What is source to pay (S2P)?

S2P integrates these interconnected procurement activities into 1 streamlined process, helping to ensure that every stage is efficiently managed and delivers results. By unifying these steps, S2P enhances transparency and control over procurement activities while supporting broader supply chain management and enabling data-driven decision-making.

An important step in the S2P process is strategic sourcing, which involves identifying the right suppliers, evaluating their capabilities and negotiating contracts. This step is essential for finding vendors that align with the organization's quality, cost and delivery expectations. It also often uses RFX processes such as requests for proposals (RFPs) to gather supplier information and bids. After contracts are in place, the process transitions to procurement, where purchase orders are issued, goods or services are received and payments are processed.

S2P centralizes procurement data to improve visibility and control, which empowers organizations to make informed decisions and adapt to market changes. The S2P process can also strengthen supplier relationships by fostering clear communication and enabling performance evaluations. Ultimately, S2P is a vital tool for modernizing an organization’s procurement strategy and enhancing supply chain optimization and resilience.

Technology plays a key role in modern S2P by automating repetitive tasks and providing real-time insights into spending and supplier performance. Advanced source to pay solutions offered by leading providers use data analytics, artificial intelligence (AI) and supply chain automation to optimize supplier selection, forecast demand and identify cost-saving opportunities. By integrating procurement tools with financial systems, these platforms enable seamless tracking of expenditures, ensure compliance with contracts and improve operational efficiency.

S2P is sometimes confused with procure to pay (P2P). The differences between these processes lie in their scope within the procurement cycle.

S2P is a broader, end-to-end process that starts from sourcing—the identification, evaluation and selection of suppliers—and continues through procurement, invoice processing and payment. It emphasizes strategic sourcing, supplier selection and contract management, making it ideal for organizations seeking to optimize their procurement initiatives and supplier relationships. Essentially, S2P integrates strategic decisions with the transactional side of procurement, aiming to optimize procurement strategy, achieve cost savings and manage the entire supplier lifecycle.

P2P is a subset of S2P and focuses exclusively on the operational aspects of purchasing. The goal of the procure to pay process is to efficiently manage the flow of goods or services from suppliers and ensure timely payment. The process begins with the creation of purchase requisitions and purchase orders, follows through with receiving goods or services and ends with invoice approval and payment. P2P is more transactional and operational in nature, centered on making purchases and managing payments efficiently.

In short, P2P handles the transaction and payment side of procurement, while S2P covers the entire procurement lifecycle, including strategic sourcing and relationship management. This makes S2P a more comprehensive process that integrates all procurement functions to support an organization’s long-term procurement strategy.

The source to pay process consists of several interconnected steps, each aimed at streamlining procurement and ensuring value throughout the purchasing lifecycle. Slight variations in sequence or emphasis can exist across organizations or platforms. Still, the core framework remains consistent, with source-to-contract serving as a foundational component of the S2P process.

The S2P process typically begins with spend analysis, a foundational activity for understanding an organization's purchasing habits and fostering effective spend management. This step examines questions such as: Who are the organization's suppliers? What goods or services are being purchased? In what quantities? At what prices? By analyzing spending data and comparing it to industry benchmarks, procurement teams can uncover patterns, inefficiencies and opportunities for cost savings or better supplier terms. This ongoing activity not only informs strategic sourcing decisions but also helps align procurement efforts with broader organizational goals.

In this step, organizations identify, evaluate and select potential suppliers who can meet their needs effectively. The process often involves issuing requests for proposals (RFPs), analyzing supplier information and bids and negotiating terms. Advanced S2P software helps automate this step, providing data-driven insights and market intelligence for optimal supplier selection. Well managed sourcing is critical for helping ensure access to reliable and cost-effective suppliers

Once suppliers are selected, contracts are created, negotiated and finalized. This phase defines the pricing, delivery terms, compliance requirements and performance management metrics that govern supplier relationships. Efficient contract management helps ensure legal protections, reduces risks and centralizes agreements for easy access and monitoring, benefiting all relevant stakeholders. Automation tools play a key role in standardizing and streamlining this process.

The procurement stage involves creating purchase requisitions, issuing purchase orders (POs) and managing goods or services delivery. Requisitions must be approved before converting into POs and orders are tracked to ensure that they align with contract terms. E-procurement systems integrate seamlessly with enterprise resource planning (ERP) solutions, simplifying these processes. This integration helps ensure efficiency and adherence to budget and policy requirements.

In this step, supplier invoices are received, verified and matched with purchase orders and receipts through a three-way matching process. This process ensures accuracy and prevents payment discrepancies or delays. Automation tools streamline invoice validation, flag discrepancies for resolution and prepare approved invoices for payment. This is a critical step for avoiding errors and optimizing accounts payable workflows.

Payment processing is the final step, where invoices are paid according to agreed terms. Modern S2P systems integrate with financial tools to help ensure secure and timely payments while providing visibility into cash flow and expenditures. Maintaining prompt payments strengthens supplier relationships.

S2P platforms are comprehensive digital solutions designed to unify and streamline every step of the S2P cycle into a single platform, transforming procurement into a seamless and data-driven process. For example, platforms like SAP Ariba and Oracle Fusion Cloud Procurement use advanced technologies including AI, generative AI, natural language processing (NLP) and automation to enhance efficiency, transparency and control. 

CEOs are rapidly investing in generative AI to automate and streamline their supply chains. In 1 study, 89% of executives report that key investments in automation will include generative AI capabilities—and 19% say that generative AI will be critically important to their supply chain automation futures. When asked where they expect generative AI to impact the supply chain processes, more than half of respondents chose providing self-service to customers. Other expected impact areas include analyzing and processing orders, demand forecasting and analyzing and optimizing inventory.¹

Some examples of how AI and technology are used within specific steps of the S2P process include:

Spend analysis: Modern S2P platforms use AI-powered analytics to provide deep insights into organizational spending. These tools aggregate and categorize spend data across departments, identify patterns and highlight areas for cost-saving opportunities. AI algorithms can predict future spending trends, helping procurement teams make better decisions about budget allocations and supplier negotiations.

Supplier sourcing: Of all procurement activities, most organizations use AI for sourcing. In 1 study, 59% of respondents have implemented AI to “provide sourcing governance and perform category management” or “develop sourcing and category management strategies” or as part of their end-to-end implementation in the procurement processes.² AI and NLP enhance the sourcing process by analyzing supplier data, automating supplier scoring and recommending optimal suppliers based on predefined criteria such as price, quality and risk and sustainability practices. NLP capabilities reduce manual effort by allowing the platform to scan and interpret supplier documentation such as certifications or compliance records.

Contract management: AI-driven contract management tools within S2P platforms simplify the creation, negotiation and monitoring of contracts. NLP is used to analyze contract language, flag inconsistencies and help ensure compliance with legal and organizational policies. Automation allows businesses to track contract milestones, manage renewals and reduce risks associated with noncompliance or missed deadlines.

Procurement execution: A recent study found that using AI during this phase resulted in a 28% lower total annual cost to perform procurement processes as a percentage of spend.² AI-powered S2P platforms automate purchase requisitions, POs and approval workflows. AI is also behind Robotic Process Automation (RPA), which eliminates time-consuming and repetitive tasks, speeding up order processing and reducing errors. Intelligent algorithms also help ensure that purchases align with negotiated contracts and supplier agreements.

Invoice and payment processing: S2P platforms use AI to match invoices with purchase orders and delivery receipts automatically and flag discrepancies. This automation reduces processing times and supports accurate and timely payments. These platforms also help organizations maintain compliance with tax and regulatory requirements, further streamlining financial operations.

Risk management and compliance: AI enables continuous monitoring of supplier performance and potential risks. In fact, 80% of executives expect generative AI to enable better management by analyzing all relevant supplier performance metrics.¹ By analyzing reliability, financial stability and market conditions, the platform can proactively flag risks such as supply chain disruptions or noncompliance. NLP assists in scanning regulatory documents to ensure that supplier practices align with industry standards.

The S2P process offers a structured approach to managing procurement. Below are the key benefits of implementing S2P as a process:

S2P integrates all procurement activities into a cohesive process, from supplier identification to payment, while aligning them with broader business processes. This streamlining eliminates redundancy and ensures smooth handoffs between sourcing, purchasing and payment functions, improving operational efficiency.

Strategic sourcing at the beginning of the process identifies cost-effective and high-quality suppliers. This approach, coupled with rigorous contract negotiation, helps ensure better pricing and terms.

The S2P process enables better visibility into spend data and aligns procurement decisions with budgetary goals. Managing the process end-to-end helps ensure cost control, compliance with contracts and the elimination of unnecessary or unauthorized purchases.

S2P fosters a clear and consistent procurement process where every step is documented and aligned. This transparency supports audits, compliance requirements and accountability within the organization.

By formalizing supplier evaluation, selection and management, S2P creates a structured approach and improves user experience through streamlined workflows and enhanced collaboration tools. Consistent communication and performance tracking foster trust and collaboration, which can lead to better pricing, service and innovation from suppliers.

S2P provides a systematic approach to assessing suppliers and managing contracts, which helps reduce the risk of working with unreliable vendors or facing legal disputes. Monitoring supplier performance also minimizes disruptions in the supply chain.