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Source-to-Pay: What is Source-to-Pay?

In today’s fast-paced business environment, procurement and sourcing teams are under increasing pressure to source products and services quickly, in order to keep up with the organization’s need for speed and flexibility.

As a result, many businesses are now turning to source-to-pay to optimize efficiency while reducing costs.

What is Source-to-Pay?

Often referred to as S2P, source-to-pay is the end-to-end process of sourcing, ordering, and paying for goods and services. It covers every step in the process, from spend management, strategic sourcing, and vendor management, through to purchasing, invoicing and supplier payments.

The model is designed for organizations with complex procurement needs who require a dedicated sourcing function.

Source-to-Pay Applications

Source-to-pay applications utilize technology, big data, and business networks to create process efficiencies, allowing companies to integrate practices, and automate their sourcing and procurement activities.

From increasing visibility throughout the process and strengthening contractual compliance, to improving collaboration and spend analysis, source-to-pay solutions allow companies to streamline processes and cut down their source-to-settle time.

What’s the difference between source-to-pay and procure-to-pay?

Although source-to-pay and procure-to-pay are similar, there are also a number of key differences between the two processes.

The main difference between P2P and S2P is the starting point in the process. P2P typically starts with the requisition of goods and services and ends when the accounts payable team pays the supplier, while the S2P process starts one step earlier, with the sourcing of goods. Also, for P2P most of your suppliers are already selected, so it's less about sourcing suppliers and more about ordering from the approved.

As a result, S2P makes strategic sourcing part of the process, ensuring the best suppliers are selected and negotiating deals with them. This helps to optimize internal controls, enhance supply chain efficiency, and simplify supplier relationship management.

Find out more about the differences between source-to-pay and procure-to-pay here.

Clearing up confusion: Source-to-settle or source-to-pay?

Source-to-settle (S2S) is another term for source-to-pay (S2P). The source-to-settle, or source-to-pay, process brings together sourcing and purchasing. The process includes the following stages:

  • Sourcing (including RFx and Auctions)

  • Requisition management

  • Generation and transmission of purchase orders

  • Receipt and processing of invoices

  • Payment of invoices

What is the source-to-pay process?

The source-to-pay process starts with finding, negotiating, and contracting suppliers of goods or services and ends in the payment for those goods or services.

A full source-to-pay process map usually includes the following stages:

  • A need for a product or service

  • Identification of potential suppliers

  • Running demos or PoCs with relevant suppliers

  • Evaluating suppliers

  • Contracting suppliers

  • Placing orders

  • Monitoring the supply of the products or services

  • Authorization of payment

  • Release of payment

The process also includes all the activities that support these stages and the end-to-end operation, including supplier and master data management.

The Source-to-Pay Lifecycle

The source-to-pay process is a time-consuming one, typically following the lifecycle below:

Finding Suppliers

During the first stage of the lifecycle, extensive market research is carried out to identify potential suppliers. This stage typically involves sending out Requests for Information (RFI), Requests for Proposals (RFPs), and Requests for Quotes (RFQs).

Evaluating And Vetting Suppliers

Once the requested information has been supplied by the potential suppliers, the sourcing team can vet and evaluate them to identify the best partners. They will typically look at factors such as quality, pricing, minimum order quantities, delivery times.

Negotiating And Contracting

Once they have identified their chosen vendors, the sourcing team will enter the negotiating and contracting phase.

Delivery And Payment

The final stage in the source-to-pay lifecycle is the ordering and delivery of the goods and services, receipt and processing of invoices and the supplier payment.

S2P best practices & challenge

The following best practices will allow you to improve efficiency and effectiveness:

 

  • Take a holistic view of the source-to-pay transformation

  • Implement an automated software solution to maximize productivity, accuracy, and cost saving

  • Choose the right system and the right partner

  • Standardize the process from start to finish

  • Link processes to close gaps, drive efficiencies, and create a closed-loop data lifecycle

  • Collect and analyze key data to set clear goals and KPIs

  • Ensure the process is transparent and traceable

  • Prepare a change management plan

  • Secure managerial and executive support

  • Get your team onboard and train employees across the organization in line with best practices

  • Consult with partners and business users to optimize engagement and satisfaction

  • Cleanse supplier data

  • Build best practices into workflows

Source-to-Pay Challenges

Of course, like any process, S2P does pose a number of challenges, including:

Unifying Systems And Processes

Within an organization, different departments typically have their own tools, systems, and processes. This can make consolidating data across the business challenging. Failing to unify systems and processes can result in inefficiencies and errors.

Achieving Compliance

Ensuring all employees and parties comply with the new system and process can also be challenging.

In procurement systems, regulation and implementation can be inflexible. This can lead to low compliance if employees or teams view stages of the process as needless layers of bureaucracy.

Winning Over Management

Management teams often see procurement processes as non-critical and a non-essential business function. Therefore, improving these systems can be low on their list of priorities.  

Ensuring Adoption

If users find the new source-to-pay system challenging to use, often because of inadequate training, adoption may be limited.

Source-to-Pay Automation

Thanks to advances in technology, the number of operations that can be automated, as well as the degree of automation, has increased significantly. S2P automation solutions are now even more advanced by leveraging the following:

◉ Robotic Process Automation (RPA)

◉ Machine Learning (ML) Algorithms

◉ Smart Workflow Technologies

◉ Conversational AI

Automating the source-to-pay process offers a number of benefits for businesses, including,

The Benefits of S2P Automation

Streamline Processes

By eliminating time-consuming manual processes and reducing the number of processes, S2P automation leads to cost savings and process efficiencies, as well as reduced complexity.

100% Spend Visibility And Control

This is one of the key benefits of source-to-pay automation. Collecting and aggregating financial data across the organization’s operations in a single platform provides 100% spend visibility.

By onboarding your suppliers, capturing all invoices from direct and indirect spending, and achieving user-adoption, you’ll be able to:

  • Understand how money is being used – who you’re doing business with, how much you’re spending with each supplier, and if you have too many suppliers for a category or are too dependent on a certain supplier

  • Eliminate waste

  • Secure volume discounts from suppliers

  • Ensure all payments are made accurately and on-time

  • Effectively forecast cashflow

  • Source innovative, strategic partnerships

Mitigate Supply Chain Risk

Moving away from paper-based and manual processes will ensure you have a complete electronic audit trail, so you’ll know exactly who you’re doing business with. Supplier Relationship Management (SRM) or Supplier Management solutions, can be used to check supplier backgrounds, validate supplier data, and increase supplier transparency, further mitigating risk.

Improve Productivity Levels

Source-to-pay automation also eliminates the repetitive, manual activities that slow down processes, increase costs, and make business difficult. Automated workflows result in:

  • Significantly shorter invoice cycle times

  • Faster payment times for suppliers

  • Reduced risk of late fees, lost invoices, and duplicate payments

  • Savings from early pay discounts

  • Increased working capital

Built-in Compliance

When S2P processes are automated, compliance rules are built into the system. This makes the process fully transparent, meaning common risks and instances of fraud can be tracked and prevented. Navigate here for a deeper dive into the importance of compliance.

 

Source-to-Pay Summary

Source-to-pay is the end-to-end process of sourcing, ordering, and paying for goods and services. It covers every step in the process from spend management, strategic sourcing, and vendor management, through to purchasing, performance management, and accounts payable.

S2P automation offers a whole host of benefits, including cost savings, increased control, improved supplier relations, reduced risk, and more.

At Basware, we offer a range of S2P solutions and support an open S2P ecosystem philosophy which enables co-existence and connection amongst best-of-breed solutions and multiple vendors, backed by our robust integration capabilities and our leading procure-to-pay core. Learn more about Basware’s source-to-pay solutions and how we can support all your automation needs or today, tomorrow, and the future.

 

Additional links

Basware Source-to-Pay

Basware Procure-to-Pay

Basware Best of Breed Ecosystem Approach