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7 Essential KPIs for Accounts Payable Automation

Enterprise leaders have long looked to automation to drive higher operational efficiency. Your vision for AP Automation that creates fast time-to-close, high supplier satisfaction and greater insight into your process is absolutely achievable. But, to find the right solution and achieve the results you’ve envisioned, it’s critical to understand the most important performance indicators for any AP solution.  
As large enterprises integrate new AP technology, staying abreast of changes and challenges remains critical. Now more than ever, automation is constantly evolving as an increasing number of organizations begin to integrate it into their operations. 

In this blog we’ll discuss how AP Automation can transform the performance of your team and your work with suppliers. And we’ll cover seven essential KPIs critical to understanding the success of your AP Automation solution.

Transforming Performance with Accounts Payable Automation Solutions

Accounts payable practices are being transformed by automation due in large part to workflows that are easily shifted from the employee to the automation solution. When purchase orders, invoices, payments, and other supplier transactions are integrated into one centralized system, validated, approved invoices can automatically flow through your system. Furthermore, your team can then devote time to more high value tasks within your AP organization.

With the adoption of accounts payable automation, teams are shedding inefficiency, human error, and fraud risk and showcasing efficiency, information security, and transparency.

So what exactly are accounts payable automation solutions? And how are enterprises empowered with KPI data? It’s helpful to first consider the manual labor involved in processing an invoice:

  1. Invoice Capture
  2. Invoice Approval
  3. Variance Resolution
  4. Dispute Resolution
  5. Discount Capture
  6. Payment Authorization
  7. Payment Execution

What is AP Automation?

AP automation refers to the digitization of its payables  processing practices. When AP teams streamline manual, convoluted workflows through automation, they reduce process inefficiencies, increase transparency throughout, and minimize human errors. 
Invoice workflow can become burdened with too many steps, demanding excessive time and effort, both resources perpetually in short supply. From invoice capture and coding to payment authorization and execution, the entire process is undeniably susceptible to inefficiency, inaccuracy, and potential fraud, especially at scale.

When these processes are automated, accounts payable departments can experience improvement across a wide spectrum of performance metrics. For these businesses, it becomes crucial to quickly and efficiently monitor essential indicators of optimized operations.

Metrics are Key to Evaluating Accounts Payable Performance

Integrating accounts payable automation solutions can profoundly impact the overall success of a business’ AP team. However, to maximize the benefits of automation integration, your process  performance must be measured and evaluated for best practices to continue to grow.

Identifying key performance indicators (KPIs) is foundational for all proactive AP departments. They can identify the challenges preventing their teams from functioning optimally by utilizing metrics.

When equipped with relevant data to pinpoint successes achieved and areas of concern, teams are empowered to achieve operational goals consistently. AP departments of any size or structure can excel when they utilize KPIs to measure critical aspects of performance and their practices are adjusted.

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7 KPIs for Accounts Payable to Measure Success

For any AP department wanting to effectively track and reach its goals by optimizing AP process through automation, KPI data will give you confidence that you are maximizing your solutione. Key performance indicators in accounts payable can range from simple to complex as needed depending on the size of the business or enterprise. These metrics help ensure the AP team – and the company itself – is heading in the right direction, internally and with your suppliers

1. Days Payable Outstanding (DPO)

The Accounts Payable team must balance paying suppliers efficiently while effectively maintaining cash balances required for seamless operation). An enterprise’s DPO – the average number of days it takes to pay back its accounts payable – is a key indicator of how well it manages cash flow.  

2. Number of Late Payments

Arguably, one of the most consequential tasks that the AP department conducts is simple: pay your suppliers on time, or don’t. In addition to increased costs (late payment fees, interest payments), late payments significantly damage supplier relationships. The fallout from those damaged relationships can have a ripple effect across company operations.

To find this metric, take the number of outgoing late payments processed by accounts payable divided by the total number of transactions generated over the same period.

3. Average Cost Per Invoice

This metric can include labor costs, infrastructure costs, paper check and envelope costs, and postage fees.

Calculating this is straightforward: Total Accounts Payable Cost / Total Number of Invoices Processed. While calculating this metric is simple, the data delivered is reflective of overall productivity.

4. Average Time to Payment

As Average Time to Payment rises, so rises the Accounts Payable Cost Per Invoice. It’s simple to determine: the time required equals the associated cost. When the time spent completing an invoice increases, there is a correlating increase with the associated cost. If this is high, AP teams must look for ways to streamline their processes.

5. Time Spent Responding to Inquiries

Any increased operational efficiency will positively impact a company’s bottom line. As such, when AP departments can reduce time spent responding to supplier inquiries, they can invest that time elsewhere. Additionally, reducing supplier inquiries has a beneficial impact on AP productivity as your team will be spending less time fielding emails, calls, and meetings.

6. Percentage of Supplier Discounts Captured

The greater the savings, the better your company’s bottom line. Supplier discounts on early payment terms can significantly increase cash savings and business credit. Faster Time to Payment has a secondary benefit: happier suppliers mean more favorable interactions across the supply chain.

7. Average Time to Approve an Invoice

Average Time to Approve an Invoice is the most critical of any AP team’s KPIs. Unfortunately, receiving invoice and payment approval is a challenging task that is dependent on other departments. Bringing all invoice processing into one unified digital solution aligns all stakeholders and drives efficiency, thus driving faster time-to-approval.

Streamlining AP Operational Processes through Automated Solutions

The greatest enemy of a positive bottom line is wasted resources. Identifying and tracking KPIs helps you determine the most effective initiatives across your AP process. When you know where you're most effective and least effective as a business unit, you'll have greater insight that drives more profitable decisions. When AP departments integrate accounts payable automation, you can see benefits throughout your process, extending across your enterprise. By using KPIs to determine key opportunity areas and then applying the right AP automation solutions, AP teams can reduce late payments, improve supplier relationships, and enhance cash flow management.

Find out more about how Direct Commerce AP Automation solutions can drive success for you and your team here