Businesses have become increasingly data driven. If your current AP process is not leveraging informed data, there’s a likelihood you’re falling behind your competitors. In fact, according to a study by IBM Institute for Business Value, leaders are 166% more likely to make decisions based on data. Similarly, 76% of CFOs agree that without a singular version of the truth across business units, organizations will struggle to meet their objectives.
While finance leaders certainly understand the value of analytics in regard to making better strategic decisions, many lack the resources to use analytics tools effectively. 69% of businesses have no current plan to implement an analytics tool, with three of the top reasons being budgetary constraints, lack of technical resources, and difficulty integrating new systems.
With benefits like improved control over cash flow, gaining a better understanding of suppliers, and cost reductions, utilizing an AP automation tool with analytics capabilities can help overcome any concerns leaders may have in regard to constrained resources. In this post, we will explore how tracking AP KPIs and metrics can help business leaders make more impactful decisions that are aligned to strategic objectives.
Current Challenges with Analyzing the Manual AP Process
There are a number of challenges organizations face in regard to a manual AP process. One aspect that is often overlooked is analytics. But why do you need accounts payable analytics in the first place?
Finance leaders are typically required to report business issues and KPIs to stakeholders at the end of each quarter. In order to access these metrics, finance teams often find themselves in a manual bind: downloading multiple spreadsheets from their ERP system, crunching numbers, and sending along high-level reports to stakeholders and executives. This is a tedious process that requires several people to manually pull data and organize reports that C-suite executives can easily digest and understand. The time and resources spent collecting and analyzing this information could be saved with an automated AP system that features robust analytics capabilities. With embedded analytics, organizations can allocate more hours to business-critical initiatives.
A lack of analytics also makes it challenging for finance leaders to make insightful, data-driven decisions. The manual AP process often works with siloed data sources or information that is not accessible by all departments. The finance department is often fed poorly defined metrics and KPIs from different branches of the organization. These metrics may not be insightful or provide a complete picture. Having low visibility into AP data and its effect on the business as a whole makes it difficult for finance teams to make decisions in regard to cash flow, supplier relationships, or even working capital. Therefore, choosing an AP solution that has embedded analytics, and visibility into critical data, is becoming more important than ever.
How AP Metrics & KPIs Can Inform Business Strategies
Tracking your AP metrics and KPIs is an excellent way to improve operations and make data-driven business decisions. Here are some of the ways accounts payable analytics can enhance business performance.
Help Allocate Time & Resources
Tracking a basic metric like total number of invoices received allows AP leaders to better plan their team’s time and resources appropriately. For example, if you know your organization typically receives a particularly high volume of invoices in Q4, you can bring on more staff or streamline the process of invoice capture and approval through the help of an automated AP system.
Identify Bottlenecks in Your AP Process
If your total number of invoices processed is low in comparison to your total number of invoices received, it is likely a sign that there are bottlenecks in your AP process affecting efficiency and your ability to process invoices on time. Tracking this number allows AP leaders to gain insight into the ramifications of continuing with manual invoice approvals and could help start the conversation about implementing an AP automation solution with stakeholders.
Determine Unnecessary Costs
Effectively tracking AP metrics and KPIs can also help department heads determine unnecessary labor costs. For example, by knowing how much it costs, on average, to process a single invoice, you can start investigating associated expenditures like the number of personnel involved, infrastructure costs – like tools and software used, paper check and envelope costs, and postage fees. Taking this holistic look at where all your invoice costs are coming from allows you to streamline areas where necessary.
Additionally, knowing the average time it takes to process an invoice can help reveal gaps in efficiency. For example, the longer it takes to process a single invoice, the more costly invoice processing becomes due to associated labor costs. Processing delays could also impact your ability to capture early payment discounts or worse, result in penalties for late payment. Analyze your organization’s average time to process an invoice and average cost to process an invoice side by side to determine where improvements can be made.
Improve Your Company’s Cash Flow
Tracking the rate of error as a percentage of total invoices paid allows one to gain a better understanding of the health of a company’s finances. It’s important to have visibility into erroneous payments, duplicate payments, and overpayments because these instances can affect your company’s cash flow over time. If you know your rate of error, you can start investigating what might be causing payment mistakes and adjust your process to remedy the issue at hand.
Enhance Your Supplier Relationships
By tracking discounts captured or discounts obtained as a percentage of discounts offered, users can understand how many early payment discounts your business secured compared to how many were offered to you. Capitalizing on early payment discounts means your suppliers are being paid on time and their cash flow is improving – which is an incentive to continue their relationship with your company. Additionally, knowing this number allows AP leaders to know how much money could potentially be saved in the future, if they were to better take advantage of early payment offers.
The AP department will also want to track the number of electronic vs. number of paper invoices captured. While some suppliers are still sending paper invoices in the mail, they are increasingly realizing the benefit and value of electronic invoices. Knowing how many of your suppliers are sending invoices electronically allows you to consider if you’re equipped to deal with this volume. If you’re not equipped, there is potential risk to the provider-supplier relationship. Not having the right platform to manage invoices can lead to human error, slow processing times, and frustration on both ends. Since electronic invoices are cheaper and quicker to process when using automated invoice capture capabilities, they can help keep overall costs down. For this reason, we recommend implementing a solution, like an AP automation platform, that can easily process electronic invoices.
Understand Your Payments Mix
Tracking how many checks, ACH transfers, and virtual card payments your team is making in a given period allows you to gain a holistic view of your payments mix. One of the challenges associated with having a varied mix of payment types is that you often need a separate system and process for handling each of them, requiring more manpower and time. With an understanding of your payments mix, you can allocate staff and resources appropriately. You may even consider an AP automation solution that seamlessly enables virtual card payments. Options like SilverPay allow users to send tokenized payments to suppliers – which is faster and more secure than other forms of payments.
Use Embedded Analytics & Automation to Help Track Metrics
The best way to use accounts payable KPIs and metrics efficiently is through use of automation. Some platforms offer embedded analytics in their solutions which makes tracking and reporting quicker and easier than ever before. However, not all solutions are created equal and many solutions will make users decide on what metrics they need to be tracking. MineralTree eliminates the need to figure this out – our AP expertise and robust analytics will help you determine the key AP KPIs and metrics you should be tracking to make better business decisions. Eliminate the need for manual work involved in reporting and start utilizing automation and embedded analytics to strengthen your supplier relations and optimize cash flow.
Interested in learning more about the specific metrics and KPIs that drive accounts payable performance? Read our blog post: 9 Accounts Payable Metrics to Optimize AP Efficiency.
