Accounts Payable Metrics: Improve Working Capital with AP Automation

The accounts payable metrics that shape working capital are invoice processing time, accuracy and visibility into financial data. Processing invoices by hand takes days and multiple approvals, while AP automation processes vendor invoices in minutes, cuts errors and gives finance teams current data. That lowers current liabilities and operating costs, which improves working capital: the difference between current assets and current liabilities.

3 ways of improving working capital performance with Accounts Payable automation#

Accounts Payable automation improves multiple aspects of an organization’s financial management. Companies that revamp their working capital management style benefit from the following advantages of account payable automation.

1. Faster processing time#

Working capital management is a continuous operation and accounting teams crunch numbers to keep the books updated. However, manually processing the invoices requires multiple approvals and it unnecessarily lengthens the process.

For instance, manually processing an invoice takes anywhere between three days to two weeks. Consequently, accounts payable (AP) teams work with outdated data which impairs their decision-making while budgeting. Enabling AP automation solves this issue with its faster processing time. AP automation software processes vendor invoices in minutes instead of days.

Apart from that, faster processing times help the organization streamline its payment cycle. Clearing vendor invoices on time improves vendor and supplier relationships.

Faster payment cycles also prevent the company from incurring late discount fees and undue interest charges. Thus, decreasing your current liabilities and increasing the working capital of the company.

Faster processing times due to automated workflows reduce human labor costs. Again, it increases the current assets through savings, further improving working capital.

2. Improved accuracy#

Budgeting and working capital management are highly sensitive accounting areas. Even minor inaccuracies can leave a tremendous impact on the balance sheet of the company. As a result, the improved accuracy offered by accounts payable automation software is greatly appreciated by the stakeholders.

What happens when the invoice has inaccurate data? Firstly, it has the wrong due amount. Now, the accounting department cannot simply scrap the invoice. They have to mark the invoice as an exception. What follows is checking with their in-house departments to see if the mistakes were committed due to internal factors. If not, the respective vendors are notified about the errors and informed of the fixes they have to do.

Accounts payable automation significantly lowers the exception rate due to internal miscommunications. It empowers the accountants to take proactive measures and notify the vendors about stricter invoice guidelines to lower invoice rejection rates.

Lower exception and rejection rates translate to higher straight-through processing. In fact, with its robust invoice processing automation framework, many AP automation platforms give a high STP rate of 95% and more than 99% accurate data.

Accounts payable automation eliminates the challenges of duplicate payments and inaccurate invoices leading to improved working capital performance. The AP automation system is a single source of truth where teams can view spend analysis and track historical reports, monthly accruals, and other outstanding payable metrics.

3. Enhanced visibility#

Working capital management involves handling liquid assets. The C-Suite leadership and accounting, FP&A, and finance teams get a holistic view of the company’s spending pattern on the AP automation software. Gather all your accounting data in one place, run more accurate forecasts, and spot risks and opportunities to make more accurate financial decisions.

Advanced AP automation software features like tracking the status of invoice payments, spend-to-supplier ratio, on-time payment percentage, and the total number of early payments make the accounting departments extremely efficient.

One school of thought is paying invoices only when they are due slightly improves the short-term performance of working capital. However, by doing this, the company misses out on opportunities, like early-payment discount incentives. An AP automation software keeps track of such revenue-saving incentives and alerts the company about the best time to make invoice payments.

Everything combined, the accountants and the management gain the ability to choose the invoices term that provides them the upper hand in financial dealings. While choosing an AP automation software, opt for the one that has real-time reporting capabilities over the one that provides periodic updates about invoices.

Better financial transparency achieved through the implementation of account payable automation lets the company resolve disagreements with the vendors.

How does Docsumo improve working capital performance with AP automation?#

Docsumo is an intuitive and user-friendly accounts payable automation software that directly addresses the concerns of accounting teams dealing with working capital management. Docsumo cuts processing time to under 5 minutes per document, down from 2+ hours.

What makes Docsumo the AP automation software of choice for companies processing high volumes of data and invoices is that it processes structured and unstructured documents across multiple formats with 99% field-level accuracy and 95%+ straight-through processing.

The direct impact of improved efficiency is a reduction in operating costs. Docsumo saves $15 per processed document. Improved accuracy and tighter security protocols make Docsumo an attractive choice for high-value accounting teams.

To see Docsumo in action, sign up for a 14-day trial.