Creating a Culture of Efficient, Data-Driven AP Teams
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Creating a culture of efficient, data-driven AP teams
Data-driven approaches are becoming standard throughout many industries in today’s global workforce. Having the right set of analytical tools helps companies gauge their performance, compare their metrics against industry standards, and set appropriate improvement goals and objectives.
For accounts payable teams, data provides transparency into current operations and outcomes that allow departments to improve processes, reduce errors, provide accurate reporting, and capture early payment discounts. Using accounts payable automation, you can capture data and report on key performance indicators (KPIs) that help assess your AP department’s performance.
AP automation helps companies capture data and generate analytics that helps AP team managers and CFOs better direct day-to-day operations, bring performance-improving metrics to department and company-wide meetings, and share this data and insight across the organization for different reporting needs and data-driven initiatives.
Cloud-based AP software provides a database of payment and vendor information that is accessible from anywhere, which allows you to forecast a truer picture of costs and better control P&L. CFOs and their teams can deliver accurate reports more frequently, complete financial closes more quickly, and dive deeper into company data to deliver strategic guidance to other leaders within the organization.
So, what AP metrics can you track?
There is a wealth of data that can be gathered by using an AP automation system that includes accounts payable metrics, workflow automation data, and payment measurements. These metrics provide insights into how your team is performing and how you can potentially increase productivity. Here’s a starter list of some of the top metrics you can track.
1. Invoice volume
AP departments should begin with a clear understanding of the number of invoices the company receives in a given period of time. Understanding the number of invoices your department handles, whether weekly, monthly, or annually, helps teams assess their volume of work in any measured timespan. Managers can then assess if they are equipped to handle the volume and provide a baseline from which to measure additional data.
When you compare this metric against the number of AP staff processing the invoices in your department, you can design a system that maximizes efficiency. Digital platforms cut labor-intensive, error-prone AP tasks like invoice entry, scanning, receipt and purchase order matching, coding, correcting errors, and data migration which in turn dramatically increases productivity, helping staff to handle an increasing volume of payables in half the time.
2. Invoice processing time
Tracking the percentage of invoices that get processed in a certain time period and comparing that data against how many invoices were actually received helps teams and managers assess their efficiency and process strategies. This data can identify previously unknown bottlenecks and spaces where operations can be improved, such as shifting more manual tasks to an automated platform. These numbers also uncover unrealistic expectations and help managers set new, achievable objectives for their teams.
Teams can also track the number of electronic invoices they receive versus paper invoices. Electronic invoices are faster and less expensive to process. Identifying the vendors who are sending paper invoices can help you work together to shift them to an electronic submission process when possible.
3. Process cost per invoice
The cost it takes to process one invoice is a key AP metric. According to the recent Ardent Partners State of ePayables in 2019 report, the cost to process a single invoice for best-in-class AP teams is slightly over $10. Remember, the type of invoice matters when gathering this data and it’s important to consider other financial factors such as IT support, staff salaries and benefits, software fees, and additional overhead costs.
4. Invoice cycle time
All AP teams strive for a low invoice cycle time. Knowing how longs it takes to process an invoice from when it’s received to when it’s archived allows teams to measure their average receipt-to-pay time and identify process inefficiencies. Teams can pinpoint what tasks are the most time consuming and identify issues that create slowdowns and late payments. Not only does AP automation track cycle times, but an automated process can also help teams improve, and even accelerate, their workflows.
5. Erroneous payments
AP teams should also strive for error-free processes. As difficult as this may be, automated workflows can help measure the number of erroneous payments being made such as overpayments, duplicate payments, and fraudulent invoices. AP automation software identifies areas in your processes that yield errors, such as manual data input, and helps teams fix these issues and possibly even recoup money from your vendors.
6. Invoice exceptions
Some invoices require exceptions and flagging for issues such as non-matching purchase orders or discrepancies on the supplier’s end. These invoices cost more to process, so it’s important to track the metrics for exception percentages. Gathering this data allows you to identify vendors with the highest exceptions, common reasons invoices are getting flagged, and ways to resolve these issues.
7. Early payment discounts
Automated workflows reduce late payments, ensuring companies can take advantage of the early payment discounts from many vendors. Most suppliers offer early payment discounts, so it’s important to capitalize on these potential savings, which can add up to thousands of extra dollars and improve your company’s bottom line. Automated AP workflows can help move these vendors’ payments through your system automatically as well as flag any issues ahead of time and immediately notify the approver, ensuring payments are always made on-time.
The end benefit: an efficient workplace culture
Once you’ve gathered all your metrics, you can continually monitor these against your goals and objectives in order to stay on track. Your organization can decide how often to pull data, whether monthly, quarterly, or bi-annually, along with what metrics you should be tracking.
AP automation data can also help CFOs, controllers, and AP managers with some of the most important parts of their job, such as strategic planning, target setting, financial planning, forecasting, and advising on critical company decisions. You’ll have greater insight into metrics that support portfolio analysis, performance analysis, and investment analysis that can help position you as a leader and advisor on company strategy.
Overall, teams that implement AP automation and use the data they uncover can expect the direct, positive benefits of time and money saved along with reduced busywork and a workplace culture that is transparent, collaborative, efficient, and forward-thinking.