Source-to-pay adds more steps, beginning earlier than the procure-to-pay process. Both processes include some purchasing functions and the processing of invoices by accounts payable and vendor payments.
What is Source to Pay?
Source-to-pay (S2P) is the end-to-end sourcing and procurement process for finding, evaluating, and contracting with suppliers of goods or services, ultimately resulting in vendor payment. S2P goes one step further than procure-to-pay (P2P) by adding strategic sourcing that precedes the procurement process, using big data and digital networks.
What Steps are Involved in Source to Pay?
Source to pay (S2P) is a digital journey that leads to e-procurement, a term for providing online procurement solutions.
Source to pay steps are:
A service or product must be needed by the business. Alternatively, a need for a lower price or better terms could create the demand.
In this step, potential vendors in the supply chain are located and evaluated. This sourcing strategy can be achieved using software platforms that handle large amounts of data on historical spending, market trends, and company goals for eSourcing. Vendors that pass minimum standards can be cataloged in a seamless onboarding process.
Preparing a bid
RFx documents are assembled, responses are received from suppliers, and stored in an eSourcing portal. RFx materials may include requests for information (RFIs), proposals (RFPs), and quotes (RFQs).
In the fourth step, candidates need to be reviewed. Some will be chosen and others not.
Next, it’s time to add successful vendors to a supplier management database and negotiate pricing and contract terms.
After contracts are signed, they’re retained for the length of the contract lifecycle and then long enough to achieve compliance with tax-related and company-related document retention policies.
Once the contract terms are finalized, it’s time to complete the contract document and sign it.
Transition to procure to pay
With the signing of the contract, it’s time to pass the baton to the procurement team. Procure-to-pay is included in the source-to-pay process.
The procurement organization will be responsible for handling all purchase orders and purchase requisitions and follow-through with vendors.
Accounts payable invoice processing
Accounts payable will handle the capture and processing of vendor invoices, including screening vendors for authenticity, verifying invoices, matching vendor invoices with the purchase orders and receiving documents, getting invoice approvals, and generating some accounting reports.
Accounts payable makes and reconciles payments to conclude the source-to-pay process, keeping vendors informed about the status of their payments.
How is S2P Different than Procure to Pay?
S2P (Source to pay) is different than procure-to-pay because it begins earlier than procure-to-pay.
Source to pay includes specifying a product or service need, preparing RFI questionnaires, RFQ, or RFP documents (when required), obtaining bids, qualifying vendors, negotiating, and preparing a purchase contract before procurement, performing PO and payables processes, and payment.
Procure-to-pay begins after sourcing steps, starting with the procurement team preparing the purchase orders (using purchase requisitions). Procure-to-pay continues with the accounts payable department that processes vendor invoices and makes payments to suppliers.
When Does a Business Use Source to Pay?
When businesses need to find new vendors that offer better terms, lower prices, or new goods that current suppliers don’t offer, the S2P process (source to pay) effectively realizes these goals.
Benefits of Source to Pay
Benefits of source-to-pay include:
- Consolidating a complete supply chain for higher procurement efficiency
- Combining critical processes into a single platform for sourcing
- Improving regulatory, procedural, and contractual compliance
- Achieving more accurate and consistent forecasting
- Enhancing collaboration among suppliers and other trading partners
- Spend analysis
- Evaluating suppliers against numerical standards and benchmarks:
- Cycle times for e-invoicing and purchase orders
- Number of on-time deliveries
- Other defined measures
What Are the Advantages of Using S2P Software?
The bottom line is that businesses that have the right digital tools in place will have a competitive advantage over other enterprises that don’t use modern software. The benefits of source-to-pay computer programs include:
- Real-time data analysis
- More competitive bids from potential suppliers
- Enhanced vendor qualification and evaluation
- Online eAuctions and negotiations
- Long-term cost savings
- Process automation with a streamlined workflow
- More accurate automated spend analysis by vendor and product or service category
- Reduced processing costs
- Easier cash flow analysis
- Simpler business processes
- Streamlined supply chain management and spend management
- More efficient risk management
- Easier-to-track supplier information
- Overall better user experience
Source to Pay Tools Help Streamline AP Offices
Businesses can integrate online sourcing software, procurement software, and AP automation software with their ERP system to work seamlessly together as S2P or purchase-to-pay solutions.
Locating suppliers, collecting supplier bids, negotiating, completing contracts, invoice processing, and making payments don’t have to translate into laborious, time-consuming processes anymore. Effective supplier management and performance management optimization is easier to achieve with online software source to pay solutions providing automated tools.
AP departments will find their tasks easier, more cost-efficient, and quicker within the source-to-pay cycle if they adopt today’s automation software. AP automation software eliminates manual paper processes and can digitize vendor invoices through uploading or OCR scanning to make them electronic and automate pay software.