What Is Source-To-Pay (S2P)? Source-To-Pay Vs Procure-To-Pay
What Is Source-To-Pay (S2P)? Source-To-Pay Vs Procure-To-Pay
What Is Source To Pay (S2P)?
An S2P is a sourcing and procurement process in which suppliers are sought out, negotiated with, signed up for, and eventually paid for their products or services. This in turn results in the payment of those products or services. S2P software enables individuals and organizations to create a more efficient procurement process.
Technologies available today could automate more than half of the source-to-pay process. The potential? Lower procurement costs, greater savings, and more opportunities to pursue new sources of value.
What Is The Source to Pay Process?
1. Internal Demand
2. Sourcing
3. Supplier Bidding
4. Supplier Evaluation
5. Procure to Pay (P2P)
6. Procurement
7. Accounts Payable (invoice & PO processing)
8. Paying The Supplier
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Internal Demand
The first step to any S2P process if discovering what goods or services the internal stakeholders of a business are after. Demand can also come from the procurement department when looking to negotiate better pricing or terms with a supplier towards a contract expiry date.
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Sourcing
It is at this point in the process that suppliers are evaluated on their abilities to provide the goods or services requested and invited to participate in the bidding exercise. Evaluation of suppliers is usually done via a Request For information (RFI) process. In order to implement such a sourcing strategy, companies can use software platforms that can handle historical spending data, market trends, and business objectives. In a seamless onboarding process, suppliers who meet minimum standards are then marked as a preferred supplier.
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Supplier Bidding
Once you’ve identified which goods and services your internal stakeholders need and have chosen suppliers to participate in the bidding process, you can move onto the RFX stage. Almost every Request For Process (RFP) or Request For Quotation (RFQ) will have its own specific requirements. Usually, price, availability, speed of the solution, sustainability and quality of customer experience are the most common important factors included when scoring suppliers in an RFP.
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Supplier Evaluation
Once your suppliers have responded to your RFX process you can begin to evaluate and score them based on the information they have provided. It is common to shortlist the best three suppliers and offer them the chance to improve their responses which usually results in better competitive pricing.
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Procure To Pay (P2P)
Purchasing and accounts payable are integrated in procure-to-pay systems in order to increase efficiency. Taking part in this process encompasses four key steps: choosing goods and services, ensuring compliance and placing orders, receiving and reconciling, and invoicing and paying.
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Procurement
The first step to any S2P process if discovering what goods or services the internal stakeholders of a business are after. Demand can also come from the procurement department when looking to negotiate better pricing or terms with a supplier towards a contract expiry date.
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Accounts Payable (invoice & PO processing)
An organization’s procurement department is usually responsible for overseeing most aspects of their purchasing process. As part of its internal customer service, the procurement department negotiates costs with vendors, prepares contracts and issues vendor purchase orders. At this stage the procurement team will handle the PO & invoice management
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Paying The Supplier With Three Way Matching
Your Accounts Payable (AP) team will usually reconcile the payments process using the three way matching process. Cross-verification of related documents is part of the three-way matching process. Before making payments, the related documents must be verified. An invoice can be confirmed to represent goods supplied or services rendered by matching three documents – a purchase order, a goods receipt and the supplier invoice.
What is the purpose of source to pay in business?
A S2P (source to pay) approach is an effective means of achieving this goal when companies are seeking new suppliers who offer better terms, lower prices, or new products that their current suppliers are unable to supply.
Benefits of Source to Pay
Source-to-pay offers the following benefits:
- Enhancing procurement efficiency by consolidating the entire supply chain
- Consolidating the supply chain to improve procurement efficiency
- Ensuring compliance with legal, procedural, and procurement requirements
- Improved forecasting accuracy & consistency
- Enhancing collaboration among suppliers
- Live Data analysis
S2P software offers many advantages
It is clear that companies that integrate the appropriate digital tools into their operations will maintain a competitive advantage over their counterparts who do not do so. Source-to-pay softwares offer the following advantages:
- Analyzing data in real-time
- Increased competitiveness of bids from suppliers
- Evaluation and qualification of suppliers
- Electronic auctions and negotiations
- Cost savings over the long-term
- Enhanced efficiency through process automation
- Increased accuracy in automated spending analysis with respect to vendors and products or services
- Cost reduction
- Digitalising business processes
- Enhanced risk management
Can Source To Pay (S2P) Help Accounts Payable (AP)?
S2P or purchase-to-pay solutions can be integrated with online sourcing software, procurement software, and AP automation software to work seamlessly together with an ERP system.
Find suppliers, receive bids from suppliers, negotiate, complete contracts, process invoices, and make payments do not have to translate into lengthy, laborious processes. A source to pay solution that provides automated tools can help to achieve effective supplier management and performance management optimization.
By utilizing today’s automation software, AP departments can achieve greater efficiency, cost-savings, and speed within the source-to-pay cycle. It can automate pay processes by eliminating manual paper-based processes and digitizing vendor invoices through OCR scanning or uploading to make them electronic.
What Is The Difference Between Source To Pay (S2P) and Procure to Pay (P2P)?
P2P (Procure-to-Pay) differs from S2P (Source to Pay) in that it begins earlier.
As part of source to pay activities, you will prepare RFI questionnaires, RFQs, and RFPs (as needed). Once bids have been obtained, vendors have been qualified, a purchase contract has been prepared, negotiating has occurred, and payment has been made, the PO and payables processes have been performed, and payment has been made.
The procurement-to-pay process begins after the sourcing steps are completed, with the procurement team preparing the purchase orders (via purchase requisitions). Purchase-to-pay continues with the accounts payable department processing invoices from vendors and paying them.
Additional Resources To Consider
