Automating accounts payable processes involves digitizing the workflow and eliminating manual tasks. Businesses integrate business management systems and tools to support employees in performing their duties, enabling businesses to process supplier invoices.
Thanks to an integrated system, enterprises can automate the processing of company payments from beginning to end. Software records billing information digitally, typically using a scanner or other type of technology like optical character recognition (OCR). After classifying, matching, and validating data, it moves to the integrated system for processing.
By reducing human operations, AP automation saves business costs, mitigate fraud risks, eliminate billing duplication, manage vendor portfolio, and get discounts for prompt account settlement.
Key Performance Indicators
Traditionally the accounting department would focus on offsetting company bills, but nowadays they have more tasks in their account payables. Businesses can realize several advantages by having key performance indicators.
Besides improving the cash flow, KPIs are essential for efficiency and productivity. Still, it enhances relationships with suppliers. Failure to implement key performance indicators leads to missed chances for profitability and business success. Here are some accounts payable KPIs businesses should be measuring;
- Payment Timelines
Late payments will attract fines and strained supplier relationships. AP automation will help in making early payments and observing the set timelines. Suppliers trust companies that make timely payments as it makes vendors glad to work with them, while a disruption in supply may result due to late payments.
- Days Payable Outstanding
It refers to the time it takes businesses to settle their accounts payable. The key performance indicator assists companies in finding a balance in payments and maintaining healthy cash flow for business operations.
If a company realizes it is paying suppliers late, it might lead to higher fees and bad financial standing, among other consequences. Having DPO among the KPIs aids companies in utilizing their credit terms and enables them to assess if they are handling their cash flow effectively.
- Discount Ratio from Suppliers
Vendors offer discounts to customers paying their invoices earlier, and businesses can take advantage of the conditions. However, a company’s financial position will determine its capability to pay before the agreed date and benefit from supplier discounts.
Utilizing vendor discounts is beneficial as it saves money, which increases profits. The KPI gives insight into how well the organization handles its suppliers’ responsibilities.
- Invoice Cost
Your company’s first indication of AP team effectiveness comes from analyzing the cost of handling each invoice. Manual account payables processing or using outdated technology will increase the cost of handling invoices. Companies must evaluate the cost per invoice through AP automation.
- Electronic Invoices Submission
Receiving electronic invoices expedites processing and simplifies tasks. Besides saving time and money in submitting financial documents, AP automation improves information sharing.
The key performance indicator cuts across a business and its suppliers. Integrating digital tools is not enough as you need to onboard the human resources on the technology to get the best outcome with digital transformation.
Third-party business management software providers assist enterprises with Implementation and provide continuous support to clients depending on their service delivery.
- Invoices the System Processes Independently
When there is no human intervention in processing invoices, it is much more affordable and quick than manual techniques. Monitoring the invoices the system processes independently is necessary to increase profits and efficiency.
Companies benefit from cost reduction, increased security, smooth workflow, and efficiency, and allows employees to handle other essential tasks. In addition, smooth invoice processing through accounts payables automation improves supplier relationships and satisfaction.
- Invoice exceptions
Invoice exceptions can be an AP officer’s worst nightmare. It takes a lot of time to analyze invoices with mismatched information in the company database and resolve them. AP departments must include it in their KPIs to ensure process effectiveness.
Measuring and evaluating invoice exception rates is critical in determining the account payable department’s performance. It helps in reducing the resources it takes to resolve invoice issues.
Businesses can identify the reason for invoice exceptions to find appropriate solutions. AP automation utilizing an integrated system collects information from all departments and provides a centralized data access platform.
- Invoices linking to Purchase Orders
Knowing the invoices linked to a purchase order is essential for AP departments as it affects the processing duration and costs. Businesses can use the KPI to evaluate the process’s flawlessness and identify areas to improve on.
Invoices with conflicting information to the purchase order will cause delays in payments which should be a concern for the accounts payable team. Besides taking longer to process invoices, it increases the department’s operating costs which affect a business’s profits.
- Daily Employee Invoice processing
Assessing worker output in handling account payables will help enhance the billing process, and the information you gain from this metric applies to many different aspects of a business. It estimates how many invoices staff process daily, weekly, and monthly.
Businesses will know the number of workers they need to handle a certain workload and plan accordingly. The human resources department can utilize the information in its planning.
The number of invoices a company handles annually per full-time worker is a measure to determine productivity. It is a measure that provides a thorough perspective of production and enables the company to investigate the causes of gaps. However, the metric changes depending on the sector your business is in.
- Electronic payment options
Although switching suppliers to digital payment systems is advantageous, many companies still use cheques. AP automation can help companies integrate electronic payments to support AP processes. Tracking suppliers according to their preferred payment method helps improve the billing and payment process.
Conclusion
Monitoring key performance indicators in accounts payables might reveal flaws in business operations. The metrics show areas needing improvement by highlighting tasks and tools preventing effective operation. The appropriate KPIs also indicate the remedies that businesses can exploit.
Before adopting new digital solutions, AP teams must figure out the most important, applicable KPIs that will allow them to monitor efficiency, growth, and performance, which result in financial gains.