Time is money and accounts payable departments are continuously looking for ways to optimize cashflow by avoiding late fees, taking advantage of early payments, or negotiating better pricing and delivery terms with vendors. Evaluation of the optimal amount of time between when these expenses are submitted, approved, and paid -- what we call spend governance -- is a barometer of whether an AP process is as efficient as it could be.
Barriers to accounts payable efficiency
Increasing the rate at which expenses are submitted, approved, and paid isn’t as simple as cutting the checks more quickly. Top challenges for AP processes include:
- Poor data entry and errors
- Inefficient storage
- Slow processing
- Lost invoices
- Ineffective fraud prevention
- Lost cash
- Exception invoice volumes
Because accounts payable's core function is to pay only the organization’s expenses that are legitimate and accurate, challenges like these must be resolved before payments can be issued. Delayed payments can result in finance charges, unhappy employees, or poor vendor relations. Further consequences of delayed payments may result in delays in supply of future goods, downgrading of credit rating, adverse impact of manufacturing and shipment schedules and associated revenue, as well as dissatisfied customers or employees. Inversely, paying vendors too early can also impact a company’s ability to meet other financial obligations due to reduced cashflow. That’s why leveraging industry benchmarks to create a timeline that factors in all these elements can create and gauge an efficient AP process.
Evaluate your AP process
The "time-to-pay" metric starts from the moment when the first expense is approved to when it is marked as paid in your system. Optimize your time-to-pay to have a positive impact on your organization’s cash position, credit rating, relationships with suppliers, and accuracy of corporate financial reports. Look at your back-office processes as a starting point to uncovering inefficiency.
SAP Concur experts recommend keeping your overall time-to-pay between two days to approve and three days to pay. Here are some time-to-pay industry benchmarks for you to celebrate if you’re on-track or to help you adjust your timelines in order to make your process more efficient:
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How to get started
Once you’ve seen how your timeline matches your industry standard, here are some best practices to make your AP processes more efficient:
- Configure audit rules on expense types and simplify approvals workflow
- Integrate credit card and purchasing card feeds so that data automatically flows into your spend management system with minimal human touch
- Facilitate the automatic capture and categorization of receipts and invoices while educating employees on how to use mobile apps for receipt capture, approval, and reporting
- Automate the payment and reimbursement process to suppliers and employees
If creating a culture of spend governance that values how, when, and who spends your organization’s dollars is a priority, we encourage you to start with establishing a reasonable time-to-pay expense processing timeline. Comparing your timeline to your industry colleagues’ will make your AP process more efficient. That way, instead of simply maintaining an AP process, the bottom-line performance of your organization is constantly optimized. Determine time-to-pay and other accounts payable efficiencies with our Expense ROI calculator.