The goal of a company's supplier invoice management should be to streamline flows through the highest possible degree of automation. Ideally, you want to achieve fully automated flows, what is called fully automated management, or "touchless" in English. This means that all steps in the process are automatic and no user needs to "touch" the invoices.
While it is not realistic today to reach 100% automation with current technology, it is a level to aim for. By aiming for this goal, companies can identify why certain steps still require manual handling and take steps to address this.
In this text, we will review the most important KPIs to streamline the management of the supplier invoice flow in your Electronic Invoice Processing (EIP) system. We will not touch on other performance metrics for the accounts payable department that require data that is not available in the EFH system, such as number of employees in the department, cost per invoice calculations, or number of inquiries from suppliers. These are also important metrics to measure the efficiency of the AP department and for their calculation data are also needed from the EFH system, but this is not our focus in this text.
Achieving maximum automation requires monitoring several key performance indicators, or KPIs, that help analyze and improve processes continuously. There are a variety of KPIs that can be used to measure the efficiency of supplier invoice processing and here we highlight those that are most relevant and comprehensive for optimizing invoice flows.
The percentage of fully automated processing, or touchless, is an overarching KPI that can be broken down into several underlying KPIs, which are used to identify areas for improvement. In addition to the degree of automation, we also want to measure how long it takes to process the invoices (lead time), as a higher degree of manual processing often results in longer lead times.
Therefore, we focus on two main KPIs to measure the efficiency of supplier invoice processing: the percentage of fully automated processing and lead time.
Fully automated handling (touchless)
The touchless invoice processing rate indicates the proportion of invoice volume that is processed fully automatically, without human intervention. It is relevant to measure in total for all invoices, but also specifically per invoice type, as the factors affecting the automation rate vary between different types of invoices.
It is also easier to achieve a high degree of automation for purchase invoices where the invoice can be matched to a purchase order and delivery. Overhead invoices often require manual handling, especially when it comes to posting, although AI and rules-based approaches can automate these steps to some extent.
Lead time
Lead time measures the time it takes from when an invoice is received until it is ready for payment. The average lead time is measured in total for all invoices and also per invoice type as the different invoice types partly have different underlying factors and activities that affect the lead time. A shorter lead time indicates a more efficient invoice flow, which in turn improves relations with suppliers. It also minimizes the risk of costs and problems associated with late payments and makes it possible to benefit from payment discounts.
KPIs for fully automated processing and lead time are supported by a number of underlying KPIs that can help improve the different steps in the processes. The KPIs are largely the same regardless of the invoice type, but there are also specific metrics, as the activities and factors that influence automation vary by invoice type. Let's now take a closer look at the most important KPIs for expense invoices and purchase invoices (order-based invoices).
CPI for Overhead Invoices
Touchless Invoice Processing Rate
For overhead invoices, it measures the percentage of invoices that are processed fully automatically, without manual intervention. As overhead invoices are not linked to a purchase order, automation means that the system can interpret, validate, post, approve and send the invoices for payment without human intervention.
This KPI is in turn built up by a number of underlying performance measures for the different steps in the process of an overhead invoice.
Automatic Arrival Registration
Automatic distribution means that all values on the invoice are correctly interpreted, the invoice is registered in the system and sent to the correct user in the flow, all without manual intervention.
Document source
E-invoices and PDF invoices provide the best conditions for extracting data automatically, with e-invoices being particularly advantageous as they do not require OCR interpretation and often contain more detailed information. Paper invoices should be avoided as far as possible as they require manual steps. Measuring the proportion of invoices in each format and aiming to increase the proportion of e-invoices in the first place, but also PDF in the second place, improves the possibilities to automate the whole process.
Automatic account assignment
Automatic posting requires some type of rule-based functionality. Rules can be set manually, based on e.g. supplier or cost type, but can also be generated automatically using machine learning (AI) based on previously posted invoices. As posting is often the most time-consuming part of processing an expense invoice, it is important to monitor and improve the proportion of invoices that are posted automatically.
Automatic Certificate
Automatic authorization means that predetermined rules are used to approve invoices automatically. Rules can be based on amount range, periodicity, coding and contract number per supplier, allowing recurring invoices to be approved without manual handling. This has a great impact on invoice turnaround time and should be used for recurring invoices.
Handling time
Processing time is the time it takes for the user to process an invoice from the moment it arrives in the inbox until it is approved and moves on in the authorization flow. When invoices require manual processing, user processing time is the factor that has the greatest impact on throughput time. If the average processing time per user is low, but the turnaround time is still long, it may indicate that the authorization flows are too complex or extensive.
In such cases, one could consider using other automatic features of the system to reduce the number of unnecessary steps.
Automatic Final Approval
The final approval is the last step before a fully posted and certified invoice is sent to the business system for payment. Comment that it is done manually by admin and that there are other ways to handle checks.
Automation of Expense Invoices
By monitoring and improving the above KPIs, more invoices can be processed fully automatically, resulting in faster turnaround times and more efficient processes. As not all steps can be fully automated, especially posting and authorization, it is also important to regularly monitor invoice turnaround times to identify areas for process improvement.
KPI for Purchase Invoices (Order-based Invoices)
Touchless Invoice Processing Rate
This KPI measures the percentage of purchase invoices that are processed fully automatically, without manual intervention. In other words, these are invoices that are matched and approved directly against a purchase order and a delivery and sent on to payment.
Several of the KPIs relevant to overhead invoices are also applicable to purchase invoices:
- Automatic arrival registration
- Document source
- Handling time (for deviations)
- Automatic final approval
Automatic Matching
The first-time match rate is the percentage of invoices that are matched correctly on the first attempt, within the tolerances set up in the system. These tolerances can be set at both row and header level, and expressed in absolute numbers or percentages.
Matching errors
The percentage of matching errors is an inverse measure of the percentage of automatically matched invoices and is in itself not as relevant to measure. What is important is to analyze specific types of discrepancies and understand the reasons behind them to increase the matching rate.
The KPIs for analyzing deviations can be broadly categorized as follows:
- Price discrepancies: differences between the invoice amount and the amount in the purchase order.
- Quantity discrepancies: differences between invoiced quantity and received quantity.
- Delivery deviations: deliveries that do not take place within the expected time after receipt of the invoice.
The deviations within each category need to be analyzed in more depth using the EFH system reporting tools to identify the root cause of the deviations.