Last month, we looked at 8 operational KPIs that were improved by accounts payable (AP) automation for small-to-medium-sized businesses (SMBs).
However, as critical as those 8 KPIs are, they’re only part of the story. By eliminating manual invoice processing, cloud-based AP automation solutions can also positively impact financial KPIs, helping business owners assess the financial health of their company and giving them opportunities to improve profits and trigger sustainable growth.
Here are seven financial KPIs that AP automation solutions improve for forward-thinking SMBs.
1. Cost per Invoice
Determining the cost to process an invoice can give business owners a snapshot of the efficiency of their AP department. The cost will vary from business to business, but the goal is to bring it down as much as possible.
A high cost can indicate AP department inefficiencies, usually due to the manual processing of invoices. An automated AP system eliminates the need to handle paper invoices, significantly lowering your cost per invoice, freeing up more cash to innovate, and boosting sustainable profits over time.
2. Days Payable Outstanding (DPO)
This KPI represents the average number of days a company needs to pay its bills and obligations. Although a high DPO seems appealing as it allows SMBs to hold onto cash longer for short-term investments, it can also signal to suppliers that the company might have cash flow issues. To maintain a good reputation and nurture positive relationships with suppliers, paying bills as quickly as possible is always the best practice.
High DPOs can often be attributed to AP inefficiencies from manual paper invoice handling that slows down payments. An automated system that digitally processes invoices in the cloud will lower an SMB’s DPO and help it better manage its cash while protecting its relationship with vendors.
3. Early Payment Discounts Captured
Every business owner understands the importance of taking advantage of every opportunity to save money. Many suppliers offer their customers early payment discounts as an incentive to settle bills quickly. However, SMBs employing manual invoice processes often find invoices stuck in the system somewhere, awaiting entry into the system or management approval. Invoice processing delays mean losing money by missing out on early payment incentives.
Automated AP systems ensure invoices are quickly moved through the system, significantly reducing processing time and allowing the company to capture their vendors’ early payment discounts. The result is additional liquidity that can be invested in innovation and business growth.
4. Duplicate Payment Rate
Duplicate payments are often the result of manual invoice processes that don’t have reliable checks in place. For example, typos on the invoice number, incorrectly entering the invoice amount by as little as a penny, or entering a vendor’s second invoice with a different date can lead to significant cash leakage. Auditing to find the leak and balance your records is also time-consuming and expensive.
Automated AP systems capture invoice data using optical character recognition (OCR) technology, ensuring that data is entered correctly and potential duplicate invoices are immediately flagged. This can save a company thousands of dollars in unnecessary payments and time spent auditing payments.
5. Payment Error Rate
Similar to the duplicate payment rate, a high payment error rate is usually attributed to inefficiency in manually processing paper invoices. Paying an incorrect amount, paying the wrong vendor, or referencing the wrong invoice in your payments can cost SMBs money, trigger inaccurate financial statements, and cause reputational damage with suppliers. After all, wrong payments can cause suppliers extra work too.
Minimizing the payment error rate with an automated AP system saves an SMB from dealing with all of these avoidable issues, helping you see a more accurate financial picture and make strategic business decisions with confidence.
6. Working Capital Management
The lifeblood of any SMB is its working capital, which represents a company’s ability to cover day-to-day operations and short-term financial obligations with its short-term assets.
AP automation optimizes working capital by ensuring efficient cash management through timely and accurate payment of invoices. It also helps enhance operational flexibility for SMBs, enabling investment in growth opportunities without worrying about whether the bills can be paid.
7. Return on Investment (ROI)
AP automation offers a healthy ROI due to the many profitable advantages it brings to SMBs, such as saving on labour costs, minimizing invoice errors, and access to early payment discounts. It also improves money-saving efficiencies by maximizing the number of invoices you can process monthly, lowering the average invoice approval time, reducing the error rate, and virtually eliminating the need to perform invoice audits due to invoice or payment errors.
For example, automating the AP process significantly reduces the hours an AP employee spends processing, approving, and correcting invoices, enabling them to spend time on activities that grow your business and build profits.
Maximizing growth opportunities and saving money through improved financial KPIs contribute to an SMB’s long-term outlook, all thanks to automation technology. When you’re ready to reap the profitable benefits of AP automation, give Ash Conversions International (ACI) a call.
Improve financial KPIs with an automated AP solution from Ash Conversions International
For over 40 years, Ash Conversions International (ACI) has specialized in transforming how companies run their daily business processes with efficient, cost-effective solutions that provide complete AP invoice visibility, easy invoice routing for approvals, one centralized cloud-based location for invoice processing and retrieval, robust workflow reporting, and much more.
Whether your organization’s size only requires an entry-level solution (AP Assistant LITE™) – or you require a full enterprise solution (AP Assistant™) for Accounts Payable Automation, ACI can get you up and running in short order to help you begin to improve your financial KPIs by taking advantage of all the many benefits offered through the implementation of an AP Automation solution.
For more information on how your organization can benefit by automating the accounts payable process, call us at 800-719-9621 or click the button below.
