To other areas of a business, the accounts payable department might just be a team that carries out a few fundamental processes. Other departments may vet suppliers, determine what the business needs and use the purchased goods or services. AP's job might appear to be to ensure that suppliers stay happy with prompt payment.
In reality, AP contributes substantially to the business' success. Breakdowns in the AP process and slow invoice handling can lead to compounding problems, cash flow issues and more. To adequately demonstrate this department's value—and to make it an even stronger asset to the business—requires knowing how well your teams perform.
Acquiring that data isn't always easy, especially if you're still rooted in manual processes in which improvised methods reign supreme. To build a successful accounts payable team today, you must have the information that you need to set goals intelligently and measure your progress toward them. With AP automation solutions, those outcomes are within reach.
How do you effectively set milestones to strive for, and what do you need to do to achieve them? As we explore what you should consider when making a list of accounts payable goals, we'll consider the following items in detail:
- The Broad Goals of Accounts Payable
- What Are SMART Goals in Accounts Payable?
- How to Set Realistic AP Goals
- Conclusion
The Broad Goals of Accounts Payable
Let’s start by considering some general accounts payable goals and examples that make it easier to understand where to begin. Setting goals is a suitable starting point because it provides the focus that you need to understand where you must make improvements. Identifying areas of weakness could be the key to evaluating which tools will be most effective in aiding your department's growth.
Overall, what should you aim to achieve within your accounts payable department?
Improve Productivity and Efficiency
This most basic goal for accounts payable is the easiest and most obvious to recall when assessing how to measure improvements in your business. Every AP team has some inefficiencies and productivity bottlenecks that could benefit from identification and elimination. Some of the key ways that you can seek to improve productivity through smart goal-setting are:
- Reducing invoice cycle times
- Making invoice payments more efficient, e.g., capturing discounts but protecting cash flow
- Increasing the number of invoices processed per employee
All these goals are achievable with automation systems that are available today, which can aid your teams in the extraction, classification and handling of invoice data.
Minimize Processing Costs
High costs per invoice can be a significant financial sinkhole for businesses due to poorly structured AP procedures. Not only do you need to pay each invoice, but when cost per invoice is high, your business is losing potentially tens of thousands of dollars annually that it should retain.
High payroll costs and time consuming error correction processes drive up the financial impact of every invoice. AP directors should strongly consider setting a low target price benchmark, then improving the department to drive costs toward that goal.
Maximize Payment Accuracy and Control
Incorrect, insufficient and late payments all cause headaches for a company. Worse still is when the wrong vendor receives payment for an invoice that isn't associated with their order. Inaccuracies in payment processes cost money, and problems with approvals can slow down the process at the very moment when it should be accelerating.
Evaluate the accuracy of your teams and set goals to improve precision, implement better approval control and keep a firm grip on every cent possible. When trying to pursue your accounts payable goals, sample the data that your teams produce to check for problems.
Minimize Fraud
While on the topic of approvals: How much has your business lost to payments fraud, either from vendors or from unscrupulous employees? Some vendors might try to overcharge your business, altering line items after the initial order. Matching the original purchase order and the receiving report to the invoice automatically can simplify the identification of these anomalies and trigger a manual follow-up process.
Automated electronic approvals can help you avoid the risk of embezzlement by ensuring that invoice processors aren't also invoice approvers. Reducing the risk of fraud is a critical goal, especially when you consider that nearly 5% of a business’s revenue might vanish to fraud each year.
Save Time
One critical productivity goal is reduced full cycle AP time. Take this opportunity to calculate how long the average invoice spends sitting in your business systems before it finally gets paid. Is it days—or even weeks? Do small-value invoices take too long to process?
Saving time means saving money, boosting accuracy and keeping efficiency at the highest level possible without inducing staff burnout. Save time at every step, and other goals will become easier to reach in the process.
Support Employees
One of your key goals should be to provide the support that your staff needs to succeed each day. That means more than providing them with the appropriate tools—it includes supporting them with in-depth training and problem-solving assistance. When conflict arises with other departments over a payment procedure, your job should be to stand up for the team's work and ensure that the department receives proper recognition for the value that it creates.
Achieving these goals is difficult if not impossible with many traditional AP tools and workflows. Manual data entry and invoice handling shared among dozens of desks are not conducive to agile work. When you can no longer find a way to bypass these bottlenecks, automation solutions such as Tungsten ReadSoft® are the ideal alternative.
With automated invoice data capture, processing and exception handling, ReadSoft simplifies many of the most critical AP processes while providing a top-down view of the entire procedure. Experience new visibility for steps that were previously invisible to everyone except an individual AP clerk, and access measurable metrics instantly.
Find out how implementing this cutting-edge, AI-powered software can create a transformation in your business.
What Are SMART Goals in Accounts Payable?
These goals and objectives are foundational to success, but they are too broad to use as the structure for a cohesive improvement program. Instead, you'll need to identify more specific measures with SMART goals. SMART is an acronym that stands for specific, measurable, achievable, relevant, and time-bound.
Every time that you set new objectives for your accounts payable teams, those goals should be:
- Specific and well-defined, such as reducing the time necessary for an invoice to be processed or reducing the number of invoices flagged as exceptions.
- Measurable, with metrics that you can track and monitor, so that it is possible to see when and where improvements occur.
- Achievable, with a realistic destination associated with each goal. You can't go from 0% to 100% in one leap, so use a stair-step method of goal-setting instead.
- Relevant. Set goals by considering what is most relevant to the department's mission, rather than refining workflows or processes that aren't a part of your core work.
- Time-bound. Setting a goal alone isn't enough—you need to be able to measure progress over specific time intervals and make adjustments.
With this acronym in mind, let's consider a few specific examples of accounts payable SMART goals.
Payment Metrics
Collect and examine metrics based on how many payments your department completes each day or week and how quickly they occur. One of the most critical metrics to consider is the "exception rate": the number of invoices that generate exceptions that then require manual handling. These exceptions can create frustrating backlogs for your business and drive up cost per invoice.
Examining these metrics will make it easier to determine where the problem lies. It may be an issue with your own procedures (such as mismatched POs) or with vendors, such as certain vendors sending invoices littered with errors. Watching these metrics gives you a quick way to check how your department performs at the essential stages of the process.
AP Processing Times & Invoice Backlogs
How many invoices are waiting for processing at any given time in your business? Once an invoice enters your system, how long does it take to reach approval and payment? Automation tools can give you deep insights into these metrics and allow you to set SMART goals for improving them. As with payment metrics, you will be able to see more clearly where backlogs occur in the process. It could be during data extraction, approval processing or another step—but you will have a clear path to solving the problem.
Increased Accuracy
What is an acceptable error rate in AP processes? The answer is "zero"—but that rate is not realistically achievable in real-world applications, even with advanced automation. However, you can drive your error rate as close to zero as possible while striving to create the most effective audit trails. There are many SMART goals that you can set surrounding accuracy, from invoice data capture to correct approval routing.
Training AP Employees
Providing proper training on new automation tools and procedures for every accounts payable clerk should be among your goals and objectives for overhauling the department. Set goals for periodically refreshing your staff on best practices and procedures, especially as you deploy new technology. Comprehensive training and a gradual learning curve are key to achieving the buy-in that makes automation succeed. Trying to rush the transition can lead to costly automation failures and a team that refuses to use new workflows.
How to Set Realistic AP Goals
As you evaluate automation tools to improve your team's workflows and consider the data that these systems produce, remember that goal-setting is not a one-time task. As you achieve milestones, you should reconsider your assumptions and set new goals to strive for over time. While there may be a ceiling to how effective your processes can be, it is a long road to reach that point.
How do you set goals that are realistic and achievable? There are three things that you can do to give these efforts the best chance at success.
Review and Audit Your Department
To improve your department, you must first know where failures occur. Trying to shift your existing workflows into a digital environment without any changes is a recipe for wasted time and effort. Instead, you should get a broad view of the issues that your teams face and where there is room for improvement. Every workflow should undergo an intensive audit. Examine each step and ask whether you can improve, automate or eliminate it altogether in favor of a more efficient process.
Categorize Your Goals Intelligently
As you set goals, ask yourself what it will take to achieve them. Group goals by type (e.g., accuracy or efficiency) so that it is easier to track your progress toward these milestones. Automation is not a silver bullet that solves problems just by existing. Structure your goals carefully so that it is easy to see each step toward major improvements.
Be SMART
Remember the SMART acronym and apply it to every effort that you make toward process improvements. SMART goals keep you grounded in what is realistically doable within the business. When you can demonstrate measurable improvements within definable time frames, it's easier to showcase the value of investing in tools for automation.
Conclusion
With the many objectives of accounts payable management teams, staying on track is easier said than done. Even setting goals can become a challenge. When you have the modern software tools and support that you need to audit, analyze and improve the AP process, however, all your department's team members can contribute to the organization's success.
By first understanding what it means to build a successful accounts payable process and then acquiring the tools to make and measure improvements, you can demonstrate clear value to upper management. Optimizing cash flow, realizing discounts and building strong vendor relationships will all make your team more than just a cog in the machine. Intelligent goal-setting empowered by automation creates opportunities for AP to become and remain a key stakeholder.
Discover advanced automation solutions from Tungsten and learn how to transform your business's approach to AP today.