How the Source-to-Pay Process Works

The world has a whole lot to offer. Whether it’s just nice days – or incredible software that can change the way your business operates on a very fundamental level, there’s just a lot going on. If you’re looking for ways to optimize your business, an Ivalua consultant could easily explain more about the source-to-pay process.

Everything has a process for the way that it accomplishes what it sets out to do. Cooking is a process, schooling is a process, and software has processes that it uses to make things work. You can’t run before you walk, and you have to start somewhere. 

That being said, the process that source-to-pay software uses can be pretty interesting but confusing if you are new to using this kind of software. It can be a chore if you try looking it up online because a lot of sources don’t go too deep into detail about how this whole process works. 

We went ahead and scrubbed the entire internet, down to the deepest parts just to find the best and most useful information about source-to-pay software that what you can say for sure once and for all if it would benefit your company. 

So, take out your pencils and paper it’s time to learn all about the process. Make sure to take good notes because there will be a test afterward. Just kidding, let’s get into it.

What is Source-To-Pay

Let’s begin at the beginning so that you can know what we’re talking about from the ground up. Some of the people here might already have an idea of what source-to-pay is,  but it’s good to make sure that we start with the basics just in case we have readers that are hearing about this for the first time now. 

Source-to-pay, or S2P, is a process that helps get the goods or supplies that you need from the vendor to you. Every single step of that process is part of the source-to-pay process so, needless to say, it has a giant impact on the way you run your business.

Just think about it for a moment. How many goods or supplies does your company go through every month? How many vendors do you do work with? How many customers do you have on your average Tuesday? Every single piece of your inventory had to have come from somewhere. 

That means that for every single unit in your store, warehouse, or office, you had to undergo an S2P process. You could even technically go so far as to say that you undergo an S2P process every time you go to the grocery store, but we’ll explain that comparison a bit more later on.

Finding Vendors or Suppliers

This is the first and biggest thing that S2P does. Finding vendors or suppliers, depending on the nature of your business and how you choose to do business. This step is crucial for the rest of the process, if you don’t find your suppliers you can’t do anything else. 

This step is pretty simple. It’s a lot like shopping around for anything you shop for in your life. Most people will look online or use a piece of software to help them with this part. There are also full databases available for this kind of thing as well as companies that specialize in connecting suppliers with companies.

Business-to-business transactions have to start with the first conversation. Whether that’s over the phone, via email, or in person at a networking event. The software that helps with this can be a lot faster than any of those methods, but the exact reason for that really depends on how a specific software works. 

Order Creation and Negotiations

After you’ve found the supplier that you want to go through you’re going to start making your order with them. This is pretty simple and that’s by design. The easier it is to make a sale the more likely it is for them to make money. 

This is also where any negotiations would take place. Some companies give discounts if you’re buying in bulk, for example. How each company does this is wildly different, it can be on a form that’s done online or one sent in the mail or it could be done over the phone. 

Regardless of what the method of sale is, the process usually looks somewhat similar:

  • Go to the preferred order method, whether that’s phone, web form, or snail mail form.
  • Pick the items that you want.
  • Get authorization from whatever department oversees orders. 
    • If the order is done over the phone you would need to do this first.
  • Negotiate a price.
    • This is actually a lot easier and faster over the phone or email. If it’s a web form or snail mail you might want to call or email to see if there’s an arrangement to be made. 
  • Finish placing your order. 
    • If the supplier does cash on delivery and that’s what your company wants to do you would pay when the goods arrive, otherwise this is when you would pay. 

Once the order part of the process is completed there are other things that need to be taken care of before the S2P process is complete, but we’re getting there pretty quickly. 

The 7 Habits of Highly Effective Source-to-Pay: Habit No. 5 | GEP

Figuring Out Logistics

If a supplier far away, or even really close, has something that your company wants, you’re going to need to figure out how to get it from point A to point B. This part of the process is actually why we didn’t number the steps because this goes hand and hand with your ordering.

There are a lot of ways to get something to you. Van, semi-truck, plane, train, a combination of all of those. There are whole systems set up to help out with getting whatever you need from one place to another, and you’re going to need to find out the best way to do this. 

There is software that can help you figure this out to a T. You could figure out what the fastest option is, which option will net you the most money, you name it. There are a lot of ways to get things from one place to another and there are definitely ways to optimize your process. 

No matter which method you choose to go with, you’re still going to have to figure out how to get something from one place to another. It doesn’t matter if you’re doing international business or business with a company four blocks away, you have to know how to get things from one place to another. 

The End Parts of the Process

After you’ve found your supplier, gotten all of the approvals that you need, done any negotiations, placed the order, and figured out all of the logistics you have a few more things to do before you’re done with the process. 

The first part of the end of the process is waiting for your order to arrive. This can take a bit of time sometimes, especially if you’re importing things. This part of the process is a lot quicker if you’re ordering things domestically rather than internationally. 

Once your order actually arrives, you’ll need to get it unloaded. This could be done by two people or a whole team, depending on the size of your order. This part of the process is simple and just requires a bit of manual labor.

There is something else that needs to be taken care of at this point as well. In most cases when you’re doing B2B transactions you won’t pay for the product until it shows up. That means that once the order has arrived and it’s been inspected to make sure it’s correct you would need to pay for it. 

This can be done in a number of ways. Some people use third-party payment processing services, some do direct wire transfers, some companies use software for payments, and others send checks. Sending checks is uncommon but some companies do still do business this way.

Once the payment is sent it will have to process, this usually takes between 1-5 business days depending on the method. After that, the money will hit the supplies bank account and everyone has what they wanted out of the transaction. 

With this, the S2P process comes to an end. You’ve gotten your hands on the goods that you wanted and the supplier got their money. After you’ve completed one S2P process, you can start others. In fact, you’ll need to start others if your business is going to continue operating. 

Understanding how Processes Work

There are a lot of things that make businesses run. Everyone from your worker bees to your CEO have to do something to keep the business working the way that it is supposed to. That being said, knowing how things work can be a very big deal.

Whether you choose to do this using software, manually, or just you happen to be friends with the owner of a company that you do business with, understanding everything that goes into a particular process makes a big difference.