As organizations seek new ways to achieve higher operational efficiency, B2B automation solutions have quickly become essential, proving increasingly valuable as a way to improve efficiency, reduce costs, and gain better control. Over the past few years, as automation solutions have picked up speed, it’s become evident that it wouldn’t be hyperbole to say they are changing the world of work as we know it. 

C-suite leadership has taken notice. According to UiPath, executive leadership is now fully invested in automation:

• 78% plan to further invest in automation to fill staffing gaps.

• 85% believe automation can help reduce turnover and attract new workers.

As large enterprises integrate the 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. 

Industries open to the concept can provide advanced options far sooner than those slow to adapt. Accounts Payable has proven to be an excellent example of successfully taking outdated systems and processes and streamlining them through automation.

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 some degree of purchase orders, invoices, payments, and expenses are integrated into one centralized system, employees can devote time and energy to critical projects. 

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. Payment Authorization

4. Payment Execution

What is AP Automation?

AP automation refers to when a company digitizes its invoice 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. 

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, that team’s 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.

9 KPIs for Accounts Payable to Measure Success

For any AP department wanting to effectively track and reach its goals by optimizing existing workflows, KPI data is the resource that makes it possible. 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 regard to their industry.

1. Days Payable Outstanding (DPO). 

1. The Accounts Payable team must balance paying vendors efficiently and effectively maintain cash balances required for seamless operation (the more cash available to fund operations, the better). 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

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

2. To find this metric, take the number of outgoing payments processed by accounts payable that contained an error divided by the total number of transactions generated over the same period.

3. Average Cost Per Invoice

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

2. 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

1. 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

1. Any increased operational efficiency will positively impact a company’s bottom line. As such, when AP departments can reduce time spent responding to vendor inquiries, they can invest that time elsewhere. Additionally, reducing vendor inquiries has a beneficial impact on AP productivity.

6. Percent of Spend By Payment Method

1. By dividing the total number of payments made with each payment method by the total number of vendor payments made, AP teams can easily assess the distribution of vendor payments by payment method. Electronic payment methods such as ACH transfers and credit cards provide increased fraud protection and cost savings.  

7. Percentage of Electronic Payments

1. Percentage of Electronic Payments is closely connected to Percentage of Electronic Payments. This metric requires tracking how many total electronic payments are made in a month and the percentage of total payments made. AP teams can utilize this data to highlight the benefits of processing payments electronically. 

8. Percentage of Supplier Discounts Captured 

1. The greater the savings, the better your company’s bottom line! Vendor discounts on early payment terms can significantly increase cash savings and business credit. Higher Average Time to Payment has a secondary benefit: happier vendors.

9. Average Time to Approve an Invoice

1. Average Time to Approve an Invoice is the bane of any AP team’s existence. Unfortunately, receiving invoice and payment approval is a challenging task that is dependent on other departments. Achieving inter-departmental cooperation may not be easier, but any effort to boost this metric will deliver benefits across the board.

Streamlining AP Operational Processes through Automated Solutions

The greatest enemy of a positive bottom line is wasted resources. In business, time is either well-spent or squandered, a ratio that profoundly impacts profitability. When AP departments integrate accounts payable automation, everyone benefits. By maximizing this powerful tool, AP teams can reduce late payments, improve vendor relationships, and enhance cash flow management.

Written By: Daniel Redding
Date: February 2023