How Finance Leaders Can Gauge the Impact of AP Automation in Their Business

“If it ain’t broke, don’t fix it” is a phrase many of us use to avoid making changes to long standing habits, relationships, and even business processes. 

But what happens when the long-standing status quo no longer serves its intended purpose? Or worse, is actively negatively impacting us on a personal or professional level?  

As daunting as change is, innovation and adaptation are often net positives for businesses—and vital financial processes are no exception. Making the switch from outdated manual data input and other time-consuming accounts payable tasks to an AP automation system, for example, can have a significant effect on a business’s efficiency and overall financial performance.   

With these changes comes an important question. How can your business accurately monitor, track, and report on these changes to your performance? Gauging the specific ROI from a shift to a new accounting platform or a more streamlined approach to handling invoices is not always straightforward. 

Here are five key performance indicators that finance leaders can track to gauge the impact of AP automation on their business: 

Faster Straight-Through Processing (STP) Tracking 

Picture this: you’ve just implemented a new enterprise automation solution for your AP department. While there’s always a period of adjustment to any change introduced into a well-established process, it’s never too early to analyze how the transition is going.  

Because efficiency is perhaps the biggest benefit of workflow automation, one of the first performance indicators you can monitor is your straight-through processing rate, or STP. 

Your new AP automation software will give you visibility into whether someone on your team is being unnecessarily involved in invoice processing. This is crucial in simplifying your AP operation, so that you’re reducing all but the most essential, direct AP staff interventions, such as coding or approvals. Understanding this metric can be a key illustration of improvement relative to any all-manual process.  

 Drilling even deeper, AP automation can help pinpoint other facets of your invoice processing that could use updating. This can include things like: 

• The average cost of processing per invoice 

• The average time it takes a single invoice to work its way through your system 

Accurately tracking and having visibility into these steps of the process allows you to easily identify additional opportunities to cut costs and save time.  

Timely Payments 

An AP platform capable of automated payments will ensure that your vendors are paid on time, every time by quickly taking their invoices from the approval stage to paid, regardless of how many payments require processing.  

Of course, paying invoices on time is more than just a way to cultivate and maintain a positive relationship with your vendors. It’s also a profit-boosting move, as vendors often give significant early payment discounts to their users who keep their payments ahead of the metaphorical 8-ball.  

This is why keeping tabs on your rate of on-time and early payments, as well as any cost savings from vendor discounts, can be a tangible KPI that illustrates how AP automation is benefitting your business.  

Lower AP Processing Costs 

Shifting from handling payments manually in favor of automation not only accelerates AP processing speed, but also simplifies your AP workflow. With automation, the optimal payment type for each vendor is automatically highlighted without your team having to collect and update payment information manually. You’ll also be able to support a variety of electronic payment types more easily and rely less on paper checks—potentially eliminating them entirely. This can lead to significant cost savings on your vendor payment processing.  

Quantifying these changes within an AP automation platform can be done with ease. For example, you can track the average cost of processing a single payment and then compare that against what it was before you adopted automated payments.  

But perhaps the most far-reaching benefit of lowering processing costs is the value comes from freeing up your team to do more high value work with the time they were previously spending on more tedious assignments, like invoice processing and manual data entry. 

If this interests you, you may also like: The Positive Impact of Automation on AP Audits 

Fewer Invoice Exceptions 

An automated AP workflow can significantly limit transaction errors that can drive up costs and lead to delayed payments. One way to measure this improvement is to track match exception items on invoices.  

Sorting out errors like these can be a time-consuming task for your team as they work through the layers of paperwork matching necessary to resolve discrepancies between purchase orders and vendor invoices. Conversely, automating this process gives AP teams the ability to use three-way and four-way matching protocols to quickly spot and address any mistakes.  

AP automation software can easily track the number of vendor invoices that are triggering an exception item and provide insight into which types of invoices are ending up in the payment errors queue. This will aid your AP team in identifying the root of the issue, enabling them to perform a quick and effective fix.  

Reduced DPO 

Another KPI that should show significant improvement from AP automation is DPO, or Days Payable Outstanding.  

By tracking the average number of days it takes your AP department to settle its accounts payable and comparing it to what it was prior to the integration of the AP automation solution, you can easily track how much more efficiently your overall AP team is operating. 

This measurement is significant, as businesses who lower their DPO foster healthy, positive vendor relationships, which are essential for their ongoing financial success.  

Quantifying Success 

Businesses that adopt AP automation will rapidly observe the advantages of an optimized workflow for clearing invoice approvals and processing payments—benefits that go far beyond back-office functions.  

Leveraging an AP automation solution like DocuPhase can provide finance leaders the real-time data insights they need to identify a variety of key performance indicators and make a case about why investing in this technology is a winning move.  

DocuPhase AP Automation is trused by modern finance leaders to not only create a more efficient invoice-to-pay process, but to give them the visibility they need to cut costs and make more informed decisions.  

Now is the time to optimize your AP procedures. Request a demo today.