E-Invoicing has been around for years, and the benefits it can provide in the way of increasing operational efficiency, reducing costs, improving supplier relationships and working capital management opportunities are well documented.
It is easy to reel off these benefits in a business case, but how do you go about the task of actually benchmarking and measuring the effectiveness of an electronic invoicing solution, as well as identifying areas for improvement in order to drive maximum ROI from your technology?
Here we explore 6 basic KPIs that should be measured at the outset of any e-Invoicing initiative and on a regular basis thereafter to demonstrate progress and help identify any possible areas for concern.
1. Cost of processing an invoice
It is a blunt tool but can be compared directly to the business case and used to track progress. It will show the direct cost savings that are being achieved by implementing an e-invoicing solution.
Increased operating efficiency and standardising invoice submission will result in a reduction of manual touchpoints, and the number of exceptions and queries that Accounts Payable (AP) have to deal with. In turn driving down the processing cost (in the form of man hours) per invoice.
2. Percentage of invoices submitted via the e-invoicing solution
This gauges the adoption of the e-invoicing solution. It seems like common sense but the business benefits can only be realised if invoices are going through the e-invoicing solution, the greater the number the greater the potential ROI.
Our clients often achieve 90%+ submission of electronic invoices and this is a realistic goal. If the percentage of invoices submitted via the e-invoicing solution is low, it highlights that more focus is needed on supplier enablement work.
3. Percentage of invoices with exceptions
This will identify how many invoices require intervention from the AP function. Higher levels of exceptions result in greater AP overheads and diminish the chance of on time payments and savings through early payment discounting.If a high percentage of invoices have exceptions then analysis needs to be performed to identify under what circumstances they are occurring, so that any improvements to the invoice template or supplier change management process can be implemented.
4. Percentage of on-time supplier payments
Confirming if suppliers are paid on time will highlight if current payment terms are suitable for the efficiency of the AP process, it also highlights whether negotiating terms for early payment discounts are viable.Paying invoices within the limits of agreed payment terms will improve supplier relationships, and help to de-risk and strengthen your supply chain.
5. Days payable outstanding
The number of days it takes to pay a supplier from the point an invoice is received can be used as a measure of how efficient the AP process is.Working to reduce the actual time that it takes for a member of the AP team to process an invoice will afford the business greater flexibility around working capital management, with the option to cash in on early payments discounts our maintain higher DPO levels as their business needs dictate.
6. Percentage of early payment discounts taken
If payment terms with suppliers include early payment discounting, then the percentage of opportunities taken needs to be closely monitored.
If pricing with suppliers has been based on the assumption of early payment discounts being achieved then the business could be losing money if the invoicing process is not meeting early payment targets.
Monitoring these Key APIs will allow you to proactively drive continued business benefits from your e-invoicing technology investment, as well as continuing to free up time for your AP resources so they can focus on helping manage working capital.Find more information in these relevant Whitepapers: “The ‘buy chain’ – the next place for world-class focus” – Information about advances in early payment discounting technology and practices