Source to Pay (S2P)
Learn how S2P differs from S2C, understand buying channels, purchase order processes, invoicing, and supplier onboarding.
Course Overview
Duration
35-45 minutes
Level
Intermediate
Lessons
6 lessons
What you'll learn:
- How S2P differs from S2C
- Buying channels and when to use each
- Purchase order process and workflows
- Invoicing and three-way match
- Supplier onboarding and master data
- Payment processing and reconciliation
How S2P Differs from S2C
Source to Pay (S2P) is the complete procurement-to-payment cycle. It includes everything in Source to Contract (S2C) plus purchase orders, goods receipt, invoicing, and payment.
S2C vs S2P
Figure 1: Source to Pay lifecycle and S2C vs S2P comparison
Source to Contract (S2C)
Covers: Need identification → Requirements → Sourcing → Evaluation → Award → Contract negotiation → Contract execution
Ends when: Contract is signed and stored
Source to Pay (S2P)
Includes all of S2C plus: Purchase order creation → Goods/services receipt → Invoice receipt → Three-way match → Payment → Reconciliation
Ends when: Payment is made and reconciled
Example: You source and contract for office supplies (S2C). Then you create purchase orders, receive goods, receive invoices, match them, and pay (S2P). S2C handles the strategic sourcing. S2P handles the transactional buying and payment.
When to Use S2C vs S2P
Understanding the difference helps determine which process applies:
S2C Focus
Use S2C processes for strategic sourcing: new suppliers, new categories, high-value purchases, complex requirements, competitive events.
Typical activities: RFPs, supplier evaluation, contract negotiation, strategic supplier relationships
S2P Focus
Use S2P processes for transactional buying: repeat purchases, catalog items, low-value items, established suppliers, routine procurement.
Typical activities: Catalog shopping, purchase orders, invoice processing, payment, supplier master data management
Pro tip: Many organizations use S2C for strategic sourcing (new contracts) and S2P for transactional buying (using existing contracts). The contract created in S2C becomes the foundation for S2P transactions.
Buying Channels
Buying channels are different ways to procure goods and services. Each channel is suited for different types of purchases. Understanding when to use each channel improves efficiency and compliance.
Common Buying Channels
Figure 2: Buying channels comparison and when to use each
Catalog Buying
Pre-approved items in an electronic catalog with pre-negotiated prices. Users browse and order directly.
Spot Buy
One-time purchase from a supplier, often without a contract. May require quick approval and purchase order.
Guided Buying
Users are guided to preferred suppliers and approved options. System enforces policies and routes to appropriate channels.
Contract-Based Buying
Purchase orders created against existing contracts. Uses contract terms, pricing, and conditions.
Example: Need office chairs? Use catalog buying from approved supplier. Need specialized consulting? Use guided buying to route to S2C process for new contract. Need urgent IT equipment? Spot buy with quick approval. Have existing software contract? Use contract-based buying to order licenses.
Channel Selection Criteria
Choose buying channels based on:
- Value: High-value purchases may require S2C. Low-value can use catalog or spot buy.
- Frequency: Repeat purchases benefit from catalogs or contracts. One-time may use spot buy.
- Complexity: Complex requirements need S2C. Simple, standard items can use catalogs.
- Supplier relationship: Strategic suppliers may have contracts. Tactical suppliers may use spot buy.
- Urgency: Urgent needs may require spot buy or expedited processes.
- Policy requirements: Some categories require specific channels or approvals.
Pro tip: Modern S2P platforms enable guided buying by automatically routing requests to the appropriate channel based on value, category, and policy rules. This ensures compliance while maintaining efficiency.
Purchase Order Process Overview
A purchase order (PO) is a formal document authorizing a supplier to deliver goods or services at specified prices and terms. It creates a legal commitment to purchase.
PO Creation Process
Figure 3: Purchase order process flow
Requisition
User creates purchase requisition with item details, quantities, prices, supplier, delivery date.
Approval
Requisition routed for approval based on value, category, or policy. Approver validates budget, supplier, and need.
PO Generation
System generates PO with unique number, terms, pricing, delivery instructions. PO sent to supplier.
Supplier Acknowledgment
Supplier confirms receipt and acceptance of PO. May propose changes or confirm as-is.
Delivery
Supplier delivers goods or services. Receiving party confirms receipt and quality.
PO Components
A complete PO includes:
- PO number: Unique identifier for tracking
- Supplier information: Name, address, contact details
- Buyer information: Company, ship-to address, contact
- Item details: Description, quantity, unit price, total price
- Terms and conditions: Payment terms, delivery terms, warranties
- Delivery information: Delivery date, location, instructions
- Approval information: Who approved and when
- Reference information: Contract number, project code, cost center
PO Types
Standard PO
One-time purchase for specific goods or services. Most common type.
Blanket PO
Agreement to purchase up to a certain amount over a period. Individual releases created as needed.
Contract PO
PO created against an existing contract. Uses contract terms and pricing.
Pro tip: Automate PO creation where possible. Catalog purchases, contract-based buying, and recurring purchases can generate POs automatically, reducing manual work and errors.
Invoicing and Three-Way Match
After goods or services are received, suppliers send invoices for payment. Three-way match is the process of verifying that purchase order, goods receipt, and invoice all match before approving payment.
Invoice Processing
Invoice processing involves:
1. Invoice Receipt
Supplier sends invoice (paper or electronic). Invoice captured and entered into system.
2. Invoice Validation
Verify invoice details: supplier, amounts, dates, PO reference, tax calculations.
3. Matching
Match invoice to PO and goods receipt. Identify discrepancies.
4. Exception Handling
Resolve mismatches: price differences, quantity differences, missing receipts, etc.
5. Approval
Route for approval if required. Approver reviews and approves payment.
6. Payment
Generate payment, send to accounts payable, record in financial system.
Three-Way Match
Three-way match compares three documents to ensure accuracy before payment:
Figure 4: Three-way match process
Purchase Order
What was ordered: items, quantities, prices, terms
Goods Receipt
What was received: confirmation that goods/services were delivered and accepted
Invoice
What supplier is charging: items, quantities, prices, total amount
Example: PO says 100 units at $10 each. Goods receipt confirms 100 units received. Invoice says 100 units at $10 each = $1,000. All three match. Payment approved. If invoice said 110 units or $11 each, there's a mismatch requiring resolution.
Matching Rules
Matching can be strict or flexible:
Exact Match
All three documents must match exactly. No tolerance for differences. Most secure but may require more exception handling.
Tolerance-Based Match
Allow small differences within tolerance (e.g., 1% price variance, 5% quantity variance). Reduces exceptions while maintaining control.
Two-Way Match
Match PO to invoice only (no goods receipt). Used for services or when receipt confirmation isn't available.
Exception Handling
When documents don't match, exceptions must be resolved:
- Price differences: Invoice price higher than PO. May need approval or contract verification.
- Quantity differences: Invoice quantity doesn't match PO or receipt. Verify actual delivery.
- Missing documents: No goods receipt or PO. May need to create or locate.
- Tax discrepancies: Tax calculations don't match. Verify tax rates and calculations.
- Timing issues: Invoice received before goods receipt. May need to wait or verify delivery.
Common mistake: Approving invoices without proper matching. This can lead to paying for goods not received, incorrect amounts, or duplicate payments. Always perform three-way match before payment approval.
Pro tip: Automate three-way match where possible. Modern systems can automatically match documents and flag exceptions for human review. This speeds processing and reduces errors.
Supplier Onboarding and Master Data Basics
Supplier master data is the foundation of S2P processes. It contains essential information about suppliers needed for purchase orders, invoicing, and payments. Supplier onboarding is the process of adding new suppliers to the system.
Supplier Master Data
Supplier master data typically includes:
- Company name and legal name
- Tax ID or registration number
- Addresses (headquarters, billing, shipping)
- Contact information
- Website and company details
- Bank account details
- Payment terms
- Currency preferences
- Tax information
- Credit limits
- Supplier categories
- Capabilities and certifications
- Performance ratings
- Contract references
- Preferred status
- Insurance certificates
- Compliance certifications
- Risk ratings
- Due diligence status
- Approval status
Supplier Onboarding Process
Request
Business user or procurement requests new supplier. Provides basic information and justification.
Data Collection
Collect required information from supplier: company details, tax info, bank details, compliance documents.
Due Diligence
Verify supplier legitimacy, financial stability, compliance status. May include credit checks, references, certifications.
Approval
Route for approval based on risk, value, or category. Approver validates supplier suitability.
Master Data Creation
Create supplier record in master data system. Assign supplier number, set up payment terms, configure access.
Activation
Activate supplier for use. Supplier can now receive POs and be paid. Notify relevant stakeholders.
Master Data Quality
Poor master data quality causes problems:
- Duplicate supplier records (same supplier, different names)
- Incorrect bank details (payment failures)
- Outdated information (wrong addresses, contacts)
- Missing required data (tax IDs, compliance docs)
- Inconsistent data (different terms in different systems)
Maintain data quality through:
- Standardized data entry processes
- Data validation rules
- Regular data cleansing and deduplication
- Supplier self-service portals for updates
- Integration with external data sources
- Regular audits and reviews
Pro tip: Centralize supplier master data. Having one source of truth for supplier information across all systems (ERP, S2P, sourcing platforms) prevents duplicates and inconsistencies. Integration ensures data stays synchronized.
Payment Processing and Reconciliation
After invoice approval, payment is processed. Reconciliation ensures payments match invoices and financial records are accurate.
Payment Methods
ACH/Wire Transfer
Electronic bank transfer. Fast, secure, cost-effective. Most common for B2B payments.
Check
Paper check. Slower, higher cost, but some suppliers prefer. Declining in use.
Credit Card
For smaller purchases. Fast but may have fees. Some suppliers don't accept.
Procurement Cards (P-Cards)
Corporate credit cards for employee purchases. Good for low-value, frequent purchases.
Payment Process
1. Payment Authorization
Approved invoice triggers payment authorization. Verify payment terms and due date.
2. Payment Generation
Create payment file or instruction. Include supplier bank details, amount, reference numbers.
3. Payment Execution
Submit payment to bank or payment processor. Payment sent to supplier.
4. Payment Confirmation
Receive confirmation from bank. Update records to show payment made.
5. Reconciliation
Match payments to invoices, verify bank statements, resolve discrepancies.
Payment Terms
Payment terms define when payment is due. Common terms:
- Net 30: Payment due 30 days after invoice date
- Net 60: Payment due 60 days after invoice date
- 2/10 Net 30: 2% discount if paid within 10 days, otherwise net 30
- Due on receipt: Payment due immediately upon invoice receipt
- Milestone-based: Payment due upon completion of milestones
- Advance payment: Payment before delivery (less common, higher risk)
Example: Invoice dated January 1 with Net 30 terms. Payment due January 31. If paid by January 11 with 2/10 Net 30 terms, you get 2% discount. Early payment discounts can provide significant savings.
Reconciliation
Reconciliation ensures financial records are accurate:
- Invoice to payment: Verify each payment matches an approved invoice
- Bank reconciliation: Match payments to bank statements
- Supplier statements: Reconcile with supplier statements to identify discrepancies
- Outstanding items: Track unpaid invoices and follow up
- Discrepancies: Investigate and resolve payment issues
Pro tip: Automate payment processing and reconciliation where possible. Modern systems can automatically generate payments, match to invoices, and flag exceptions. This reduces manual work and errors.
Course Complete
You've mastered Source to Pay. Ready to learn about RFX processes or explore other modules?