W H I T E P A P E R

How do you measure the success of AP automation?

Traditionally, the success of Accounts Payable (AP) automation is measured in savings created from headcount reduction. While it is an important metric, there are other metrics that will help determine whether AP automation is benefitting not just AP, but the wider business.

As AP departments and finance shared services mature, they are being looked at not just as transactional centres, but also as a source of business intelligence that can provide strategic insight.

This white paper will examine both traditional cost-based Key Performance Indicators (KPIs) and value-adding KPIs that will help you better align AP with the wider business.

KPIsOne very important aspect of benchmarking with other organisations is that KPIs need to be seen in context. For example, Cost per Invoice is not always useful in isolation – you may have off-shored your invoicing process to a very low-cost location, but the process may still continue to be inefficient. Looking at this KPI alone may not give you a rounded view of your P2P organisation’s health.

While improvements to productivity are a crucial element of measuring the success of your AP automation efforts, it is also crucial to measure how you are benefiting the wider business.

The following KPIs explore how to improve productivity, visibility, and profitability.

Insight into productivity

One of the most valuable benchmarks to measure AP is Productivity per FTE – how effective each Full-Time Equivalent (FTE) employee is when it comes to invoicing.

The Productivity per FTE KPI represents the number of invoices processed over 12 months per full-time equivalent (or staff member). This KPI gives a rounded view of the efficiency of an AP operation.

When making this calculation, the generally agreed approach is to take your purchase invoice volume, including all invoice types (say this totals 500,000), and divide it by the number of staff in your AP department (say 35 FTEs). This gives you a figure of 14,285. (Some companies are inclined to make the volume divisible by the number of “keyers” only.)

Calculating Productivity

For this calculation, it is recommended that you include all people in accounts payable, because the more efficient your process, the fewer people you actually need in your wider AP organisation.

Productivity under 10,000 per FTE is considered to be below-average. Fair to good productivity is between 10,000 and 25,000. 25,000 to 50,000 per FTE suggests you have high PO compliance, great match rate and high automation/electronic levels. Companies that are at the 50,000 to 100,000 level are deemed to be in the world class bracket, and have exceedingly high levels of electronic invoicing.

Insight into visibility, traceability and auditability

Most large organisations have histories of mergers and acquisitions. The complex nature of these organisations means they often operate off a variety of systems. Multiple legacy systems and ERPs, for many, lead to poor visibility of finances across the business.

Below Average under 10,000 per FTE

Average 10,000 and 25,000

High performing 25,000 to 50,000

Top tips for improving productivityThis KPI is driven mainly through good quality, standardised processes and through automation technology. With invoices arriving via paper or in PDFs attached to emails, productivity will be

limited. Process standardisation can improve the productivity rate only so far. Companies with high rates of electronic invoicing achieve levels of 80,000 / invoices per FTE or higher.

Purchase invoice volume, including all invoice types

Productivity per FTE

500,000 invoices

35 FTEs in AP

14,285

Number of staff in AP department

Insight into visibility, traceability and auditability Most large organisations have histories of mergers and acquisitions. The complex nature of these organisations means they often operate off a variety of systems. Multiple legacy systems and ERPs, for many, lead to poor visibility of finances across the business.

Good visibility helps an organisation in a number of ways:

• Improvements in reporting capabilities

• Access to higher quality data for analysis to drive savings in procurement or to identify revenue generating opportunities

• Reduced cost related to audit, as the process is easier and less resource-intensive

• More time spent on value-adding activities, not on tracking down documents

• Less time spent fielding calls from suppliers on payment queries

Here are some key areas to measure these key factors.

Improving visibilityBeing able to aggregate and analyse corporate spending data is not only a major factor in cost reduction, but also a significant differentiator in an organisation’s ability to out-think competitors through more informed sourcing decisions.

A key metric to look at is levels of visibility of spend at the line-item level. According to the Hackett Group, Top Performers have 73% spend visibility whereas the average peer group has 38%.

Top performers: 73% spend visibility at line level

Peer group: 38% visibility into line level

When it comes to visibility of spend, as well as visibility for suppliers of when they will be paid, the rate of invoices arriving electronically is a key metric. Measuring the rates of e-invoicing will tell you quickly how many invoices are arriving in your system, and these invoices are traceable, within your organisation and for your suppliers. In addition to visibility, by increasing the level of automation, the cost of invoice processing is considerably reduced – reportedly as much as 80%.

Tips for improving spend visibilityCloud-based automation tools have proven extremely valuable for providing customisable dashboards displaying KPIs. This AP automation solution allows for 100% visibility into every action and business process at a glance.

By electronic invoices, we mean invoices arriving as a data file into your system, not via email or PDF. According to The Hackett Group, Top Performing organisations achieve around 70% electronic invoicing rates, however the peer average is around 19%. sharedserviceslink research has further found that among organisations with e-invoicing capability, on average only 24% of invoices arrive electronically.

E-invoicing rate of top performers: 70%E-invoicing rate of ‘peers’: 19%

If your invoice volume is over 100,000 invoices per year, there is probably a very good business case to build for e-invoicing. And if you are using e-invoicing and rates are low, you are in the majority.

Improving ProfitabilityOne of the powerful ways AP can improve the profitability of a company is to capture early payment discounts. Best in class stats tell us that Top Performers take early payment discounts on .11% of spend. For £1bn of spend, that’s £1.1m. For large organisations, these are figures that will get the attention of the CFO.

The fruits from an early payment programme or approved invoice financing programme can be significant. Financially, they can dwarf any other invoicing initiative you are working on.

For a company with significant spend, these are a sizeable annual savings. So it’s in your interest to make sure that these discounts, having been negotiated by Procurement, are indeed being captured by Finance.

Best in class organisations save £1.1 million per billion of spend per year by paying early. Companies with £3bn spend could earn £3.3m in savings.

Measuring to what extent you are capturing the discounts you negotiate reflects the alignment between Procurement and Finance. Procurement sets up the discount, Finance makes it happen. It’s a true partnership. Occasionally, a business may want to “dial down” on the early payments, should working capital be more important than profit, but if your working capital context remains steady, this KPI is one to track.

Finally, aim for negotiated discounts with all suppliers on all invoices and build on a low capture rate, rather than negotiating on a slither of invoices and suppliers and for a high capture rate. Keep in your sights the best in class figure of approximately £1 million savings per billion of spend, and build your program and KPI plan according to this possibility.

Tips for improving the rate of e-invoicing Ensure any technology that you invest in to process invoices electronically has user-friendly technology for

both the buyer and supplier. High adoption rates are key for success, so be sure to ask e-invoicing suppliers about typical adoption and on-boarding rates.

Top tips for improving profitabilityInvoice automation is key for an early payment program to be successful. Communicate the business case for working capital improvement. There can often be reluctance from Treasury to release cash earlier than needed.

Conclusion

To assess the value that your AP department provides, it’s essential to use a number of metrics that measure a range of key value-drivers in AP. Combining cost-based KPIs with value-adding KPIs will give you an holistic and accurate picture of AP’s efficiency, its alignment with other functions, and how much value it delivers to the wider business. sharedserviceslink and ITESOFT have partnered on this report to ensure that your metrics accurately measure  the success of your department and automation efforts.

© sharedserviceslink.com Ltd and ITESOFT 2016. No copy or visual can be used in part, as a phrase or in whole without the written permission of sharedserviceslink.com Ltd. The concept of this product belongs to sharedserviceslink.com Ltd and cannot be re-created by a third party for the purpose of an event, article, report or any other written product, without written consent made available by sharedserviceslink.com Ltd.

About ITESOFTITESOFT concentrates on two main business areas: Financial Process Automation and Business Process Automation solutions for all types of document based processes:

Financial Process Automation Designed to help you to optimise the Purchase-to-Pay process by automatically capturing and processing every supplier invoice you receive regardless of format, such as; paper, EDI, XML and e-invoices. The next stage is to verify and validate the captured fields against the master data in your ERP or finance solution. For exception handling, workflows and approvals, ITESOFT provides a web-based workflow application ITESOFT.Share. This allows your organisation to effectively manage and control this process, leading to posting and ultimately paying of supplier invoices.

Business Process Automation ITESOFT also provides solutions for processing all kinds of in-coming documents. ITESOFT’s IDC solutions image-enable and automate any document-centric business process, regardless of industry, department or document type. In fact, a recent innovation has been our record-breaking first time capture rates of unstructured documents such as hand-written customer correspondence which was previously thought improbable to achieve.