A recent APQC “Metric of the Month” shows the damage that delayed payments can create between buyer and seller.
CFO.com regularly publishes a “Metric of the Month” article based APQC’s Open Standards Benchmarking surveys. In July, CFO.com discussed a survey that measured accounts payable process performance. The findings reinforce the arguments for automating the entire procure-to-pay process, thereby eliminating the errors, delays, and damaged supplier relationships that can be a result of dependence on paper and manual processes.
The survey compared top, median, and low performers; the statistics are as follows:
- Cycle time to resolve an invoice error (in days):
Top – 3.0; Median – 5.0; Low – 7.0
- Percentage of invoices manually keyed into financial system:
Top – 42.0%; Median – 58.0%; Low – 77.3%
It’s disappointing that even the top performers are still keying in 42% of their invoices manually, although that number has been shrinking year over year. But if you’re not sure how this impacts bottom line, just look at the statistic below:
- Total cost to perform the process (AP process) as a percentage of revenue:
Top – 0.04%; Median – 0.08%; Low – 0.16%
Although AP bears the brunt of supplier unhappiness when payment is delayed or exceptions occur, the article points out that most of those errors and exceptions occur within the procurement function. The problems may be due to lack of standardization, mismatching between invoice and PO numbers, or simply too many exceptions that require special attention and thus slow down the payment process.
That being said, as I indicated earlier, it’s the AP department that takes the phone calls and complaints from suppliers that result from these issues. By adopting an end-to-end automated solution, from the initial PO issuance to the final payment processed and delivered, companies can eliminate the errors inherent in manual processing. Even when errors don’t occur, automating will speed up the invoice approval process, eliminate inefficiencies, and reduce processing and payment costs.
The right solution will standardize all documentation, automatically match the invoice to the PO (and, when necessary, to receipt of goods as well), and send the invoice straight-through to the ERP or accounting system for payment. Exceptions are dramatically reduced and therefore can be resolved quickly, much to the satisfaction of both buyer and seller. The growth in cloud-based, SaaS options and providers has made these solutions affordable for companies of all sizes. Each company needs to assess its needs and goals and decide whether the investment is worthwhile. If productivity, profitability and good supplier relationships are your goals, then the answer is clear.