It’s important to measure accounts payable performance prior to automation to gather base-line data, and then on an ongoing basis post-deployment to monitor and continuously improve results. Here’s what to track before automation, from go-live, and at post-implementation reviews:
Cost of processing
The cost of invoice processing is the most important measure of accounts payable efficiency and overall performance: the higher the cost to process a single invoice, the poorer the outcomes for the business. But getting a true handle on the cost of processing can be problematic though, as companies often miss expenses that need to be included in the calculation.
For example, simply dividing the annual accounts payable salary spend by the total number of invoices per annum is too simplistic, as it does not account for labour on-costs outside of salaries and wages, such as:
- payroll taxes,
- worker’s compensation insurance premiums,
- benefits paid,
- training costs, and more.
Nor does it incorporate office overhead costs per employee:
- equipment and supplies,
- building costs,
- property taxes,
- insurance premiums, and so on.
By identifying this additional employee spend and allocating it per head, an organisation can work out its true cost of labour in accounts payable. Then by applying this total AP (Accounts Payable) expenditure to the invoice volume, firms can get closer to their actual cost of processing.
As a guide, the ATO calculates that it costs organisations between $27 and $30 to process PDF and paper invoices manually. This is a colossal additional spend when applied per invoice, per month, per year!
Cost of inefficiency
To make matters worse, this expenditure does not even capture the full costs of a flawed, inefficient process. These firms may have limited visibility over whether they are:
- paying fraudulent invoices, or
- making duplicate payments
Such processing errors are highly likely, adding to the overall payables balance.
Further, supplier costs may be higher than necessary with companies accruing penalty fees for late payments and missing early-bird discounts. While a 1% discount on an invoice paid within 10 days of a 30-day payment term may not seem like a significant saving, it is equivalent to an 18% annual interest rate – a significant return that may well make sense to capitalise on.
EL can help you identify where the inefficiencies, risks and costs are within your current accounts payable processes. We can help you write the business case for automation, explaining how the software product reduces spend, streamlines operations, and delivers value for your organisation.
- Time to process an invoice
- Cost to process a single invoice
- Invoice exception rate
- Percentage of invoices and documents linked to a purchase order
- Percentage of invoices not linked to a purchase order
- Number of invoices processed a day / AP officer
- Percentage of credit notes
- Number of invoices requiring verification
- Count of all invoices
- Rate of straight-through processing
With these insights, accounts payable can take action to improve performance and/or advise the wider business on what changes need to be made. For example:
- If the invoice exception rate remains high – it may be that suppliers need clearer guidance on how to send a compliant invoice.
- If one AP officer is processing demonstrably fewer invoices a day than their peers – it may be that they require additional training on how to use the software.
- If too much purchasing is happening without a purchase order – it may mean further change management efforts are needed to address buying behaviours.
Using data insights to fine-tune the procure-to-pay cycle helps increase the rate of straight-through processing, which enables better outcomes for all stakeholders while also benefiting the bottom line.
A six-monthly review post-implementation provides opportunity to assess how the software is performing, develop the roadmap for the product, and identify strategies to further optimise procure to pay.
Some areas to consider include:
How is the software performing?
- What is the cost of invoice processing post automation?
- When do you expect to realise a return on investment?
- What feedback do end-users have on the software?
- What needs to be done to increase user adoption?
- Is any further training on the solution required?
What is the roadmap for the product?
- How to onboard more suppliers to Peppol e-invoicing?
- What are the next finance processes to automate?
How to optimise procure to pay?
- Can procurement now negotiate more competitive rates/terms with suppliers?
- Is the invoice volume appropriate or is the organisation working with too many suppliers?
- How is the organisation’s AP performing relative to industry benchmarks?
- What targets/internal standards have been set to ensure optimal performance?
- What skills/training do accounts payable officers need to take on new responsibilities?
The use of an automation product can transform accounts payable from a cost centre to a strategic business unit that adds significant value to the organisation. It does this by lowering processing costs, and by capturing data that aids effective decision-making.
From pre-automation through to deployment and post-implementation reviews, gathering data at every stage enables the best outcomes for the organisation. The cost of processing is a key performance indicator for efficiency in accounts payable. However, an automation product also helps organisations to lower their cost of goods and overall payables balance, making AP automation an attractive investment.