For nearly two decades, Ardent Partners has leveraged a unique framework to highlight the performance of top-tier organizations (formally referred to as the “Best-in-Class”) by analyzing a specific set of performance benchmarks. In its research study, Ardent Partners has defined Best-in-Class performance as the 20% of enterprises with the lowest average invoice processing costs and shortest average invoice process cycle times.
Top-performing enterprises have taken their AP operations to the next level by leveraging technology to streamline the AP process, making it more efficient and enabling more strategic activities. Best-in-Class enterprises have demonstrated their ability to drive superior performance across both traditional and contemporary accounts payable metrics. These Best-in-Class AP departments are clear and absolute proof that AP can be mastered. Likewise, their results show that mastering AP at this critical time generates great impact on financial operations and the enterprise’s bottom line.
The metrics highlighted in last week’s article represent the culmination of the Best-in-Class AP teams’ skills and efforts and stand in sharp contrast with those of the “All Others” maturity class. Mastering AP is possible, and it is the AP leaders and teams that develop the ability to consistently leverage innovative technologies and ideas that will reap a significant competitive advantage and challenge the conventional wisdom of what is possible for AP. This week’s article will highlight specific and programmatic advantages that enable Best-in-Class accounts payable teams to excel.
Best-in-Class AP Performance
Best-in-Class AP teams achieve per-invoice processing costs that are 78% lower than their peers, and invoice processing times that are 82% faster than all other groups. Their invoice exception rates are 59% lower than the rest of the marketplace. Notably, Best-in-Class enterprises have 50% more of their suppliers enabled to submit electronic invoices and, as a result, process more than twice as many of their invoices in a straight-through manner than their peers, which greatly contributes to their strong performance across all metrics.
High-performing organizations have significant performance advantages when compared with the rest of the marketplace. A more detailed look at the broad range of performance advantages that the Best-in-Class organizations currently enjoy over their peers (the other 80% of AP groups in the marketplace) follows. The Best-in-Class AP departments generate:
- A 78% lower invoice processing cost. Invoice processing costs, as simple and fundamental as they may be, remain a major benchmark for accounts payable performance because the metric reflects the level of efficiency present within the program. Best-in-Class enterprises have long driven a significantly lower invoice processing cost due to their reliance on core capabilities and higher usage of ePayables solutions.
- 82% faster invoice processing time. Invoice processing speed remains a core KPI from which to gauge the effectiveness of vital AP competencies. Best-in-Class organizations leverage the power of automation and efficiency to improve processes related to invoice receipt, approval workflow, and payment scheduling. Combined with the KPIs above, both cost and speed reflect the power of a Best-in-Class AP function and its ability to master the art of tactical financial operations.
- A 59% lower invoice exception rate. Most AP teams spend too much time managing exceptions. By doing so, the greater enterprise misses out on valuable early-payment discounts, and the bottlenecks created by them destroy any efficiencies driven by the function. Best-in-Class organizations have long realized the invoice exception problem, with only 9% of their overall invoices flagged for issues (less than half the rate of their peers). This is yet another instance of the top performers’ overall advantage.
- A 2.1-times higher rate of straight-through processing (“STP”). Straight-through processing rates are emblematic of the overall maturity of an AP operation and the impact of any AP transformation initiative. Invoices that avoid human intervention generally speed through all phases of the ePayables Framework with ease. Straight-through processing is an important benchmark for today’s AP organizations and increasing that number helps AP align itself with the digitized enterprise.
- 5% more suppliers can submit electronic invoices. The huge advantage in STP is powered by the high percentage of suppliers that the Best-in-Class has enabled. Top-performing organizations understand the critical importance of receiving invoices electronically and dedicate the time and resources necessary to onboard and enable suppliers to submit their invoices electronically.
- The Best-in-Class also spend just over 50% less time and resources responding to supplier inquiries. When manual, paper-based methods are the norm, an AP staff is trapped at the transaction level, leaving a wealth of information that has never been captured nor leveraged to its greatest value. “All Other” departments spend more than a quarter (26.9%) of their time on the tactical activity of managing supplier inquiries.
Automating manual invoice processes, which are paper-laden, staff-intensive, and more likely to be error-prone, can be game-changing. AP departments that automate their processes can spend less of their time on the traditional backroom work, like entering data into their systems manually, routing paper/emailed invoices for approval, and attempting to manage exceptions without full context and visibility. The benefits automation delivers to an AP group leads to wholesale gains in efficiency and effectiveness within the organization, including large reductions in average invoice processing time and costs, large drops in the number of exceptions, and increased visibility. And, when organizations can minimize the time that staff spends on manual/tactical work, their teams can focus on more strategic, value-added activities.
The Best-in-Class Technology Advantage
A view into a Best-in-Class AP operation reveals a series of differentiators that these leaders use to achieve their high performance; technology has long been a key determinant in the success of the modern AP operation. In 2024 and moving forward, the enterprises that adopt technology and use it well will outperform those that don’t by larger and larger margins. Aided by higher levels of functionality and the impact of AI, ePayables solutions will be a critical factor in AP success from now on.
Adoption of technology is one area where the Best-in-Class differentiates itself from its competitors. They not only adopt solutions at a much higher rate, but they also use them more aggressively. The differences in technology adoption manifest themselves in large metrics gaps. Best-in-Class AP units leverage a robust foundation of solutions to get their work done.
Best-in-Class AP groups have a distinct technology adoption advantage, including:
- eInvoicing (77% adoption rate). Leading organizations long ago realized the disadvantages of receiving paper invoices from suppliers and took major strides to eliminate them from the process. To this end, Best-in-Class AP groups are 44% more likely to have eInvoicing in place.
- ePayments (74% adoption rate). ePayments represent the current focus for many AP teams looking to improve money management. With rates likely to stay high for the next few years, B2B payments cannot be overlooked. Best-in-Class organizations have ePayments in place 38% more often than all others.
Simply, the organizations that leverage technology at greater rates to drive their AP processes perform better and deliver more value. What is clear is that automating core AP processes can help an AP department move beyond the tactical aspects of the function. The AP teams that leverage automation can focus on higher-level activities, such as capturing and sharing intelligence and data that can enhance AP, cash management, AND enterprise performance. Best-in-Class organizations have shown what can be achieved when AP performs to its full potential. For this group, technology plays an important and expanding role.
The Best-in-Class Capability Advantage
While automation tools comprise a key part of a Best-in-Class AP operation, the skills, experience, and ideas of the team are essential elements that enable consistently strong execution. For the Best-in-Class AP department, key competencies serve as both the foundation for top performance and an enabler of continuous improvement. Best-in-Class AP groups have a distinct advantage in key competencies, including:
- The ability to pay suppliers electronically (in place at 81% of the Best-in-Class) and provide rich remittance (in place at 65% of the Best-in-Class). The Best-in-Class view the entire AP process holistically and work to master each part. Payments are not an afterthought in this mindset and suppliers are viewed as partners.
- Straight-through processing (in place at 69% of the Best-in-Class). Best-in- Class enterprises are 2.4 times more likely than all other organizations to process invoices in a straight-through manner. This factor, which eliminates the human intervention of the AP process, is key to boosting the bottom-line value of the function and augmenting activities that AP staff can execute with the time enabled by straight-through processing.
- Process standardization (in place at 65% of the Best-in-Class) on the surface should be a given for successful organizations; however, for those not in the scope of the Best-in-Class, it is an ideal starting point. Standardized AP processes ensure that rigorous, consistent steps are followed throughout the full invoice-to-pay process, helping to avoid invoice exceptions, bloated invoice processing costs, extended approval times, and a lack of general financial visibility.
- The ability to measure key metrics (in place at 54% of the Best-in-Class) is another area where Best-in-Class enterprises exceed the competition. They are 43% more likely to have the capability to measure both productivity (e.g., invoice processing cycle time, invoices processed straight-through) and financial metrics (e.g., invoices coming due, discounts coming due, goods received not invoiced). This is an important characteristic as performance can only be improved if it is measured. It should be noted that here too, the Best-in-Class has room for improvement.
