments. Read this blog post to learn more about the P2P process.
Key Differences Between Source-to-Pay and Procure-to-Pay
People often conflate the Procure-to-Pay process with the Source-to-Pay process, mainly because they are closely related and have overlapping elements. Both processes deal with sourcing, purchasing, and paying for goods and services, but they differ in scope and focus.
P2P is more focused on the transactional phase of procurement, from the point where a specific need for a product or service is identified through payment to the supplier. S2P is more comprehensive, including the P2P process as well as additional strategic elements such as identifying potential suppliers, conducting market analysis, and managing overall supplier relationships.
Here are seven key differences between S2P vs P2P:
- Scope: S2P is an end-to-end process that includes everything from identifying needs to making payments, whereas P2P focuses more narrowly on the transactional aspects of procurement.
- Strategic vs. Operational Focus: S2P involves strategic activities like market analysis, supplier evaluation, and contract negotiation, while P2P is more operational, dealing with ordering, receiving, invoicing, and paying for goods and services.
- Supplier Relationship Management: S2P encompasses supplier relationship management, aiming to build long-term relationships with suppliers. P2P typically does not include managing long-term supplier relationships.
- Contract Management: S2P involves contract negotiation and management as a core component, while P2P begins after contracts are already in place.
- Market Analysis: Unlike P2P, S2P includes conducting market analysis to find and evaluate potential suppliers.
- Tool and Technology Use: S2P requires Source-to-Pay tools for market analysis, supplier evaluation, and contract management, whereas P2P utilizes procurement software, invoicing systems, and payment processing tools.
- Impact on Business Strategy: S2P has a direct impact on the overall business strategy, influencing how resources are sourced. P2P impacts the efficiency and effectiveness of the procurement function but has a less direct impact on broader business strategy.
Knowing Where to Begin: Full S2P or P2P
The fact is, even if you are focused on P2P, it is a best practice to consider the implications or future needs for the full Source-to-pay digitization process. Some organizations may have huge inefficiencies within their P2P process causing them to lose savings and incur high process costs. For them, starting with P2P will make sense, however, it does not mean that their upstream process (Source-to-Contract) should be ignored.
The choice between a Source-to-Pay vs Procure-to-Pay hinges largely on organizational need and where in the transformation journey they are. Some choose to start with full S2P initiative, others that are happy with their S2C process will choose to focus on P2P. It’s critical to assess your organization’s specific goals to decide which approach aligns best with your procurement strategy and business objectives.
Ivalua’s S2P and P2P Software
Ivalua offers a comprehensive Source-to-Pay platform and Procure-to-Pay software that cater to a wide range of procurement needs in organizations:
- Ivalua’s S2P platform encompasses the entire spend and supplier cycle, digitizing the complete S2P process across all spend and suppliers. The solution is designed to offer strategic insights into procurement processes, empowering teams to generate more value for the business. By providing unparalleled visibility, collaboration, and adaptability to procurement and supply chain leaders, Ivalua’s Source-to-Pay software helps organizations manage their supplier relationships effectively, negotiate better contracts, and optimize overall spending. Watch our Source-to-Pay software demo.
- Ivalua’s P2P solution focuses on streamlining the transactional aspects of procurement by simplifying the processes of purchasing goods and services, and managing invoices and payments. It provides automated invoice processing, electronic purchase orders, and efficient payment processing to enable a smoother, faster procurement process. Watch our Procure-to-Pay software demo.
Both Ivalua’s S2P and P2P software solutions are known for their user-friendly interfaces and integration capabilities, and the ability to fit seamlessly into an organization’s existing IT infrastructure. They enhance collaboration and transparency, ensuring that all stakeholders in the procurement process have immediate and secure access to the information and tools they need.
Case Study: UPL Transforms Global Procurement with Ivalua
UPL, a global leader in agrochemicals based in Mumbai, faced mounting pressure to improve procurement performance amid rising competition and fragmented operations. The company needed greater visibility into spend, tighter supplier management, and a more unified system to drive compliance and strategic sourcing.
UPL’s existing tools lacked transparency and cohesion. They needed to centralize procurement, improve direct spend control, and strengthen supplier relationships across a global supply chain.
With Ivalua, UPL improved margins through automated pricing compliance and 100% PR-to-PO adoption in India, driven by strong leadership alignment. Among others, key results included:
- 95% spend under management
- 100K+ suppliers onboarded
- 200K+ sourcing events completed annually
The company was also able to create a centralized procurement hub there, enhancing efficiency and operational oversight. Robust SAP integrations, including real-time budget checks and scalable pricing tools, further supported UPL’s transformation, positioning the company for long-term agility and growth.
“The biggest benefit is having a single source of truth in one centralized platform. With strategic sourcing and transactional procurement on one platform globally, we benefitted from scale and efficiency.”
– Sylesh Gopan, Global ERP Head at UPL
Read the full UPL case study.
P2P or S2P, Ivalua Has You Covered
With Ivalua, organizations can streamline their operational procurement tasks with P2P software or embrace a more strategic, holistic approach with a comprehensive S2P platform. Both offerings are designed to enhance efficiency, ensure compliance, and provide valuable insights. At Ivalua, we’re committed to addressing the diverse procurement challenges faced by modern organizations.
Interested in learning more about how a Source-to-Pay platform can help your organization? Download Gartner’s Strategic Roadmap for Source-to-Pay Technology, which provides valuable insights into building a long-term plan that goes beyond the basics.
FAQs
When should an organization use Source-to-Pay instead of Procure-to-Pay?
Organizations should use S2P when they want to take a more strategic, end-to-end approach to procurement that includes sourcing, supplier selection, and contract management, in addition to purchasing and payment. S2P is ideal if you’re aiming to improve supplier relationships and reduce risk, while maximizing long-term value.
What types of companies benefit most from Source-to-Pay?
Enterprises with complex procurement needs, large supplier bases, or a focus on strategic sourcing benefit most from S2P. Industries like manufacturing, healthcare, financial services, and public sector organizations often see the greatest impact.
What are the key components of a Source-to-Pay process?
Key components of the S2P process include needs identification, sourcing, supplier evaluation and selection, contract negotiation, procurement, receiving, invoice reconciliation, and payment processing. Throughout the process, data collection, risk management, and compliance enforcement play critical roles.
Can AI and automation enhance both S2P and P2P processes?
Yes. AI and automation can streamline sourcing, improve supplier risk analysis, accelerate invoice matching, and ensure compliance across both S2P and P2P. These technologies increase efficiency, reduce manual effort, and provide data-driven insights to optimize procurement performance.
What is the difference between Source-to-Pay and Procure-to-Pay?
S2P encompasses the full procurement lifecycle from sourcing to payment, while P2P focuses on the transactional aspects such as purchasing, invoicing, and payments. S2P includes more strategic components, for example, supplier evaluation, contract management, and spend analysis.
