Have you automated your Accounts Payable yet? Here are five reasons why you should be scaling with an automated AP department.
How to measure your Accounts Payable automation ROI
Track these 7 Accounts Payable KPIs to measure your AP automation ROI and identify areas of improvement/ efficiency in your Accounts Payable department.
Without tracking, measuring, and analyzing your Accounts Payable metrics on a regular basis, it will be difficult to identify areas for improvement and gauge your AP automation ROI. Tracking your AP automation metrics is beneficial in many ways, but the ultimate aim is to measure your efficiencies.
Measuring your AP automation ROI
Measuring your AP automation ROI helps you understand the financial impact your automated Accounts Payable solution has made on your company.
Whenever you change or update any AP automation process or workflow, you should continuously monitor, analyze, and make improvements to make sure you’re getting a solid ROI. Start by pulling detailed analytics reports on your Accounts Payable KPIs so you can determine if your automated AP solution is working for you and your company.
Pro Tip: If you don’t track your Accounts Payable metrics, you may not know what your AP automation ROI looks like (what’s helping and what needs to be changed).
7 Accounts Payable KPIs you should track
Your Accounts Payable KPIs (key performance indicators) are key metrics or measurable values that show how effective your AP automation ROI is and whether or not its meeting your targets and achieving your departmental objectives.
1. Average cost per invoice
Cost is one of the most important metrics that impact your AP automation ROI. When tracking invoice costs, consider things like software fees (automated or other), paid IT support, cost of hardware, staff, overhead, and anything that affects your spend on invoice processing.
Generally, the cost of an automated AP invoice processing system is lower than the cost of manual AP operation. With automated invoice processing, you can auto-capture invoice data quickly, reducing the cost of manual data entry.
Once you start tracking your average cost per invoice, you’ll be able to gain insights into factors that drive it so you can reduce your invoice spend and costs.
2. Total number of invoices received
The total number of invoices received is also a key metric you should pay attention to when looking at your AP automation ROI. In fact, it’s the first one you should look at.
Tracking the total number of invoices that come into the Accounts Payable department within a certain period of time -- daily, weekly, monthly, or yearly will give you an idea of the normal volume of work your department sees. This also allows you to set a baseline so you can easily measure other Accounts Payable metrics.
Pro Tip: The total number of invoices received will depend on the size of your organization. Of course, the bigger the company, the more bills it has to pay, and the more invoices it will receive.
3. Total number of invoices processed
If you’re measuring the total number of invoices received, you need to measure how many of them were actually processed. This helps identify any bottlenecks or issues with your current AP system, which helps you get a better idea of your AP automation ROI.
Additional metrics that affect the total number of invoices processed are the time per invoice processed and the cost per invoice processed.
Striving to improve this metric will improve not only your AP automation ROI, but also your AP team’s efficiency and effectiveness.
4. Invoice cycle time
The invoice cycle time is where you track the average procure-to-pay time. It measures the average working time it takes to process an invoice from when it is received to when it is paid and archived.
Tracking and measuring this metric can help you identify which AP tasks take the most time and gives you an idea of how your team is spending their time.
Pro Tip: Low invoice cycle times are a good thing. High invoice cycle times reveal that you should streamline your AP processes and improve your workflows. You can do this through automation.
5. Discounts captured
You should always aim to get as many discounts as possible so you can save on costs and improve your company’s bottom line. While most suppliers often offer discounts for early payments, a company may be unable to score all the discounts that they are eligible for.
We recommend that you track the rate of discounts captured as a percentage of total discounts offered by suppliers. This will help you to see and understand why discounts were missed and even give you ways to respond.
Pro Tip: By accelerating workflows with automation and measuring your AP automation ROI, you can eliminate late payment penalties and make your company more eligible for early payment discounts.
6. Rate of wrong payments
Duplicate payments, overpayments, and other wrong and invalid payments can be a huge drain on your company’s finances. This metric measures the number of wrong payments made over a certain period of time, divided by the total number of invoices paid over the same period of time.
Although humans do make mistakes, you want this number to be low.
AP automation aims to reduce errors and minimize and track incorrect payments. Assigning and tracking error codes while also automating systems will reduce the number of errors and the costs involved.
7. Electronic invoices as a percentage of total invoices received
You can’t track your AP automation ROI without measuring how many of the invoices you received were electronic. With an automated AP system, electronic invoices are quicker and cheaper to process because you’re not wasting time and resources scanning, capturing, and manual entering data.
Tracking this metric requires you to know the percentage (and kinds) of suppliers who are sending electronic invoices so you can eliminate their paper invoices. Remember, the more electronic invoices you receive, the less time and money you spend to process them and the better your AP automation ROI.
Whenever you implement a new system or program, it’s important to track your performance on your return. Measuring your AP automation ROI allows you to identify areas of efficiency in your Accounts Payable department.
Tracking and measuring key Accounts Payable metrics will make it easier to adjust your AP automation processes in order to accommodate any issues that may affect your business. Find out how much you could be saving with AP automation and calculate your Accounts Payable ROI with our ROI calculator.