[Editor’s Note: Ardent Partners recently published our annual AP-themed report, The State of ePayables 2018: The Future of AP is Now. Today’s article is part of an on-going series focused on the report’s key findings. If you would like to get the full report, it is available for download here (registration required).]
If you’re like me you don’t just accept blanket statements without some sort of proof or data to back the claims up. Last week I discussed ‘What Makes the Best AP Departments Better?‘ The logical follow up to that question is ‘what does being ‘the Best’ really mean to you and your organization? As a quick refresher in ‘The State of ePayables 2018: The Future of AP is Now’ research report, we define ‘Best-in-Class’ performance as the 20% of enterprises with the lowest average invoice processing costs and shortest average invoice process cycle times.
This week I want to take a detailed look at some of the performance advantages that the Best-in-Class organizations currently enjoy over their peers. As we discussed last week, the top-performing enterprises have taken their Accounts Payable (“AP”) operations to the next level by leveraging technology to streamline the AP process, make it more efficient, and enable more strategic activities to be carried out. By doing so, they demonstrated their ability to drive superior performance across both traditional and contemporary AP metrics.
Invoice Processing Costs
Everyone’s favorite starting metric is invoice processing cost. Here, Best-In-Class organizations enjoy a five-times lower ($2.52 vs. $14.38) cost to process an invoice over everyone else. Invoice processing costs, as simple and fundamental as they may be, remain a major benchmark for AP performance because the metric reflects the level of efficiency present within the program. Best-in-Class enterprises have long driven a significantly lower invoice processing cost due to their reliance on core capabilities and higher usage of ePayables solutions. The roughly $12 lower cost that Best-In-Class enterprises enjoy is a huge savings. To look at it differently, for every 10,000 invoices a department processes, this savings amount to over $100,000. These are savings that can go directly to the bottom-line and have a positive impact on profitability.
Invoice Processing Time
Another key metric to look at is average invoice processing time. Here, the Best-In-Class possess a 2.5x (3.1 days vs. 10.6 days) faster time to process a single invoice. Invoice-processing speed remains a core KPI from which to gauge the effectiveness of vital AP competencies. Best-in-Class organizations leverage the power of automation and efficiency to improve processes related to invoice receipt, approval workflow, and payment scheduling. Combined with the KPIs above, both cost and speed reflect the power of a Best-in-Class AP function and its ability to master the art of tactical financial operations. The speed at which AP departments can approve invoices is a critical gateway for them to be able to take advantage of the many working capital management opportunities that exist today. I’ll get into working capital management strategies in much more depth in future blog posts.
Invoice Exception Rates
“Invoice exceptions are the bane of our existence” is an oft- repeated phrase in the world of AP today. Most AP teams spend too much time managing them. By doing so, the greater enterprise misses out on valuable early-payment discounts, and the bottlenecks created by them destroy any efficiencies driven by the function. Best-in-Class organizations have long realized the invoice exception problem and have worked hard to minimize their occurrence as much as possible. To this end, their hard work has paid off. Invoice exception rates are 114% lower (10.7% vs. 22.9%) for Best-In-Class, with only 11% of its overall invoices flagged for issues. This is yet another instance of the top performers’ overall advantage. It is important to note that while an 11% exception rate is Best-In-Class, there is still great opportunity to continue to reduce the 11% overall exception rates down even further.
Conclusion
Saying you are ‘the best’ at something is one thing. Having the data and proof to back it up is a whole other thing. Best-In-Class AP organizations have the data to back up their claims. They process invoices 5x less expensively, 2.5x faster, and with 114% less exceptions than their peer group. This does not happen randomly or by chance. As we discussed last week, many things go into making an AP department a top performer, but leveraging technology to streamline the AP process is at the top of the list. Top performers in AP, as in life, realize that being ‘Best-In-Class’ isn’t a destination but rather an ongoing journey that requires continual evaluation, work, and improvement to perform and achieve at the highest levels.
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The State of ePayables 2018: What Makes the Best AP Departments Better?
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