Close

Source-to-Pay

DEFINITION

What is Source-to-Pay Procurement?

Source-to-pay (S2P) is a term that describes the end-to-end process by which a business procures a product or service. That includes steps such as identifying and hiring potential suppliers, negotiating terms, signing contracts, and making final payments for the product or service. 

Modern organizations increasingly depend on S2P software solutions to expand their search options, gather more useful data, automate tedious and repetitive processes, and otherwise streamline their source-to-pay workflows.

Every business needs a process for purchasing the goods and services that keep their operations running, and they need to know that that process will work every time. 

EXPLORE OUR SOLUTIONS

Find out more about our AP Automation solutions

Simplify the processing of invoices and payments while reducing costs, errors, and time-consuming tasks.

Without a standardized process that accounts for every step of a purchase, from sourcing a vendor to finalizing a purchase order to receiving goods or services, an organization risks avoidable delays and supply chain disruptions that can have a serious impact on their bottom line. Developing a reliable source-to-pay (S2P) process, including vendor management and procurement software to handle all work that can be automated, is an essential part of maintaining a consistent flow of goods and services.

What are the Steps of a Source-to-Pay Process?

The source-to-pay process can be complex and will vary considerably across different businesses and industries. Generally speaking, a successful S2P process will look something like the following:

1. Identify a demand

Business leaders identify a specific need. This is usually a product or service but could be a change in pricing, different contractual terms, or other less tangible demands. Demands can be generated by upper management or by various departments within your organization. Each business sets its own standards for how to prioritize these departments’ demands and decide which ones will and will not be fulfilled in a certain time frame.

2. Source a supplier

Your procurement team assesses potential suppliers or vendors using a predetermined set of criteria based on market research. That might include factors such as price, fulfillment times, ease of integration with your existing system, and scalability to your organization’s specific needs.

3. Prepare a bid

Your procurement team pulls together bids from all of your potential suppliers. This might include sending out requests for information (RFIs), requests for proposals (RFPs), and requests for quotes (RFQs) to a group of potential vendors. Those bids are then reviewed and a leading candidate is selected with input from your procurement and contract management teams.

4. Create a purchase requisition

The team or department that requested the purchase compiles a purchase requisition spelling out important terms, including the projected cost, the overall scope of the project, quantities of any goods being purchased, and a timeline for completing the purchase. Purchase requisitions are then sent to your accounting department for approval.

5. Issue a purchase order

After your accounting team has approved the purchase requisition, they generate a purchase order (PO). This is a legally binding document that authorizes your organization to make a purchase from a specific vendor. The purchase order is a statement of the scope of the purchase and should include a list of all goods or services being purchased as well as all prices and terms of payment. The purchase order also creates a vital record of the terms of purchase in the event of any potential disputes or audits.

6. Get purchase order approved

There are usually a number of stakeholders involved in the purchase order process, which means that there are also a number of approvals necessary to complete it. The buyer’s accounting team always needs to make sure that all information is accurate before routing the PO to other stakeholders. If any errors or discrepancies are detected, the PO must be routed again until all information is deemed correct. Once the PO is approved, the buyer issues a goods receipt to the supplier.

7. Process invoices

Once the goods and services have been received, the vendor will submit an invoice to be reviewed by your accounts payable team. Invoice processing generally includes comparing all data from the purchase order, goods receipt, and invoice to ensure that all of the information matches (a process known as three-way matching). Again, any errors or discrepancies will need to be corrected before the invoice can be approved.

8. Purchase goods or services

Once the invoice has been approved by all relevant stakeholders, the buyer’s accounts payable team remits payment for the invoice. After the supplier has received payment, the source-to-pay process reaches its conclusion.

How is Source-to-Pay Different from Procure-to-Pay?

It is difficult to have a conversation about source-to-pay without also discussing procure-to-pay (P2P). The two procurement processes are very closely related but are not exactly the same. The key difference between the two is that a source-to-pay solution begins earlier in the process, with the sourcing of a vendor or a supplier, and continues through to the payment for those goods or services.

The procure-to-pay process, on the other hand, begins later, once the need for specific goods or services arises, and again carries through to payment. That requires your procurement team to work along with your accounts payable (AP) team to requisition, purchase, receive, invoice, and pay for goods and services. There is also often similar confusion about the difference between source-to-pay and purchase-to-pay processes. As its name suggests, the purchase-to-pay approach covers procurement from the time goods or services are purchased until the final payment is made.

What Are the Benefits of Source-to-Pay Procurement Software?

The source-to-pay process is a lengthy and complicated one with a large number of variables. Eliminating as many human touch points as possible from that equation helps to ensure a consistent, error-free, and cost-effective approach to procurement that gets goods and services where they need to be when they need to be there. Some specific benefits of automating your procurement process with source-to-pay software include:

Efficient supply chain management

Automating supplier management functions using S2P software consolidates your business’s supply chain efforts and eliminates time-consuming manual requests, expediting communications and keeping goods and services flowing efficiently.

Single-platform procurement management

Bringing your procurement efforts together in a single sourcing platform allows easier management and deeper visibility into every stage of the process. That enables your team to make adjustments to less efficient processes and identify bottlenecks and errors that can slow down procurement.

More accurate spend analysis

An S2P software solution is the most reliable path to effective spend management. Strategic sourcing guided by an automated system generates easily digestible financial data and insights into your procurement process that help to identify cost savings, improve operational efficiency, and strengthen relationships with valued suppliers.

Deeper supplier insights

The data generated by an automated source-to-pay software solution helps your team to track supplier performance and compare key performance indicators (KPI) including pricing, delivery times, cycle times for purchase order and invoice processing, and overall performance management.

Improved compliance

An organization’s procurement process is subject to a lot of rules. That includes not just governmental regulations, but also the terms of contracts and agreed-upon procedures both internal and external. Automation is a reliable way to ensure that all of those rules are being followed every time.

Ready to learn more about the ways an automated source-to-pay software solution can transform your procurement process? Contact MHC today to schedule a demonstration of our industry-leading automation solutions!

Related Terms

Want to learn more about Accounts Payable? Here are some related terms that you might be interested in. Explore our AP glossary further!

Find out what Invoice data capture is, what the challenges of manual invoice data capture are, and what benefits your company gains by adopting an automated data capture system.

Find out more >

Learn all about touchless invoice processing, the risks associated with manual processing, and the many advantages of moving your business to an automated invoice processing solution.

Find out more >

Find out all about remote invoice approval – what it is, what the process looks like, and the benefits your company reaps by using an invoice automation solution.

Find out more >

Accounts Payable
Glossary

Step into the exciting world of accounts payable with MHC! Explore our in-depth glossary of some key terms related to AP processes, roles, tools, and services.

See now >

WHITEPAPER

Get to Know MHC!

Automate Processes.
Empower People. Reach Your Goals.

From document capture and content creation to employee self-service and other critical use cases across the enterprise, you can combine and configure MHC’s automation solutions to empower teams to meet goals today – and for the long game.

Download our guide and find out how MHC Automation can help you improve service, manage compliance, and drive ROI.

AP AUTOMATION

Simplify the processing of invoices and payments while reducing costs, errors, and time-consuming tasks.

See MHC in Action!

Scroll to Top

This website uses cookies to ensure you get the best experience on our website. By continuing to browse on this website, you accept the use of cookies for the above purposes.