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Resources   /   Glossary

Source-To-Pay (S2P) Processing in Accounts Payable

As a member of an accounts payable team, your job is far from simple. You are the glue that connects your company to its suppliers. And there’s a lot you need to do to make sure everything runs smoothly. Your team is responsible for maintaining a healthy relationship with suppliers throughout the source-to-pay process, and any other communication with suppliers. With one supplier, this is a straightforward task, but for a middle market company with a slew of suppliers, maintaining healthy relationships with all of your suppliers can be very difficult. More and more accounts payable teams are turning toward source-to-pay software for support.

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What is Source-To-Pay?

Source-to-pay is a business process that covers all the steps a company takes to get the things it needs, from finding suppliers to paying for goods or services. Businesses need to buy many things to operate, from office supplies to raw materials for manufacturing. The journey from realizing a need to actually paying for the item involves several important steps. It begins with identifying what’s needed and finding companies that can provide it. Then comes comparing options, negotiating prices, and deciding on the best supplier. Once that’s done, the business places an order, receives the goods or services, and finally pays the bill.

This structured approach to purchasing helps companies in many ways. By carefully considering their needs and exploring different options, businesses can often find better deals and more reliable suppliers. It also helps reduce errors in ordering and payment, which can lead to significant savings over time. Many organizations use specialized software to manage these activities, making it easier to keep everything organized and spot ways to improve their buying practices.

What is the Source-To-Pay Process?

The source-to-pay (S2P) process is a comprehensive business workflow that encompasses the entire procurement cycle, from identifying the need for goods or services to making the final payment to the supplier. This end-to-end process involves a series of interconnected steps that organizations follow to manage their procurement activities efficiently and transparently. The key stages of the source-to-pay process typically include:

1. Identification of Need
2. Supplier Identification and Selection
3. Requisition
4. Purchase Order (PO) Creation
5. Good Receipt and Inspection
6. Invoice Reconciliation
7. Approval Payment

The source-to-pay process is a crucial component for businesses across various industries, encompassing activities from sourcing essential supplies or services externally to completing transactions with suppliers. A well-defined set of source-to-pay process steps is essential to guide the acquisition of products or services from external suppliers. These processes act as a systematic approach, ensuring that businesses follow a structured framework whenever they engage with suppliers.

Source-To-Pay Process Steps

The first step in the source-to-pay process is supply management. First your company must decide which products are needs, and to contact a variety of vendors for those products. Next, your team will need to make a vendor selection based on the offers the vendor can make you on products and on your company’s interest in facilitating a relationship with this supplier. Requisition comes next, the formalized process of getting approval from your company to purchase products from the vendor you selected.

Finally, it is time to create a purchase order. After receiving the physical shipment, there is a lot of clerical work that you need to do to enter the accepted order into inventory, tracking and accounting systems. After the shipment has been officially received by your company, you move on to determining whether your supplier sent you exactly the order you requested. This is done during invoice reconciliation, when the accounts payable department examines the invoice against a copy of the purchase order to make sure the shipment is accurate. Finally, in the accounts payable step, your team will determine the payment you owe to the supplier, send payment, and enter the payment sent into the accounting system. Throughout this system, there are steps that require collaboration between different company departments, which are generally places where corporate processes are hung up. There are also areas where many individuals must review and approve data, which can also hang up processes.

Challenges in Source-To-Pay Process

One potential bottleneck in the source-to-pay process arises during the hand-off between the purchasing department and the accounts payable team. To mitigate such issues, companies can integrate purchase order software with invoicing software, creating a seamless transition and reducing the likelihood of bottlenecks. Leveraging software solutions also enables businesses to minimize errors, such as unapproved purchase orders or coding mistakes. By adopting source-to-pay software, companies gain greater control over their procurement processes, facilitating efficient management of purchases.

Following the initial procurement steps, the invoicing process becomes a crucial aspect of the source-to-pay journey. AvidXchange, for example, employs OCR software to convert written invoices into data, automating the coding and initiating the approval process for invoices. This automated approach streamlines the invoice processing workflow, with the accounts payable team focusing on tasks like approving scanned invoices, reconciling invoice reports, and managing payments. Integrated into this system are source-to-pay best practices, encompassing supply management, vendor selection, requisition, purchase order, receiving, invoice reconciliation, and accounts payable.

Handling these steps manually for each supplier can be a time-consuming and error-prone task. Managing multiple transactions without the aid of automation not only consumes valuable time for source-to-pay and accounts payable teams but also increases the risk of deviations from best practices. Recognizing these challenges, many businesses turn to automated software systems like AvidXchange to expedite and enhance the accuracy and efficiency of the source-to-pay process.

What is S2P Cycle?

As some of the many cycles and processes that come with paying suppliers, it is important to know what the source-to-pay and accounts payable cycles are. The accounts payable cycle is essentially the processes and workflows that make up your accounts payable process. When it comes to how to explain S2P cycle processes, the answer is similar. The source-to-pay cycle is the processes and steps that it takes to source goods and services from other businesses (oftentimes referred to as suppliers).

The S2P cycle usually consists of researching the market, requesting goods or services, acquiring those goods and services, managing them, and making payments for them. To help your business more efficiently manage both your S2P and your AP processes, an automated software solution, such as AvidXchange’s accounts payable automation software, can be a great choice. Automated software can help you streamline and automate many of the time-consuming manual processes of both of these important processes and give your teams the time to focus their attention on more value-added tasks, rather than spending their time inputting data.

S2P Process in Accounts Payable

Within the source-to-pay process outlined above, one of the trickiest and most technical steps is the accounts payable step. There are many opportunities for a process slowdown during the S2P process in accounts payable. This is because the process of receiving invoices has a lot of potential for human error and because the process of approving payments requires collaboration between departments. The source-to-pay process becomes harder to manage for companies that do not use software to automate some steps. You could be spending more time than necessary on repetitive tasks that can be automated using software.

Invoice processing can slow down your source-to-pay process without using the right software. Invoices from different vendors may come in different formats, and some will come through the mail as a paper copy. Even if you are using software to help you approve invoices, you could still spend too much time on data entry and coding at the beginning of the invoice approval process. This can slow down your source-to-pay process as well. Fortunately, AvidXchange can help with these tasks using software for automation. Through optical character recognition (OCR) technology, AvidXchange has helped to take the human error out of digitizing invoices, and streamlined communication during the S2P cycle with a comprehensive approval software and centralized accounts payable dashboard.

Source-To-Pay Best Practices

Whether or not your company is using software to improve your source-to-pay process, there are certain source-to-pay best practices that you can follow in order to ensure that your process runs smoothly. As you begin to think about streamlining your company’s process, it is important to consider exactly what you want to maximize by improving this process. Are you hoping to minimize the number of team members required to complete the source-to-pay process, are you hoping to improve your company relationships with vendors, or are you simply interested in speeding up the process in any way possible? All of these goals require their own time and attention, but some best practices remain the same across goals. One best practice is to create a procurement process flow diagram because this can help you determine where in the process your team is falling short. For example, if you are looking at making your source-to-pay process as fast as possible, you may want to create a source-to-pay process flow diagram detailing all of the steps in the source-to-pay process. Then, you could determine how long each of these steps takes. It is helpful to know how long the requisition process takes versus how long your invoice approval and bill payment process takes. If you understand how quickly you can complete each step in the source-to-pay process, then you can understand where you have room for improvement.

Source-To-Pay Vs Procure-To-Pay

One of the other steps that is slowing down many companies during the source-to-pay process is supply management. As mentioned above, the supply management process encompasses understanding which products are needed, and finding vendors who will be able to provide those products. Finding vendors can be time-consuming, which is why some companies are labeling their procure-to-pay process a “purchase-to-pay process” or a “source-to-pay process,” emphasizing the importance of the sourcing step.

The source-to-pay process begins with the requisition of goods and services. It’s then the responsibility of the accounts payable department to pay for goods and services. Using invoicing software can help your source-to-pay process become more efficient by improving visibility into your accounts payable. You may reduce friction in communication by tracking purchase orders and invoices on a digital platform. When your accounts payable team is efficiently approving invoices for bill payment, then your source-to-pay process can continue to function smoothly.

The question of source-to-pay versus procure-to-pay is a complicated one, because the latter can include sourcing, even if it isn’t part of the title. The bottom line? A source-to-pay process flow chart will look very similar to a process-to-pay flowchart. To enable your purchasing department to work well with your accounts payable team, you should consider the benefits of source-to-pay software.

AvidXchange Source-To-Pay Solution

Most software solutions automate only part of the source-to-pay or accounts payable process, but cutting-edge programs now aim to automate the entire process. These comprehensive solutions, like AvidXchange, can revolutionize the accounts payable department by handling everything from bill payment preferences to data transfer between process steps. By choosing a professional, all-in-one solution instead of developing in-house software, companies can streamline their operations and improve supplier relationships more efficiently.

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