Turning Data into Gold: KPI Magic with Accounts Payable Automation

At a time when discretionary spending is tight, and pressure to grow revenues remains high, CFOs are increasingly focused on cost optimization. CFOs know that proactively allocating and managing costs, and removing activities that drag down earnings, can contribute to sustained value-creating growth and have a big impact on shareholder returns. It’s no wonder that cost optimization is the top area of focus for CFOs for the next six months, according to Grant Thornton’s 2023 Q2 CFO survey.    

One way that CFOs are optimizing their organization’s costs is by automating key business functions.  In fact, most CFOs expect their organization’s spending on IT and digital transformation to increase in the next 12 months, Grant Thornton finds. That’s the first time since the fourth quarter of 2021 that CFOs anticipate higher spending on IT and digital transformation. And only cybersecurity tops the amount of money that CFOs expect their organization to invest in IT and digital transformation. 

In the eyes of many CFOs, automation is crucial to business process improvement.

Accounts payable (AP) automation is no exception. 

This article shows how AP automation can help CFOs optimize their organization’s costs, while meeting objectives for working capital and other Key Performance Indicators (KPIs). 

What is AP automation?

AP automation solutions combine artificial intelligence (AI) and other technologies to digitize and streamline the entire invoice-to-pay lifecycle, from invoice receipt through payments reconciliation. 

Seventy-six percent of AP leaders say their department has plans to automate its invoice-to-pay process, the Institute of Finance and Management (IOFM) reports. Forty-four percent of AP leaders who describe their department as being “largely automated” have plans to deploy more technology. 

Eliminating manual, repetitive tasks such as keying invoice data, shuffling paper and emails, chasing down information, and fixing errors and mistakes enables organizations to optimize their costs.

Here’s how AP automation solutions work:

• Invoice receipt. Invoices submitted via email, secure file transfer or a supplier portal are aggregated onto a single platform. Paper invoices sent through the mail are digitized.

• Data capture. Optical character recognition (OCR) and other technologies are used to extract the invoice amount, due date and other header and line-item details from invoices.

• Invoice matching. Invoices are matched against purchase order (PO) and proof-of-delivery information residing in an enterprise resource planning (ERP) or accounting platform.

• Invoice approval. Unmatched invoices and invoices requiring approval, such high-dollar transactions, are digitally routed to the right individual based on pre-set business rules. The best AP automation solutions can handle sequential and parallel invoice approval processes.

• Exceptions handling. Invoice exceptions are flagged and put in a queue for handling. 

• Posting. Approved invoices are uploaded directly to an ERP or accounting platform without AP staff having to rekey the data. Touch-free posting ensures a flawless exchange of data. 

• Payment. The best AP automation solutions use a single file from an ERP or accounting platform to pay suppliers in their preferred method, while adhering to payment terms.  Settlement details are automatically synced with the buyer’s ERP or accounting platform.  

These capabilities fundamentally change the invoice-to-pay process, and a CFO’s job.

How AP automation improves CFO KPIs

Automating the invoice-to-pay process can significantly impact a CFO’s ability to meet their KPIs.

For starters, AP automation drives cost optimization by eliminating manual tasks. 

Organizations are “laser-focused” on reducing costs, notes Sean Denham, regional managing partner of the Atlantic Coast at Grant Thornton. Automation frees AP staff to focus more time on data analysis, stakeholder collaboration, building supplier relationships, and other higher-value activities that can contribute directly to the organization’s revenue growth and profitability. Automation also reduces the possibility of errors associated with manual data entry. And automation enables AP departments to scale their operations to support business growth without hiring additional staff.

AP automation also contributes to cost optimization by helping organizations avoid duplicate payments, penalties resulting from human errors, and other issues that chip away at profitability.    

But cost optimization isn’t the only KPI improvement provided by AP automation.

AP automation also helps CFOs improve cash flow, which is always a top KPI. By accelerating invoice approvals, finance departments can avoid late payment penalties, create more opportunities to capture early pay discounts, and enhance visibility into accruals. Invoices can be tracked from the time they are received, so CFOs can better control payment timing. And approving invoices faster provides businesses with leverage during contract negotiations, potentially resulting in discounts. 

AP automation also provides CFOs with the visibility they need to optimize their organization’s working capital, a KPI on which most CFOs are measured. Working capital improvements provide CFOs with more money to invest in their organization’s growth. More than two-thirds (68 percent) of CFOs expect revenue growth at their organization over the next 12 months, Grant Thornton reports.  Sixty-seven percent of CFOs anticipate net profit growth. Graphical dashboards provide up to date insights into cash flows and spending patterns. Drill-down capabilities uncover payment trends. And mobile access enables CFOs to make fast data-driven working capital decisions while on the go.

Maintaining strong supplier relationships is another crucial metric boosted by AP automation. Self-service online portals make it easy for suppliers to submit invoices, track the status of invoices and payments, and collaborate with buyers to resolve exceptions and avoid potential payment delays. 

And AP automation helps CFOs avoid compliance issues. The access controls, business rules, transparent audit trails, data encryption, and segregation of duties built into AP automation solutions can help CFOs confidently navigate regulatory requirements and financial audits. Accurately capturing and posting invoice data also helps businesses comply with accounting standards.  

Additionally, AP automation solutions include tools to help detect anomalies that may indicate payment fraud, enhancing a company’s financial security and its ability to protect its profits.

These are some of the ways that AP automation can improve a CFO’s most important KPIs.

Conclusion

From optimizing costs to enhancing working capital management, AP automation is a strategic tool that CFOs can use to improve crucial KPIs. CFOs that harness the power of AP automation will be better equipped to guide their organization towards sustainable growth and financial excellence.