AP invoice automation insights by Medius

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Do You Know How Your Accounts Payable Process is REALLY Doing?

How is your accounts payable (AP) invoice process doing? Do you see symptoms of mysterious diseases but can’t determine a diagnosis? Or do you have a feeling that things are going smoothly but don’t know how to find out for sure? Doctor’s advice: read this blog post for hands-on tips on how to do a simple health check of your current AP invoice process.

1. Select the KPIs that are relevant for your business

No one knows your company’s accounting needs and goals better than you, so make sure that you identify the key performance indicators (KPIs) that make sense to you. There are some obvious metrics to keep track of, so keep reading for a solid foundation from which you can launch your improvement initiative.

If you are matching invoices against things such as a purchase order, contract or goods receipt, it makes sense to monitor these performance indicators:

  • Automation level – the percentage of your invoices that pass through a fully automated and touchless process.
  • Manual connection level – the percentage of your invoices that cannot be automatically matched to orders, thereby causing manual intervention.
  • Total lead time – the number of days it takes for an invoice to be processed, from import into the AP system to posting in the ERP.
  • Lead time waiting for manual approval – the number of days you have to wait for those invoices that need some kind of manual handling.

When you’re dealing with non-PO invoices, there are slightly different accounting metrics to monitor:

  • Automated distribution level – the percentage of your invoices that are automatically distributed to the correct approver within the organization by the AP automation solution.
  • Total lead time – the number of days it takes for an invoice to be processed, from import into the AP system to posting in the ERP.
  • Lead time waiting for approval – the number of days you wait for your colleagues to approve their invoices.

2. Compare your performance against industry peers

Now that you’ve got some KPIs to monitor, you’ll need to find a way to measure your performance on a regular basis. Talk to your AP automation solution provider about setting up reports and dashboards so that you have full visibility into the efficiency of your accounting processes.

So, how do you know if your performance is good, average or poor? The trick is to compare it to industry benchmarks and organizations with situations similar to your own. Our Benchmark your AP invoice processing efficiency webinar provides real-life guidelines for a number of different KPIs. During this session, we share the results of our average and top-performing clients so that you can see how you stack up against your peers.

3. Identify areas for improvement

Now that you know which elements of your AP process are in need of improvement, you should be able to identify which suppliers are causing the majority of deviations (thereby increasing the amount of manual work in your AP department and for your approvers), as well as which approvers are taking too long to verify invoices. After you pinpoint the source of the problem, you need to define an action plan for how to address it. The plan needs to be clear and detailed, so that executing it is straightforward.

4. Monitor KPIs on a regular basis

It’s important to understand that a health check of your AP invoice process is not the same as a yearly checkup at the doctor’s office. And there is no such thing as a “one and done” solution that fixes problems once and for all. Optimizing your AP invoice process is a long-term commitment, dependent on continuous improvement. You will need to measure your KPIs regularly - preferably on a quarterly basis – to be able to identify bottlenecks or issues in the process. Then, take action on those issues, test and measure again.

Modern business accounting is a dynamic environment, with new suppliers and evolving success indicators. This further emphasizes the need to think of performance improvement as a process rather than a project. In other words, continuous improvement, with the emphasis being on continuous.

So how do you know when to stop improving? This is where benchmarking is crucial. As long as you are performing less than average on key KPIs, there is still room for improvement. If you’re already in the best-in-class group, then your focus should be elsewhere. Watch our webinar Benchmark your AP invoice processing efficiency, to hear me further explore this very exciting topic!

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