The 5 Most Critical Metrics to a Successful AP Automation Proposal
Author: Mark Brousseau, Analyst and Researcher in Business Process Automation, Brousseau & Associates
15 Minute Read
The Benefits of Accounts Payable Automation are Proven and Compelling.
59% of accounts payable departments cite automation as a top priority for investment, according to the Institute of Finance and Management’s (IOFM) 2017 Future of AP Survey.
But most accounts payable departments still rely on manual and semi-automated processes. This is especially vexing in departments that have made big investments in state-of-the-art ERP applications.
Accounts payable departments cite several factors for not automating:
Lack of capital budget
Lack of department resources
Lack of IT resources
But one of the biggest reasons that many accounts payable departments have not automated is that they don’t know how to develop a business case that will win approval from senior management.
The trick is to focus your business case on the metrics that senior executives care about most:
Metric #1: Invoices paid-on-time: Only 4 percent of businesses pay all their supplier invoices on time, IOFM reports. Delays in approving invoices cause a backlog of invoices, make it difficult to rectify cash flow, strain supplier relationships, and result in late-payment penalties and missed early payment discounts. Top performing accounts payable departments pay more than 90 percent of their supplier invoices on-time, IOFM reports. Automation is a big reason that top performing accounts payable departments enjoy faster cycle times. Data is captured and validated automatically, without human operator intervention. Invoices are digitally routed for approval and exceptions handling based on pre-configured rules. And images and data on approved invoices is seamlessly uploaded to an ERP application.
Metric #2: Staff productivity: Manually processing invoices is burdensome: mail must be opened, data must be keyed and validated, invoices must be matched to purchase orders and shipping receipts, approvers must be tracked down, invoices must be physically routed to purchasers, and data on approved invoices must be keyed into the ERP application. Automation eliminates these manual tasks, enabling staff at highly automated operations to process more than 10 times as many invoices per month compared to operations with little or no automation (22,756 invoices per month versus 1,350 invoices per month), IOFM reports.
Metric #3: Cost per invoice: Automation eliminates the costly steps of invoice processing, including: keying and validating invoice data, matching invoices to purchase orders and shipping documents, tracking down purchasers, physically routing invoices for approval, back-and-forth phone calls and e-mails to resolve exceptions, keying data into an ERP, searching for lost or misplaced invoices, filing and retrieving invoices, and gathering data for auditors. That is why highly automated accounts payable departments spend less than one-quarter as much as their peers with little or no automation to process a single invoice ($1.77 versus $8.78 per invoice), per IOFM. That’s music to a cost-conscious executive’s ears!
Metric #4: First-pass match rate: Nearly two-thirds of accounts payable departments must manually handle more than 75 percent of the supplier invoices that they receive, IOFM finds. A low first-pass match rate increases costs, opens the doors to errors, and delays approvals. Automation increases the first-pass match rate by capturing invoice data, checking for duplicate invoices, validating supplier information, calculating line-item data on invoices, and matching invoices with purchase orders and proof-of-delivery documents. Increasing the first-pass match rate gets information into your ERP application faster and more accurately.
Metric #5: Early payment discounts captured: An eye-popping 80 percent of suppliers are willing to exchange a discount on the invoice-due amount for early payment, IOFM reports. But most accounts payable departments capture less than 21 percent of early payment discounts they are offered. A big reason for this is that most accounts payable departments cannot approve invoices within the early payment discount window. Top performing accounts payable departments are using automation to capture more early payment discounts.
Improvements in any of these metrics are compelling to senior executives. Together, they will make senior executives champions of your accounts payable department’s automation efforts.
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