Elevating AP performance: Realize remarkable results in these 3 KPIs

In a world where accounting teams struggle with inefficiencies and manual processes rooted in paper and spreadsheets, key performance indicators (KPIs) like invoice processing costs, invoice processing time, and invoice exception rates are often overlooked. However, regularly monitoring these metrics can provide invaluable insights into the strengths and weaknesses of your AP workflows. You can use these insights to find areas of improvement and opportunities to take your financial operations to the next level.

In this blog, we’ll explore three crucial KPIs that hold the key to streamlining your AP processes, eliminating bottlenecks, and empowering your entire accounting team. By harnessing these metrics, you and your teams can enjoy enhanced agility, reduced costs, and mitigated risks, driving your finance department towards unprecedented success.

KPI #1:Cost to process a single invoice

One of the most important KPIs to measure is the cost to process an invoice. This metric takes into account the cost of labor, storage, office supplies, overhead, and mailing. 

According to research firms such as Levvel Research, the average cost to process a single invoice can be up to $15. From there, the cost goes up, depending on extra time spent chasing approvals or fixing errors. 

A higher cost means that you have all kinds of opportunities for savings. 

A lower cost indicates a more efficient AP process. 

Here’s how you can calculate the cost to process an invoice: 

Option 1: Use this ROI calculator to easily determine your potential cost savings.

Option 2: To calculate your costs manually: 

1. Start with an estimate of the time your team spends on each of these tasks:

Purchase orders

• Creating requisitions
• Routing POs for approval
• Submitting to vendors
• Data entry
• Matching to invoices

Invoices

• Receiving invoices
• Invoice approval routing and follow-up
• Data entry
• Filing & storage

Payments

• Creating aged payables lists
• Deciding what to pay
• Match invoices to checks
• Submit to signing authorities
• Collect documentation
• Check stuffing
• Release or mail
• Reconciliation
  • Divide the cost into labor and outright costs:
    
    For labor costs: Survey your AP staff on the time they spend each day on key AP processes such as data entry, approval follow-up, cutting checks, PO matching, filing and scanning. Multiply that time by an hourly labor cost to find out the cost per month.
    
    For outright costs: Calculate how much is spent on postage, printing, paper, and document storage managing AP per month. Divide by the number of invoices processed monthly.

2. Add up the totals.

If you’re shocked by what your invoice processing costs, it’s time for you to explore an Accounts Payable automation solution.

By automating your paper processes and clunky workflows, you can eliminate a lot of your hard costs like postage, printing, and storage. Thanks to the customized workflows and efficiencies that come with a robust AP automation solution, you’ll also see a massive reduction in time wasted on approval delays. In fact, organizations that have some kind of accounts payable process improvement — namely an AP automation system — have realized significant savings of 60-80% over manual processing.

When you implement a trusted AP solution like Quadient Accounts Payable Automation by Beanworks, you can bring your average invoice processing cost down to $3 or less. Quadient AP saves time using AI to capture invoice details, such as line items, header information, amount, due date, unit costs, quantities, etc. If your company processes 500 invoices per month, that’s an annual potential savings of $60,000 - $70,000!

Here are three key features that Quadient AP provides to help you streamline your invoice processing cost:

• Simplify audits and save time with digital invoice storage.
  Search invoices by vendor, GL code, amount, legal entity, or any other information on the invoice.
• Enter your invoice header data with 99% accuracy.
  Our GL smart coding feature codes invoices with one click, based on what was entered previously for similar invoices.
• Batch scan your paper invoices.
  Easily split them into separate invoices with a simple drag-and-drop interface.

Explore how Quadient AP can save you money with invoice automation.

KPI #2: Invoice processing time

This KPI measures how long it takes for an invoice to be received, reviewed, approved, and processed for payment. The measurement gives quantitative insights into how efficiently your AP workflow is functioning. The time it takes to process an invoice can help identify inefficiencies such as complex routing, approval bottlenecks, and stretched AP resources.

A longer processing time translates to delayed payments, late fees, missed early discounts and strained relationships with vendors.

A shorter invoice processing time indicates a streamlined and efficient process, which often leads to improved vendor relationships, early payment discounts, and reduced late payment penalties.

Here’s how you can calculate your invoice processing time:

1. Record the date and time each invoice is received.
2. Document the date and time the invoice was input into the financial system when the approval cycle is complete.
3. Subtract the two dates to find the number of days.
4. Take the average across all invoices over a period e.g., monthly, or quarterly.

If you have a long invoice processing time, you’re not alone. A recent survey of 600 finance professionals indicates that AP teams have been spending up to 11 hours per month on approvals during the past two years.

An AP automation solution like Quadient AP can automate your invoice processing and help you streamline your team's invoice approval management, making it up to 9x faster!

Here are just some of the features that Quadient AP provides to help reduce your invoice processing times: 

• View a summary of your AP workflow.
  Identify bottlenecks in the process so that you can reduce delays.
• Create a customized dashboard.
  See how much time your team is spending on approvals and coding within a specific time period, capturing the total volume of invoices, purchase orders, payments and expenses processed each day.

KPI #3: Invoice exception rate

This KPI measures the percentage of invoices within a specific time period that are processed outside of a standardized or expected workflow, with errors or inaccuracies. The culprit could be anything – from a coding error to a duplicate PO. Either way, it slows your AP process down and costs you time to spot the errors, track them down, and fix them.

Here’s how to calculate invoice exceptions per month:

1. Keep a record of each exception as it happens.
2. Use this formula to determine your KPI:
   Number of exceptions per month ÷ total invoices processed per month x 100 = % of exceptions.

The good news: AP automation solutions can help you identify the most frequent types of exceptions and create a plan to resolve them.

Quadient AP offers you the following benefits to streamline and improve your invoice approval workflows, helping you reduce your exception rate:

• Set up customized approval channels.
  Reduce the risk of duplicate payments, errors, and fraudulent activities by ensuring only the right invoices are paid at the right time.
• Create and review reports about workflow history.
  Explore and identify elements of your process including approval steps, dates, and comments. This increased visibility will help you reduce bottlenecks and identify areas of improvement.

Explore how Quadient AP can reduce your exception rate with invoice automation.

How does AP automation software help?

Not only does AP automation help you reduce your invoice processing cost, time, and exception rate, it helps you chart and analyze your KPIs on a go-forward basis. 

Quadient AP offers real-time dashboard reporting, helping you design and track KPIs that are tailored to all of your AP workflows — from purchase orders (POs) and invoices, to payments and expenses.

Are you ready to automate?