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Must Have Metrics for the AP Process

By Pola Zafra-Davis - 25 Jul 2019

The crux of an automated invoice processing system is how to collect, interpret and leverage your data to improve your processes. It’s possible to vet data from line-items and ledgers, but also down to reporting analytics.

In a 2018 report [1], Ardent Partners found that the most advanced firms spend £8.95 less to process a single invoice. This includes scanning for invoices in accounts payable.

To help you get to these new baselines, here are six established metrics. We also show how automation can be used to enhance the AP process to make sure that your metrics stay in the green. Click to jump.

AP Metric 1: Input Quality

AP Metric 2: Input Timeliness

AP Metric 3: Process Quality

AP Metric 4: Process Timeliness

AP Metric 5: Output Quality

Bonus! AP Metric: Process Security

Accounts Payable Process Metric 1: Input Quality

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Invoices take up the majority of the AP function. Software with unlimited field extractions is perfect for invoice information.

  • Accurate supplier and contract information in the master-file.
  • Expenses coded to the correct budget-holder.
  • Expenses coded to the correct expense type.
  • Other coding data (such as due date) are accurate.

How an automated invoice processing system increases input quality:

From the State of Epayables 2018 Report, companies with automated invoice processing systems have invoice exception rates >50%, leading to invoice submission rates close to three-times higher than average.

Automation reduces the risk of error by decreased manual handling.Matching invoice data to purchase orders is the next logical step. But you can start by trimming the cost of not only manually keying in data, but also producing paper cheques and POs.

One of our clients, Paragon, found a way to reduce manual handling and discontinue system silos when scanning invoices for accounts payable. We implemented automation and categorisation of documents and correspondences by extracting core data from cheques and financial statements.

Accounts Payable Process Metric 2: Input Timeliness

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When the accounts payable department does not receive invoices in a timely fashion, it may not be possible to process and pay them within terms.

Prompt pay discounts or dynamic discounting are a growing trend on offer to encourage on-time payments. If an invoice is processed late, these discounts can be lost, and so - a missed opportunity in saving your company money.

Make sure your systems have the following in place to track your AP input timeliness:

  • Due date notifications.
  • Date stamps.
  • Alerts and completion of authorised signatures.
  • Correct coding to the cost centre.
  • Correct coding for subjective codes.

Delayed invoice processing can incur late fees. So it’s important that you prioritise those invoices that are eligible for these prompt-pay discounts.

How an automated invoice processing system helps input timeliness:

Beware of departments that have different circumstances and document processing procedures e.g. one department not having imaging or electronic document management capabilities.

Some divisions may still rely on manual processing across multiple touchpoints. This isn't an ideal quality for a company to have. They can easily be overwhelmed and overtaken with increased business volumes.

Luckily, those who have adopted AP automation reported that their invoice processing turn-around has been 7.5 days on average. Automation makes the collection of electronic data for AP processes (and becoming paperless) worth the technical investment.

Kofax Capture connectors allows the import of e-mails and documents from network folders after scanning invoices for accounts payable. Kofax Transformation takes care of field, cheque, and table data extraction and recognition.

Accounts Payable Process Metric 3: Process Quality

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A key goal of every accounts payable department is to process transactions correctly. Errors are costly. Understanding error causes should lead to improvement.

If a problem is detected after automatically scanning invoices for accounts payable, the following should be noted:

  • the type of problem
  • person causing the problem. They should be tracked. Make sure employee access is limited to their role.
  • Whether the transaction information is complete. Check: vendor, submitter/approve, type of transaction and amount.

There are more places to look for input quality in your AP process. This isn’t just something you can limit when scanning invoices for accounts payable. It’s also important to vet the quality of expense reports, accruals, accounting adjustments, purchase orders, check requests and vendor setup requests.

How an automated invoice processing system increases process quality:

By default, departments implementing invoice automation reduce their compliance risk compared with paper-based systems. AP-based compliance can be achieved with significantly better traceability, absence of lost or misfiled invoices, and ease of invoice retrieval during audits.

By incorporating automation with integration into your own internal systems, this AP process becomes much easier. One real world example is that we started a data feed from Paragon’s internal systems to validate account details.

If you’re further along the automation process, leverage all that data to discover any anomalies in invoice processing. Investigate your input quality and see if additional security measures need to be put in place

Accounts Payable Process Metric 4: Process Timeliness

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Measuring and monitoring AP processing timeliness is key to understanding what is going on, as well as setting standards and expectations.

Different types of transactions take different amounts of time. To make sure your invoice processing proceeds as quickly as possible, take note of these sub-metrics:

  • Each invoice has been matched with its associated purchase order
  • Days payable outstanding (DPO)
  • Defect rates
  • Transaction backlogs
  • Recording of payments applied to each invoice on their due-date.

You can also use these metrics to enhance your supplier relationships. Once you have this data, this information be incorporated into better workflows to help speed up purchase-to-pay. The last bullet point maintains system accuracy.

How an automated invoice processing system helps speed up AP processing timelines:

Before an invoice processing overhaul, Nottcutts was experiencing incoherent and delayed processing. Scanning was outsourced to a third-party and isolated document management system did not interact with Nottcutt’s financial or other incumbent systems.

Significant time saved by automation can include something as basic as scanning of faxed and email items attachments in a singular process or system.

Automation can also help you leverage newer methods.Technologies such as Kofax Mobile Capture encourages field representatives, customers and administrators to capture and introduce documents into critical business processes earlier. Filestore BPM can then vet and check the process further downstream.

Accounts Payable Process Metric 5: Output Quality

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Keep an eye out if your number of problems is high -- or if your problems increase with your AP activity. These are red flags for issues with internal controls and/or information in the vendor master file.

The source and cause of output problems needs to be identified so that corrective actions can be taken. Here are some places to improve:

  • Amount of reconciliations.
  • AP’s responsiveness to inquiries and investigations.
  • Un-reconciled items follow-up assigned consistently to a specific individual

How an automated invoice processing system can increase your output quality:

Workflow automation software have dashboards that can help you monitor KPI’s and process metrics or receive automated alerts. Managers can view invoice volumes in real-time using dashboards in a BPM system like Filestore,

You don’t have to rely on the human eye. While managers may have the time to benefit from general overviews, it’s not always possible to really get into a deep-dive. Robotic process automation is another type of automation that can aid in the AP process.

Bonus Accounts Payable Process Metric: Process Security

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At worse, errors can also indicate accounts payable fraud. False invoices and cheque fraud are one of the many ways that accounts payable can be scammed.

Automation makes it possible to accurately track the following “negative metrics” to protect your accounts payable and finance departments:

  • Track all payments made, not just vendor payments
  • Investigate requests for duplicate payments
  • Find unauthorised changes to supplier information in the master-file data
  • Parameters where you can locate fraudulent invoices and route them for someone to review.
    • Anything above the agreed upon tolerance of the PO Line price
    • Invoice totals are above the PO total
    • Goods not in receipt
    • No PO or invalid POs

How an automated invoice processing system can increase your process security:

If there are any suspicious anomalies (like in the above bullet points) rpa can pick these up once you give it information on what the correct rules would look like. Robotic process automation can also highlightproblematic invoices and POs, robots can automatically route the item for approval.

Parting words

Of course, this isn’t an exhaustive list. But adaptability and customisation for automation can change alongside improvements in your accounts-payable process.

To successfully leverage what automation has to offer, we recommend a bespoke accounts payables solution. Having several pieces of enterprise software that co-exists in its own ecosystem can greatly simplify the process.

Kofax software is ideally suited for accounts payable since you can switch between its various capture, customer communications, analytics and rpa tools without sacrificing data integrity. Using these products (and Filestore) we have helped clients such as ExxonMobil, Bentley Motors and Savills Property Management with the implementation of invoice automation.

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[1] 2018 State of Epayables Report

 

 

Categories:
  • Accounts Payable