Following up on Wednesday’s Monday Morning Query (Offering a “Monday” series on a Wednesday is what happens when you spend two full weeks at conferences in Orlando; it’s gonna leave a mark).
Anyway, we are continuing the discussion of must-have metrics for accounts payable based upon John Casher’s presentation at the FUSION 2011 Conference. While John presented a list of ten metrics, we’ll focus on his first “must-have” metric – Input Quality
Those of you that have been following our ePayables coverage may be wondering why he doesn’t start with the “Cost per Invoice” metric that we often highlight in our discussions. This metric is very important and understanding it is an important part of making your business case for automation. It is also the primary measure of process efficiencies within an AP department. Efficiency, of course is one view into performance. By introducing this other metric, John is arguing that productivity is another important area.
Vishal Patel, Research Director at Ardent Partners, who specializes in the ePayables market, is inclined to agree. As Vishal puts it, “The AP process is, in many ways, about exception management… The cost of processing an exception is so much higher than that of other invoices that it is important for organizations to focus on reducing your exception percentage.”
Efficiency and productivity are thus two sides of the same coin. John believes that the key to reducing exceptions is to improve Input Quality which is achieved by diminishing the primary culprits: poor training, communication and/or processes – of course, it should be noted that manual invoice receipt processes allow these culprits to take hold and have a larger impact.
Where the AP process is automated, departments can easily run reports to segment exceptions by factors like supplier, cost center or business unit, and AP staffer. In John’s extensive experience, he tends to see groupings of exceptions. For example on the eve of his presentation, he described a company that was averaging 8,000 exceptions per week (8,000 – wow!). A quick analysis identified three suppliers as the cause of 70% of the exceptions. Proactive action with these three suppliers to solve the problems will free up a double digit number of staffers. The cause of exceptions is worth investigating.
If you are operating in a manual environment, there are obviously no reports to run. Nonetheless, you should try to get a sense of the overall scope of the issue and track exceptions. Sampling is one way to do this, while interviewing staff is another.
Enterprises looking to get a jump start on lowering their invoice processing costs should look at automation. Some solution providers, like Brainware and Esker, specialize in attacking the inbound paper invoice problem; while providers like Ariba, Basware, and Kofax automate the receipt of invoices and can provide fully-automated processing.