A study recently conducted by Hyland in partnership with The US Institute of Finance and Management has shown us how difficult it is for organizations to monitor the performance of accounts payable (PA) processes. When they evaluated the level of automation of these processes, one thing became clear:
“The greater the degree of automation , the easier it is to gather performance metrics.”
Why is it important to measure process performance?
Most measurable performance indicators fall into one of three categories that will help you improve AP operations: quality, efficiency, and time. In a simpler form, think better, cheaper and faster . All these things matter for the bottom line of the organization, its effectiveness and your relationship with suppliers.
Let’s look at these indicators and see how debt processes help.
1. Quality
Some indicators that are worth following include:
- Percentage of doubled payments.
- Percentage of invoices processed without defects.
- The number of exception types and resolutions for these exceptions.
- Number of checks / transfers returned or invalidated.
- Number of successful double or triple correlations / checks.
2. Efficient
AP has to gain if you analyze the following cost factors:
- Invoice processing cost.
- The cost of processing a physical check vs. electronic payment.
- Percentage of term payment discounts obtained or lost.
3. Productivity and response time
Useful reports include:
- Number of invoices processed per number of full-time employees.
- Days payable outstanding (DPO).
- Average time from receipt of invoice to payment.
- Time required to obtain approvals.
- Average time required to resolve an issue invoice.
Each of these indicators can help you focus on where operations can be improved. However, the indicators must be ‘attackable’ and useful.
Even if you could follow most if not all of them, you will want to give special importance to those who will help you have the biggest gains. As you make improvements, you can shift your focus to the next set of indicators.
In short, the shortest path to failure is to try to solve everything at once.
It is a means of balancing
It is partly true that no
you can have maximum quality, minimum response time and minimum costs. A meticulous process that eliminates the risk of frequent mistakes
either it takes more time to be fulfilled, or more people involved, which raises its price.
However, accounts payable reports give you a holistic view of the process and help you see the ‘big’ effect of any change. This way it is much easier to find the perfect balance of quality, speed and cost.
The real improvement is automation
Obviously we will say that automation is the right step, but what can we do? All our data, studies and clients prove this. What to keep in mind is that monitoring the AP process without it being automated is a bad idea. The costs outweigh the benefits.
Manually monitoring a process brings three problems:
- stands in the way of the process, slowing it down dramatically,
- becomes a secondary goal, the fulfillment of the process being the primary one and
- involves a huge risk of error.
Automation brings the following benefits:
- Facilitates data sharing with CFOs who need to know the value of unpaid invoices for their reports.
- Helps you make decisions about performance and hiring.
- Assists in identifying suppliers that do not require approval and can be consolidated for discounts.
- Ensures that suppliers are satisfied.
- It brings improvements to the process and its performance that saves considerable amounts to the organization.
The question we ask you is not “Can we automate?” but “Can we afford not to?”
For more tips on how to optimize Accounts Payables processes or any other processes in your organization, contact contact one of our consultants .