A methodology for invoice processing excellence
If you want to improve, you need to start by asking yourself the following questions:
- What should I measure?
- What goals are realistic?
- How good am I now?
- Where should I start improving?
Let’s walk through these one by one.
Define the relevant KPIs
There are a number of useful KPIs to track throughout your AP process, and they will differ a bit depending on whether you are looking at an order-based process or a process for non-PO or expense invoices where there is no matching against a supporting document.
Considering that we are focusing on a fast AP process, the most obvious KPIs are lead time and automation level, i.e. the percentage of invoices that runs through a fully automated and touchless process with no human touching or looking at the invoice at any time during the AP process.
Only real-life benchmarks will help you set realistic goals
The general definition of a benchmark is “a standard, or a set of standards, used as a point of reference for evaluating performance or level of quality”. Sounds good, right? Well, you need to be careful and make sure you understand the origin of the benchmark numbers – it can range from interviews and surveys to pretty vague estimates based on experience. Watch out or you can end up comparing yourself with something that does not make any sense for your business.
At Medius, we are a true cloud company and we enjoy the benefit of running hundreds of customers through the exact same AP process, generating big data and enabling us to measure and compare process performance and provide extremely relevant benchmarks and business insights to our customers. This means that our benchmarks are neither subjective responses to interviews nor estimates, but data driven by and based on objective observation.
To give you a hint of what this means, I can reveal that our customers achieve an average automation level of 69%, with the leaders reaching an astonishing 90%. There’s a relevant benchmark for you when setting your organization’s invoice processing goals.
Measure or die
I know this sub-heading sounds a bit dramatic but I just want to stress that you won’t get anywhere if you can’t accurately measure your current performance. If you are running a paper-based or semi-manual process then this will be difficult, simply because you don’t have access to process data.
Make sure your AP invoice automation solution provides you with the granular data you need to assess your performance on the KPIs that are relevant to your organization. And don’t lose track of them! Once you’ve started measuring you need to keep your eyes on those KPIs regularly to make sure you are on track for continuous improvement of your process.
Dive into the analytics and get started
With the right tools and methodology, you can efficiently pinpoint what your low hanging fruit is and “where-and-how” you can start improving.
With this data driven methodology, your AP process reporting should be able to tell you things such as:
Invoice capture: Which suppliers send you the largest volumes of paper invoices.
Touchless processing by company: Which of your companies/departments are falling behind on automation level.
Touchless processing by suppliers: Which suppliers are causing your laggard companies to perform poorly, and exactly why that is the case. Are they causing manual connection because of incorrect order references? Are they failing to meet agreed payment terms? Or are they charging you extra for freight, pallets or customs costs?
Breakdown of reasons for manual work: Pinpoint why manual work occurs. Are suppliers invoicing incorrect prices? Are payment terms not according to agreement? Are order identifiers obscured, incorrect or missing? Are you being charged for customs costs, freight costs or other not-on-the-order costs?
For more details on this topic, watch our on-demand webinar . Then contact us
to discuss your improvement plan.