Source-to-Pay

Source-to-pay is a unified approach to sourcing and procurement — one that brings all the steps together under one process.

Procurement serves an essential function for many businesses, but it can be vulnerable to delays and disorganization, especially in larger companies. Source-to-pay can help businesses avoid many of those problems.

What is source-to-pay? 

Source-to-pay describes the end-to-end process that an organization uses to select suppliers and then order and pay for the goods and services that it needs. In many cases, source-to-pay also describe software platforms that automate this process.

Because there are so many steps and so many departments involved, a well-designed process can make procurement and accounts payable more organized and more efficient. Source-to-pay platforms also streamline the work by digitizing many of the steps, such as purchase order creation, goods receipt matching, approval and invoicing, and storing all the relevant information and documents in one place.

What are the steps in a source-to-pay process? 

Different organizations have their own approaches to procurement. Generally speaking, though, source-to-pay usually includes the following steps: 

• Determine a need for a specific good or service. Identify needs not just in a single department, but across the organization. That way, the organization can place a larger order, giving it more leverage in any negotiations over pricing and other terms and conditions, such as lead times, minimum order quantities and terms of trade.
• Research potential suppliers. As part of this step, most organizations will undertake some vetting to ensure the potential suppliers can deliver the correct items on time.
• Gather quotes. That could be as simple as calling the vendor or as complicated as holding a formal bidding process with requests for information (RFI), requests for proposals (RFPs) or requests for quotes (RFQs). You may have to do multiple rounds of bid requests to see if a supplier can match or beat what others are offering.
• Negotiate terms and pricing. Payment schedules, financing and other factors could all be in play. This is another opportunity for the organization to keep pushing for the best possible deal. 
• Award contracts to the winning supplier or suppliers. The contract lays out pricing, delivery and other conditions.
• Create requisition orders and purchase orders. Once an order has been requested and approved, the procurement team issues an official purchase order, complete with specific details about what’s being ordered, and submits it to the vendor. (Some larger companies require employees to complete a requisition order and submit that to procurement in order for a purchase order to be created.)
• Take delivery of goods or services. The buyer receives what was ordered and verifies that it includes the correct amount and quantity, clearing the way for …
• Make payment.The buyer issues payment according to the agreed-upon invoice payment terms, though the timing can be flexible if discounts are involved. Many suppliers will grant a discount to customers that pay early, whether it’s awarded under static terms such 2/10 net 30 or through a dynamic discounting platform like C2FO. 

Procure-to-pay

Procure-to-pay is an alternative approach to source-to-pay, and it usually starts with requisitioning. As a result, procure-to-pay is more focused on execution — making sure that orders are made, delivered and processed as efficiently as possible. Source-to-pay, meanwhile, also deals with the strategy of identifying the right products and services from the right suppliers for the best possible value. 

Why is this important? 

A healthy supply chain serves as a vital asset for a company, helping to secure the necessary inputs of raw materials, supplies and other goods and services at the best possible value, exactly when and where the organization needs it. 

But the supply chain for an enterprise can also become extremely complex. If it’s not managed correctly, delays and errors will spring up and multiply, ultimately disrupting the larger company’s operations.

Source-to-pay helps impose order and clarity on the procurement process so that problems are less likely to occur or, if they do, it will be simpler for team members to correct those issues. 

The benefits of source-to-pay

• Greater efficiency and lower costs. Ordering can occur more rapidly because the process is organized, limiting delays, while also making it easier for the organization to find the suppliers with the best value.
• Better collaboration with suppliers. Because the process works smoothly, the organization can more effectively engage with suppliers, on time.
• Increased visibility. A well-managed, complete process can increase visibility, so that everyone involved in sourcing and procurement can clearly see what is happening and make better choices.
• Cash preservation. Minimize the amount of cash tied up in inventory and optimize working capital by applying market-conforming payment terms.
• Enhanced risk management and compliance. The organization can more easily ensure that everyone is following internal and regulatory requirements because they’re included in the process.