Accounts Payable Performance, Are You Measuring Up?

Recently a discussion was started in LinkedIn about tracking AP performance and what metrics are used to make process improvements. There were some very interesting comments from AP professionals from around the world. Here are some of the ideas shared.

Popular measures;

•    Cost per Invoice. This is calculated by taking the time and cost that goes into processing each invoices divided the total number of invoices processed. The cost should take into account all the AP FTE time, which is obvious, but should also include the all labour time that goes into processing the invoice including all management time on the approvals, and error fixing, duplicates, searching, handling and vendor enquiries etc. The labour portion adds up to around 60-70% of the total cost. The rest is desk costs as well as storage, courier and related costs. The average for a manual process is around $15-$20 per invoice. The electric al=automated process can be south of $5.
•    Number of Invoices processed per FTE. This is productivity measure. To calculate you’re simply looking at the number of AP FTE’s per the monthly amount of invoices processed. You’ll find the average is between 750 – 1250 depending on the nature of the industry and complexity of the process. Automation can push you upwards of 5,000 per FTE.

When driving efficiencies into the process, whether it’s manual, automated, or mixture of both, you need to drill much deeper. This is equivalent to a production line in a manufacturing process, where you’re analysing each minute detail to drive quality and controls into the process.

Higher focussed measures;

•    Speed to process an invoice in days.
•    Late payment and penalty percentages as well as exceptions.
•    The percentage of early pay discounts available and the percentage that are taken.
•    Tracking error rates. Both payment errors and data entry errors. Goes without saying accuracy is an important part of the process.
•    Tracking payment types. This is used to ensure that the most cost effective payment type is used.
•    Total dollar amount of payment runs (EFT vs manual) as well as Foreign payments made.
•    If AP automation and eInvoicing were in place, tracking the volumes of electronic invoices and electronic payments and set a deliberate plan in place to increase those volumes every year and quarter.
•    Aging of invoices, from date received to paid. From invoice date to paid (we could analyze the vendors that send in invoices late and improve processing).
•    Discounts achieved and discounts lost.
•    Days waiting for Approval
•    Date of receipt of invoice (manual or electronic) to date of entry.
•    How many PO invoices, how many non PO invoices.

For those with high volumes, who are well automated and paying electronically, can use these to further enhance your process;

•    First Time Pass percentage (%) in invoice processing.
•    Analysis by Hold Code for the invoices that fail at First Pass. This gives insight into the hold reasons which are creating re-work. One can apply Pareto (80:20) rule to and tackle the major ones.
•    Compare number of FTE's deployed on tasks other than processing activity. Ideal ratio is 1:2
•    Review of debit balances (mainly aged ones) in various Supplier Id's. It is very important to keep an eye on this area as any major aged balances will attract audit comments as well.

One of the participants had this meaningful contribution “All AP metrics should be based on process exceptions that are actionable, meaning weekly/monthly meetings with those responsible for the root causes of the exceptions. The put through metrics are mostly worthless… if you aren't improving the process, you aren't managing the process!”

I turn to a famous quote or dictum “If you can't measure it, you can't manager it”. How many of you are managing and measuring your AP performance? What metrics are you using?

I have posted a link to the LinkedIn discussion at the bottom of the page for reference purposes where you can find all the contributors comments. Group: Account Payable Professionals. http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=25327807&gid=128842&commentID=20261936&trk=view_disc
You can also find useful information regarding metrics from: http://www.ioma.com, http://www.iappnet.org, http://www.tawpi.org, http://www.aberdeen.com, http://paystreamadvisors.com.

Scan Invoices - The First Step in AP Automation

There is an encouraging sign. The number of times on a monthly basis I've heard prospects and clients that want to improve their AP workflow processes. Of course, when the dialog begins, the main theme is the amount of time and "touches" any person has to make when dealing with paper and accounts payable invoices ... It really can be overwhelming. 

From receipt by mail, photocopying, file cabinet storage, interoffice mail for approval & signatures, routing to payables, pulling invoices back out of storage for audit, monthly ends and fiscal year ends ... How many times does one have to repeat this? Well, factor in the number of monthly invoices X, number of people Y and number of unique processes Z and you may have a formula ... for what? that depends on the level of pain each organization goes through on the monthly paper merry go round ... It may not be rocket science but it also doesn't have to be that complicated either ...

The rationalization is, that if one were to implement a scanning automation process, they can "get rid of three processes in a busy day". Of course this entire exercise begins with the common copier printer fax scanner. Of note, a recent blog comment (http://blog.abctechsolutions.com/2009/09/copier-printer-fax-scanner-costs-on-the-rise/) puts into perspective the rising costs of keeping the hard copy use of these machines;

" ... According to the GSA, company's printers, fax machines and copiers cost "on the average $1000 per employee per year or more." According to Xerox, company's copier printer environment costs an average of 3% of a company's TOTAL GROSS revenue ..." Something like EEK!

"Every dollar you save in your copier printer scanner increases your company's profit. Budgets for toner cartridge supplies are growing by 20-40% per year; Dataquest, IDC and CAP Ventures have all concluded that copier printer scanner page volumes are growing at a compound annual growth rate of roughly 8%. Printer cost is increasing not decreasing and the majority of the company's do not have controls in place ..." Or more appropriately YIKES!

So, here's a final thought ... accounting departments have finally grasped that they have to do something about their accounts payable workflow processes ... they are the ones feeling the pain of overwhelming manual and paper processes and the associated "many touch" costs at each step along the way. Many have just starting to use the scanner, either standalone smaller desktop units or the more central photocopier scanner hardware to begin to scan invoices ... all in the direction of accounts payable automation ... so why not use this step to help drive down the hardware cost and printing costs of all this paper?

One caveat, we haven't even started talking about e-invoicing ... Stay tuned!

"Our Iceberg is Melting"

Please allow me to introduce myself. I'm Octavia, one of the resident technophiles at Bean Services. As interesting as technology can be, I am also equally fascinated by how people interact with technology.

In light of the many challenges (technical and non-technical) faced by organizations today, it may become increasingly intimidating to create successful change.

John Kotter, Harvard Business School's resident leadership guru, has teamed up with Holger Rathgeber, and written a nifty little fable about a penguin colony in Antarctica. One penguin notices that the iceberg they live on has the potential to break apart; however, no one listens to him. So what do penguins have to do with change?

"Our Iceberg is Melting" is a quick, fun read with an inspirational message about change management. You can easily relate to the colorful penguin personalities in the story. Kotter and Rathgeber weave eight steps on how to make a successful and lasting change within the simple storyline. More details are available here: http://www.ouricebergismelting.com/html/8step.html. This process can be applied to both your professional and personal lives.

As Bean introduces the concept of paperless payables to the world, many organizations would benefit from such a shift in their workflow. This book is sure to get the people in your company talking about this possible change. 

Payables Pain: Driven to Find a Better Way

This is our very first Blog post. Thought I'd kick it off with why Bean was founded.

Before starting this business I was the CFO of a medium sized business for 5 years. I spent a lot of time dealing first hand with processing bills in accounts payable. Many hours wasted in front of a copy machine and having a hard time finding invoices in filing cabinets that had taken control of our office space. Even worse the pain of pulling them from long term storage. Plus the time we spent doing data entry or fixing mistakes when we could have been doing something more important.

I thought to myself ‘there has to be a better way'. After some research I found that unless your company had a budget of hundreds of thousands and internal IT knowledge there was nothing out there to help automate your AP. Worse there was zero available to help with rebilling or compiling client reimbursables. And our company had tons.

It just seemed with all the technology out there this problem would have been solved by now. But it wasn't. The opportunity was clear as day. Create a system from start to finish that manages the AP process, makes it quicker, easier, add controls with immediate access to records like google. The benefits are obvious and vast. Cost savings being first, especially people's time. Then all the office costs like storage and copies. Then add up all the other benefits like improved accuracy, control, process management and less errors. Combined it all makes a strong value proposition.

Beanbills technology was created to focus on the combined strengths of people and technology. Ultimately, why are we still doing tasks computers can do better? There will always be a place for both so why not make the best of both.  Use technology to rid ourselves of all those manual paper based problems, free up our office time for more valuable work.

And why the name Bean Services? There are so many boring systems and companies out there in accounting. We wanted to break the mold with something fresh, fun and friendly. So Bean was born.