Source to Pay, Purchase to Pay, or Procure to Pay?
Can you explain the differences between sourcing, purchasing, and procure to pay? With confidence? If not, well, you are not alone. If you ask ten people to explain the differences, you might get ten different answers — if not more. Maybe I can demystify the enigma a bit.
In this blog, I have listed some definitions, which hopefully give you something to work with. But first, let me share some background, as I’ve come to know it over the last thirteen years in the industry.
From separate reports to Procure to Pay
I started working with Purchase-to-Pay (P2P) in early 2007. At that time vendors in the space were lobbying analysts, like Gartner and Forrester, trying to convince them that Accounts Payable (AP) and Procurement solutions were connected. At that time still, AP didn’t talk to Procurement, and vice versa.
Reports, like Gartner’s Magic Quadrant, were split into two separate pieces. Forrester, similarly, focused on Electronic Invoice Presentment and Payment (EIPP) and e-Procurement. Today, they have blended the two into a single e-Procurement Wave with Gartner. The report now uses Procure to Pay terminology.
Is there a difference then if you use Source to Pay, Purchase to Pay or Procure to Pay terminology? As someone who has managed Analyst Relations and submitted to multiple MQ and Wave reports, I can tell you the differences are negligible.
What about Google and SEO?
You probably won’t be surprised to know that Google is also involved in this terminology deathmatch. Product naming does have a lot to do with both the ‘indicative’ value and search engine optimization. Suppose you are selling accounting software and want people to recognize that just from the solution’s name. In that case, it’s generally a good idea to call your service something like ‘Acme Accounting Services’ rather than ‘Green Tiger Services.’
It is important to make sure the name on the tin reflects the contents of the can. It also helps people to find from Google what they are looking for. But that’s the game – how do people describe what they are looking for? If you google source to pay, procure to pay, or purchase to pay, you will get different search results. Also, the country you’re in at the moment influences the search results. It’s impacted by a wonderful mix of all the actual content on the internet (which Google has indexed) and what the various vendors have done to optimize those same search results.
The point is this: Vendors will name their products and services based on the most common search terms relating to the solution they are trying to sell. If there are 9 million searches a year for Red Apples and only 1 million searches for Great Apples, you better believe Red Apples is a better name for your apples (assuming they are at least a little red).
And lastly, the names appear to be broader or slightly narrower in terms of the scope, and vendors can use this to position themselves or deposition their competition. If you and I sell almost the same capability, my product name gives the appearance of being broader – perhaps that’s going to work in my favor. Of course, focus works equally well – there is no right answer.
So, what term should I use?
I’ve now told you that there isn’t really any difference in the terms based on 3rd party analyst definitions. I’ve also said you can’t be sure you will get anything useful from Google. And that vendors could name their solutions anything as long as it slightly resembles what they offer. So what can you do to ensure your organization gets what they need?
So here we are – where the rubber meets the road. It’s not essential how others label processes or solutions. The only things you need to understand are your requirements. There are likely 50 vendors globally who could support 80% of the requirements for any given source to pay, purchase to pay, or procure to pay project – but the 20% is the critical part.
Each vendor has its flavor and its strengths and weaknesses. One vendor may be solid on the sourcing side and weak on the payables side. Most vendors started somewhere and grew into a broader portfolio. Their soul is still on one side or the other, though, and depending on your own needs, you will find more value from one solution than another.
I’m sure you get the point already. What you need is the most important thing for you to know – don’t put any stock in the terminology as it is almost meaningless. That said, as promised, here are the definitions:
Source to pay
Source to Pay is the process of obtaining raw materials or components necessary to manufacture a product or provide a service and pay for products purchased from suppliers.
Purchase to pay
Purchase-to-pay is an integrated system that fully automates the goods and services purchasing process for a business. The system earned its name because it handles all aspects of acquisition from the purchase of goods to the vendor’s payment. The key benefits to purchase-to-pay are efficiency, cost savings, and increased financial and procurement visibility.
Procure to pay
Procure-to-pay is a term used in the software industry to designate a specific subdivision of the procurement process. The procure-to-pay systems enable the integration of the purchasing department with the accounts payable (AP) department. Some of the software industry’s largest players agree on a common definition of procure-to-pay, linking the procurement process and financial department.
The steps usually included are:
- Supply management
- Cart or requisition
- Purchase order
- Invoice reconciliation
- Accounts payable
I hope these definitions are even a little bit useful to you as you try to define your process accurately. It’s funny, but after collecting these definitions, I realized one more plot twist. The pay element of all three terms is, in fact, a red herring. Almost no vendors out there offer payment solutions. Virtually all options will take an invoice as far as approved, transferred to the ERP, and ready for payment.
Definitions are useful but maybe you need some industry benchmarks to go with your improved vocabulary. Check out the latest ProcureCon Report: Adapting your procurement strategy to a Pandemic.