What is Source to Pay (S2P)?

Jerica Kingsbury -

If you run an office supply store and decide you need to purchase a large number of notebooks to stock your store, you’re going to try and find the best quality, most affordable notebooks that you can buy in bulk. You’ll look around at different notebook suppliers, assess the costs of working with each, figure out if the quality of their products match what you’re looking for, and then determine who to purchase the notebooks from.

When completing these actions, you’re starting the source to pay (S2P) process, which is something every business goes through when working with suppliers. Keeping expenses low while maintaining steady revenue streams is vital to the success of your business, and mastering the S2P process is one of the most effective ways to reduce business costs.

Here are some questions that this article attempts to answer:

  • What is source to pay?
  • What is the difference between S2P and P2P?
  • What is the source-to-pay process?
  • How does source to pay benefit your business?

What is Source to Pay?

Source to pay, regularly referred to as S2P, is the entire end-to-end process of deciding whether you need a certain product or service, finding the best supplier to work with, initiating the procure-to-pay process, making a purchase, and receiving the goods in question. Like most business processes today, navigating the source to pay process with the right S2P software solution has numerous benefits. You’ll notice easier supplier relationship management, faster delivery timelines, and reduced pricing models.

The source to pay process may seem like it’s very transactional, and parts of it are, but it’s also incredibly dependent on vendor relationships, smart strategizing, and constant improvement. If you or your sourcing team can make the S2P process a priority, you’ll see just how many benefits can come from it.

S2P vs. Procure to Pay

You may be thinking, “What is source to pay? Is it the same as procure to pay?” 

S2P and P2P are not the same thing; the P2P process is embedded in the S2P process. In short, the S2P process is larger; it encompasses more steps than the P2P process. However, the P2P process is a subset of certain steps within the S2P process.

S2P starts the moment that a business leader decides a new good or service is needed from a supplier. It then moves to researching suppliers, assessing prices, sending information requests, finalizing supplier selections, creating purchase orders, receiving the products, and fulfilling invoice payments. It can take weeks or even months to get through the source to pay process in its entirety. 

The P2P process, on the other hand, starts after a supplier has been selected. The procurement team is handed the baton from the sourcing team and continues to work through the procurement activities of the S2P process. These include managing purchase orders and purchase requisitions, tracking product delivery timelines, ensuring the receipt of the goods, and working with the accounts payable team to complete the vendor payment associated with the invoice that matches the transaction.

Source-to-Pay Process Overview

If your sourcing team essentially has a checklist of everything that needs to be completed throughout the source to pay process, they are less likely to miss anything, expose your business to risk, or miss out on a beneficial sourcing opportunity. Even further, standardizing source-to-pay action items makes it more possible to trim the fat from the process, find synergies in your business, and implement a source to pay system that enables process automation and streamlines supplier onboarding. 

The steps in the S2P process are:

Identifying Business Needs 

Without the need for a new product or service, a business simply wouldn’t initiate the source to pay process. Remember, in business, there needs to be demand. In this case, your need for notebooks is the demand. Once that’s established, start shopping around.

Sourcing Vendor Options

There are a lot of notebook vendors out there. Find multiple that look promising. Do you like the supply they have? Does their pricing seem fair? You can use a source to pay system to help identify potential vendors, track the S2P process with each, and create a database of information if you ever go through this process again (which you will!).

Selecting a Vendor

Once you’ve sent out requests for information (RFIs), proposals (RFPs), and quotes (RFQs), you’ll get a series of responses from the vendors you sent them to. You’ll look at the responses, figure out which vendor best fits your needs, and choose one or multiple vendors to move forward with depending on your procurement needs.

Finalizing Contracts

With the vendors selected, it’s time to put pen to paper. You’ll create legally binding contracts that outline the supplier partnership, onboard the supplier(s) into your source to pay system, and get the procurement team involved to finish out the P2P section of the S2P process.

Procurement

The contract above is not the same as a purchase order. With the supplier contract in place, the procurement team will then create a purchase order for what you need and send it to the supplier. Once the supplier accepts the PO, it is legally binding for both parties. Finally, the vendor will ship the notebooks to your store in accordance with the purchase order.

Processing Vendor Invoice

After the goods have been sent, you’ll receive an invoice from the supplier detailing how much you need to pay to complete the transaction. Be sure to go through the three-way matching process to ensure the invoice matches the PO and the items received. Here's a detailed review on the best invoice processing software.

Completing Payment

At this point, the accounts payable team will complete the payment. Depending on the agreement with the supplier, they might use EFT, ACH, or EDI payments. AP automation software is a great tool for simplifying the settlement of invoices.

Benefits of Source-to-Pay

The source to pay process has been around for a long time. Although the steps have stayed relatively the same, the way the steps are completed has shifted with the use of digital tools, P2P software, and automation capabilities. 

Since it is more streamlined than ever, businesses are seeing endless benefits from thoughtful, optimized source-to-pay management, such as:

  • Enhanced vendor relationships are a wonderful result of today’s S2P process. Optimized process steps make it easier to work together, and technology can help create deal structures that make everyone happy.
  • By finding the best vendors at the best prices, your organization can save money. Whether it’s buying in bulk, agreeing to a long-term supplier contract, or swapping out an old vendor for a new one, source-to-pay is sure to help you realize savings over time.
  • Data tracking is much more accurate. This helps with audit trails, vendor analysis, and business forecasting in this space.
  • As your relationship with each supplier continues, you’ll need to ensure that the partnership remains favorable. The source to pay process can help you track specific metrics with ease, monitoring the performance of your suppliers and getting ahead of any issues.
  • Internal collaboration is supported by every step. Your sourcing team has to work well with procurement, and at the end of the process, accounts payable steps in to get it across the finish line. This collaboration can break down functional silos and illustrate the benefits of working together in different capacities. 

Looking Forward

The source-to-pay system brings sourcing, procurement, and accounts payable functions together. Without each functional expert doing their job, the process would fall apart and jeopardize the health of your business. If you run an office supply store and can’t seem to keep notebooks stocked because your S2P team is failing, you could very well go out of business. Although we look at the S2P process holistically, improvement opportunities can be found when drilling into each function’s responsibilities and functionality.

AP may make up the tail end of the process but ensuring that invoices are paid on time is crucial to holding up your end of the deal. With the right AP automation software like Nanonets, you can avoid common pitfalls in the S2P process. Effective AP management can help mitigate the S2P challenges that come along with late payments, incorrect invoice management, and supplier relationships as a whole. When you streamline the vendor payments process, everyone wins.

Technology is a part of business today, no matter what industry you’re operating in. How can you fold technology into processes like S2P to make the lives of your employees easier, build better partnerships externally, and get the most bang for your buck? If you’re not sure where to start, implementing a source to pay system is the perfect place.