Integrating, automating and streamlining purchasing and payment processes can yield a number of benefits, including increased efficiency, lower costs, freed-up capital and improved vendor relationships. And that’s exactly where a source-to-settle approach, enabled by purpose-built enterprise software, comes in. This strategy connects everything involved in the procurement process, from initial strategic sourcing activities to final payments to suppliers. Forward-looking companies that embrace source-to-settle solutions can elevate procurement from a purely transactional function to one that can work as a strategic enabler of business outcomes.

What Is Source-to-Settle?

Source-to-settle refers to a framework that captures the entire end-to-end process of procurement, from the selection of suppliers all the way through the settlement of a company’s financial obligations. Among the activities that the source-to-settle process ties together are the strategic sourcing of vendors, including requests for information, proposal or quotation; contract management; purchase order generation and management; invoice processing and payment; and ongoing supplier relationship management (SRM). Many of these steps historically have taken place in a siloed fashion. The source-to-settle paradigm brings together all of these activities within an integrated workflow, enabling greater visibility, efficiency and control over the full spectrum of procurement tasks. In doing so, procurement teams gain access to data that can better inform spend analysis, purchasing policies and pricing agreements.

Key Takeaways

  • Procurement management is a complex corporate function, spanning multiple processes and impacting the financial health of a business.
  • Source-to-settle frameworks integrate procurement activities from initial sourcing to the final settlement of payments.
  • Companies that implement source-to-settle procurement gain greater control over and insight into their company’s spending.
  • Other benefits include increased efficiency, better supply chain management, cost savings and improved supplier relationships.
  • Enterprise software with robust procurement management functionality is essential to enabling source-to-settle processes.

Source-to-Settle Explained

On the surface, procurement may seem to be one of the more straightforward aspects of a company’s core operations. In fact, however, procurement management is actually one of the more complex functions, spanning multiple interrelated activities that take place in various corners of the business. What’s more, it’s one of the more powerful levers for improving a company’s profitability and overall performance. In today’s economic environment, every company is on the lookout for opportunities to gain greater control of their spending — and finding ways to improve efficiency and cut costs along the way certainly doesn’t hurt. The source-to-settle framework for procurement management can help achieve these things because it incorporates all procurement processes under a single umbrella.

What is the difference between source-to-settle and procure-to-pay?

Source-to-settle and procure-to-pay are distinct yet interconnected procurement processes. While often used interchangeably, they differ in scope and purpose:

  • Source-to-settle covers the entire procurement lifecycle, from sourcing suppliers to settling payments. It integrates all procurement activities into a unified workflow, enhancing visibility, financial control, and efficiency. Benefits include cost reduction, improved supply chain management, and stronger supplier relationships.
  • Procure-to-pay focuses on the transactional aspects of procurement, such as requisitions, purchase orders, invoice processing, and payments. Its primary goal is to streamline these tasks for increased efficiency and cost savings. However, it lacks the supply chain and supplier management benefits of source-to-settle.

Each approach serves different needs: procure-to-pay is ideal when suppliers are already established, while source-to-settle is better for managing supplier relationships and identifying new sources.

How Does Source-to-Settle Work?

Source-to-settle is a process for orchestrating the various activities that take place across procurement and accounts payable functions to ensure that a company can source, manage and pay for its procurement activities in the most efficient way possible. The aim of source-to-settle is to simplify and automate this series of processes to eliminate error-prone manual tasks and create a streamlined workflow, from selecting and onboarding vendors to reconciling and paying invoices. Taking this approach facilitates increased agility and speed in procurement and accounts payable, which ultimately benefits both a company and its suppliers.

Adopting cloud-based enterprise software that can manage these tasks end-to-end empowers procurement and finance leaders to make data-informed decisions throughout the source-to-settle life cycle. Looking forward, generative artificial intelligence (GenAI) could further streamline source-to-settle processes. In fact, as much as 50% to 80% of source-to-settle work could be automated, eliminated or shifted to self-service models through the adoption of GenAI, according to a 2023 KPMG report.

While every company will have its own approach to managing the source-to-settle process, the following overarching categories of processes are typically involved.

  1. Strategic sourcing: This is the first step in any source-to-settle system, during which time the appropriate parties within the company identify and evaluate potential suppliers based on such factors as pricing, quality, reliability and ability to serve as a strategic partner. Strategic sourcing, though, is much more than an appraisal of potential suppliers; it encompasses a number of key practices that help a business identify trends, gather insights and develop policies for supplier selection and performance management, as well as risk management. The most mature strategic sourcing approaches include comprehensive spend analysis, market research, supplier evaluation, total cost of ownership analysis and risk management and mitigation.
  2. Contract management: The next step in the source-to-settle process is the end-to-end management of contracts with selected suppliers. This includes the creation, negotiation and management of supplier contracts to ensure that these agreements are mutually beneficial from the start of the relationship until the end. It's essential to pay close attention to all contract terms during negotiation, including lead times, quality standards and delivery terms, to position the partnership for success. Investing in enterprise software with contract management capabilities can help companies track important documents and create alerts when crucial dates, such as contract expirations or renewals, are approaching. A digital, searchable contract repository can also come in handy by enabling procurement teams to quickly find what they need. Additionally, automating contract management can eliminate error-prone manual processes and speed the development of viable contracts, thereby avoiding delays in important purchases.
  3. Procurement: Procurement includes all product or service requisitioning and purchase order creation. During the procurement process, departments or individual buyers make requests to purchase goods or services. After the request is approved, a purchase order is created and sent to the vendor, after which the vendor will deliver the goods or services. Though this may seem like the simplest step in the source-to-settle process, it’s also arguably the most important. Without clear oversight of and control over requests and purchases, companies can experience significant shadow buying — that is, unauthorized purchases made by employees outside of official procurement channels, often leading to increased costs, reduced visibility and compliance headaches. Enterprise procurement software with self-service capabilities that walk employees through the company-sanctioned purchasing process can go a long way toward reining in rogue spending.
  4. Invoicing and payment: Once purchases have been made and goods or services delivered, suppliers will send an invoice. Companies then reconcile these invoices against their own purchase order records to ensure accuracy and completeness before making a payment within the agreed-upon timeframe. When the invoice and payment process is handled manually, it can be laborious and error-prone. Incorporating these tasks into a source-to-settle process using enterprise software that receives invoices electronically and automates the reconciliation process greatly streamlines operations and eliminates errors. And faster processing of invoices and payments cuts down on labor costs and mistakes and makes it possible for companies to take advantage of benefits, such as early payment discounts.
  5. Settlement: The final step in the source-to-settle chain of activities is the actual settlement of payments to suppliers. At this stage, funds are moved from the buyer’s accounts to those of the providers of the goods and services.

Benefits of Implementing Source-to-Settle

Many businesses have decentralized, and often ineffective, processes along the source-to-settle chain. For example, procurement and accounts payable functions may operate entirely independently. Enterprise spending data, meanwhile, may be dispersed throughout the organization, or even inaccurate or nonexistent. Investing in systems and business-process changes to integrate, automate and ultimately optimize the source-to-settle process offers a number of benefits, including:

  • Effective supply chain management: Source-to-settle streamlines the task of qualifying suppliers on the basis of factors such as financial stability and compliance with internal requirements, thereby improving the likelihood that these partners will meet expectations. Ongoing SRM practices serve to keep tabs on supplier performance over time. For example, procurement software with vendor management capabilities can send alerts when certain qualifications are expiring or notify procurement managers when data indicates potential issues regarding a supplier’s ability to deliver. In addition, the integration that a source-to-settle system provides can create greater procurement agility, which enables companies to manage their supply chains more effectively and meet customer demand.
  • Increased efficiency: Source-to-settle solutions serve to standardize, streamline, automate and integrate what are historically manual or paper-based processes dispersed throughout an organization. Process automation and improvements have a direct and immediate impact on productivity with regard to all procurement management processes, including identifying and managing suppliers, negotiating contracts, requisitioning purchase orders, reconciling invoices and making payments. This, in turn, results in quicker sourcing decisions, faster purchase approvals and more expedient invoice processing and payments. What’s more, this increased efficiency frees up procurement and accounts payable professionals to focus on more strategic tasks, such as relationship building, researching new suppliers and improving processes. For instance, before implementing a source-to-settle system, a manufacturing company took two weeks to approve and process purchase orders, due to the need for manual paperwork and multiple approvals. With the new system, the company approves and processes purchase orders within 24 hours, affording the procurement team the time to research new, cost-effective materials that will result in a 15% reduction in overall procurement costs within six months.
  • Cost savings: Cost savings are a primary focus of procurement functions, and integrating and automating source-to-settle processes can lead to significant reductions across the cycle. These savings stem from multiple sources, including reduced labor and associated costs due to increased efficiency, lower transaction and payment processing expenses, and streamlined strategic sourcing. Companies may also benefit from more competitive pricing and greater value through improved negotiation capabilities. Once suppliers are vetted and integrated into the system as approved sources for specific products or services, further savings are realized as employees no longer need to start from scratch for each purchase. Additionally, by streamlining and accelerating invoicing and payments, this approach unlocks capital in the accounts payable function, contributing to overall financial efficiency. For instance, with its source-to-settle system, our highlighted manufacturing company was able to reduce payment processing time from 14 to three days, enabling it to take advantage of early payment discounts and save an additional 2% on overall purchases.
  • Standardized and streamlined contracting: Procurement contracts with suppliers are the legal glue that holds everything together. They cement the business relationship between a company and its vendors and lay out responsibilities, pricing and other key terms, such as how disputes will be handled or what termination rights exist. An effective source-to-settle process empowers companies to standardize and streamline the contracting process with some predefined language and terms, templates and workflows. This helps businesses put in place the best deals, shorten cycle times, increase visibility into agreements and more easily manage compliance over the relationship term. Once a contract is executed, procurement software can alert procurement teams to important milestones, such as contract expiration or renewal. For example, our manufacturer’s contract creation process previously took an average of three weeks and often resulted in inconsistent terms across suppliers. With its new system, it created a template for raw material contracts with predefined clauses and approval workflows. As a result, the company can negotiate and finalize a new supplier contract for steel in just five days. This standardized approach not only saves time but also ensures consistent terms and better supplier management across all contracts.
  • Improved supplier relationships: A full-spectrum source-to-settle approach includes robust SRM that helps create stronger partnerships between companies and their suppliers, versus purely transactional relationships. And that’s good for everyone. In fact, a majority of procurement executives surveyed by KPMG said their organizations’ focus on SRM had improved performance by more than 10% percent in the areas of on-time delivery, service levels, reduced supply risk and product and service quality. By monitoring supplier performancein an ongoing fashion, procurement professionals can head off potential issues before they impact business outcomes, and, better yet, they can involve suppliers in finding solutions. Having implemented its source-to-settle solution, our manufacturing company can use SRM capabilities to monitor supplier performance metrics. If a slight decline in delivery reliability is detected, the procurement team can proactively collaborate with the supplier to resolve the issue, resulting in improved on-time delivery rates and a strengthened partnership that leads to better pricing and priority service in the future.
  • Enhanced financial control and visibility: Many companies struggle to control their spending, particularly when purchasing happens outside of contractual agreements or enterprise processes. Source-to-settle solutions can rein in this maverick spending activity by mandating conformance to purchasing from approved suppliers only — and, more importantly, making it easy to do so. Putting in place clear spend-management policies, rules and controls in the form of established workflows and approvals helps to control spending companywide and increases visibility into spending. For example, after implementing its source-to-settle solution, our manufacturer now enforces a policy requiring all purchases to go through approved channels, automatically redirecting employees to preferred vendors with negotiated rates. As a result, the company reduced maverick spending by 80% within six months, saving $500,000 annually and gaining full visibility into companywide purchasing patterns.

Key Considerations for Source-to-Settle Success

The benefits of implementing source-to-settle processes and systems are evident, but they aren’t a given. It’s important to take certain actions to help ensure that these changes are made effectively and, more importantly, adopted readily by the larger organization. The following two important steps can increase the likelihood of source-to-settle success.

Choose the Right Technology and Partners

The value of a source-to-settle approach is the integration that it can enable across the procurement life cycle, from initial sourcing work to the ultimate payment to suppliers. Siloed systems or disconnected data can thwart any advantages and result in inefficiencies, bottlenecks and opacity.

It’s essential to select the right technology and partners to help the company digitize, automate and optimize procurement processes. The solution should be an integrated platform capable of connecting all sourcing, purchasing and payment activities across the procurement chain. Such a system can offer improved data accuracy by eliminating the manual entry of data, increase visibility, streamline workflows and handoffs between departments, ensure compliance and enable supplier collaboration. The right procurement software will also ingest and share data as needed with other enterprise technology and help key stakeholders monitor and manage procurement and financial performance over time. In many cases, enterprise resource planning (ERP) software with an integrated procurement module is the best bet.

Train and Support End Users

Several parties are involved in the source-to-settle process. At the leadership level, procurement, finance and supplier management teams will need to be intimately familiar with new source-to-settle processes and technologies. Senior management may also need to have a working knowledge of the system in order to provide necessary oversight. And, of course, those employees who will be doing any purchasing will also need to understand the tools involved in creating requisitions.

Because source-to-settle can represent a marked change from the way purchases have been made in the past, training and support for all users is key to ensuring a successful implementation of new workflows and tools. This begins by developing a comprehensive training plan that addresses the needs of each user group and role, including procurement staff, the accounts payable team, department managers and senior management. Present a mix of training methods, including in-person workshops for hands-on training, online self-service modules, video tutorials and reference guides.

It’s important to create plans not only for initial training but for ongoing education as well, including refresher courses and additional training on new features or updates. Putting in place a support system with a help desk or designated support personnel, ticketing systems for reporting and resolving issues, and a repository of answers to frequently asked questions is also beneficial. Additionally, companies can conduct regular user-experience surveys to identify problem areas, track user adoption rates and system usage and analyze support issues.

Drive Business Growth With NetSuite’s End-to-End Process

The best way to bring procurement and accounts payable together in a source-to-settle framework is through integrated data and tools. NetSuite Procurement is a system designed specifically to bring all procurement-related information together into a single system — from sourcing management and purchasing to supplier management and invoicing. Some benefits include:

  • Real-time visibility: Integrated data flow and centralized management provide real-time insights throughout the source-to-settle life cycle.
  • Faster cycle times: Automation and streamlined processes shorten cycle times for everything from sourcing to requisition to payment processing.
  • Improved vendor relationships: Suppliers and buyers collaborate in real time via the vendor portal, allowing them to easily share documents and ideas.

NetSuite’s integrated procurement solution can help companies transform the source-to-settle life cycle and elevate the impact that procurement and accounts payable have on business outcomes by providing faster and more compliant services across the enterprise.

Companies can implement source-to-settle — both as a discipline and as a technology — to integrate the steps of the end-to-end procurement process from sourcing to accounts payable, which can empower greater collaboration among all the functions involved and provide the seamless integration of data. This increased transparency, efficiency and integration can drive productivity, reduce costs, improve compliance and facilitate greater control over spending. The resulting insights can also be used to better manage enterprise spending and improve the procurement process over time.

Source-to-Settle FAQs

What is the difference between source-to-settle and source-to-pay?

Source-to-settle and source-to-pay are essentially two terms that mean the same thing. They both refer to a framework for integrating and managing the full procurement and accounts payable processes, from the earliest stages of sourcing until the final settlement of payments to suppliers.

What is a source payment?

A source payment refers to a payment that has been made to a supplier. It may be referred to as such within the procurement software used to manage the source-to-settle process, which covers the full spectrum of a company’s procurement and payment activities.

What does settle source mean?

The term “settle source” is likely a mistakenly shortened and inverted version of the term “source-to-settle.” Source-to-settle is an approach that brings together everything involved in the procurement process, from the initial strategic sourcing activities to the final payments to a supplier in an effort to streamline, integrate and optimize procurement practices.

What is the S2P process?

S2P, short for source-to-pay (and sometimes called source-to-settle), is a process that starts with identifying and contracting with suppliers and ends in the ultimate payment for delivered goods or rendered services to those suppliers.