Source-to-Pay Explained: What It Is & Why It Matters

Taylor Bucher

The source-to-pay (S2P) process is a critical component of Procurement, encompassing the entire lifecycle of purchasing activities within an organization. Beginning with sourcing suppliers and negotiating contracts, it extends through purchase requisition, order placement, invoice processing, and ultimately, payment settlement. This end-to-end process ensures efficient and strategic procurement of company goods and services, increased cost savings and better supplier relationship management. Its optimization through technology and strategic alignment is paramount for organizations aiming to enhance operational effectiveness and mitigate risks.

What is source-to-pay?

The S2P process represents the complete cycle of activities involved in an organization’s Procurement department, including:

  • Identifying potential suppliers
  • Negotiating contracts
  • Selecting vendors
  • Approving and processing purchase requisitions
  • Submitting purchase orders
  • Receiving goods and services
  • Managing invoices and supplier information
  • Settling payments

At its core, the S2P process aims to streamline and optimize Procurement activities, ensuring that organizations obtain the goods and services they need at the best possible value, while also managing risks and maintaining compliance. This involves various tasks such as supplier onboarding, spend analysis, strategic sourcing, contract management, procurement execution and invoice reconciliation.

Efficient management of S2P processes is key to enhancing operational efficiency, reducing costs, minimizing supply chain disruptions and fostering better supplier relationships. Advanced technologies such as automated S2P solutions play a vital role in optimizing and automating both tedious and strategic tasks, leading to improved overall Procurement performance.

So, why does this matter?

By backing up one step, S2P solutions bring strategic sourcing into the mix, opening up a trove of new opportunities. In addition, they present an chance for Finance and Procurement departments to knock down their silos and work in congruence to align Procurement activities and financial decisions with company goals to drive synergies and expand value creation.

The S2P lifecycle

The S2P lifecycle involves a series of steps aimed at managing the Procurement process from sourcing suppliers to making payments:

  1. Searching for suppliers: Choosing a supplier starts with searching for one first. At the onset of the S2P lifecycle, the quest for potential suppliers commences, necessitating extensive market exploration. Sourcing teams gauge vendor suitability via requests for information (RFIs), proposals (RFPs), and quotes (RFQs). Utilizing predefined templates expedites the collection of vendor data. E-auctions are another great way for securing optimal deals on goods and raw materials.
  2. Assessing and validating suppliers: Collated vendor data from RFX processes and e-auctions helps in vetting potential suppliers. When vetting potential suppliers, it’s important to find a balance of product affordability with profitability. That’s why supplier evaluation should extend beyond product quality to pricing, delivery timelines and order quantities. Once potential vendors are chosen, the negotiations of final agreements begin.

  3. Negotiating and contracting: This phase is pivotal in optimizing costs along the supply chain. Negotiating larger quantities often leads to substantial reductions in purchasing costs. Accurate determination of pricing and order volumes is imperative for issuing contracts.

  4. Creating purchase orders: Based on agreed pricing and quantities, purchase orders are generated and transform into legally binding agreements upon supplier acceptance. These documents include all contractual terms between the buyer and supplier.

  5. Receiving and paying for goods and services: Goods reception concludes the S2P process and involves verifying purchase order delivery notes to ensure compliance and conducting quality inspections before processing payments to suppliers. Adhering to delivery and payment schedules is vital to making sure production processes remain uninterrupted.

Each step in this lifecycle requires coordination, collaboration and compliance with established policies and procedures to ensure smooth and efficient Procurement operations while maximizing value for the organization.

The benefits of having an S2P solution

New technologies offer the potential to automate a significant portion of the S2P process. These solutions provide tailored tools for S2P functions and are engineered to enhance efficiency by eliminating duplicative tasks and inefficiencies. They also play a pivotal role in driving down Procurement expenses, increasing savings and unlocking new value within Procurement.

Automating the S2P process offers significant time and cost benefits for businesses. Adoption of AI-driven S2P software enhances Procurement visibility, resulting in increased savings and smarter financial decision-making. Consolidating key business functions within a single platform reinforces compliance with procedures, contracts, and regulations, while also enhancing relationships with trading partners.

Advantages of automating the S2P workflow include:

  • Quick creation and approval of purchase orders
  • Reduced requisition errors through process automation
  • Enhanced visibility and financial insight
  • Empowered Procurement teams, as staff is liberated from routine tasks and redirected to strategic endeavors
  • Substantial time and cost savings thanks to efficient handling of non-PO invoices and exceptions
  • Quick invoice processing, validation and matching against purchase orders
  • Streamlined contract lifecycle management and strategic sourcing, which helps support suppler relations and negotiations

S2P vs. P2P: What’s the difference?

While P2P starts with the requisition of a purchase — often from a pre-approved catalog of suppliers — S2P begins the actual sourcing of goods, covering every step in the process from spend management, strategic sourcing, and supplier management, through to purchasing, performance management and accounts payable (AP).


Source-to-pay plays and important role in Procurement, combining strategic sourcing, negotiation, ordering and Finance functions. Opting for automation to be a judicious investment, saving both time and money for businesses by eliminating repetitive and tedious tasks and boosting overall efficiency. With labor-intensive steps automated, Procurement teams gain valuable time to concentrate on strategic endeavors crucial for business expansion and development.

Choosing the right partner for your business’s S2P automation journey is key. Esker’s AI-driven Source-to-Pay suite helps companies remove silos between Finance and Procurement allowing them to be agile in an ever-changing world, building a reliable and sustainable business together. See what else Esker’s Source-to-Pay suite can do for you and your business by going to www.esker.com.