Spend Analytics

Elevate Accounts Payable (AP) Analytics for Strategic Decision Making

In today’s data-driven business environment, leveraging Accounts Payable (AP) Analytics has become crucial for organisations aiming to enhance their financial operations through strategic decision-making. By harnessing the power of AP analytics, businesses can gain valuable insights into their payables process, identify inefficiencies, and make informed decisions to optimise cash flow and improve vendor relationships.

Understanding accounts payable analytics

Accounts payable analytics involves the analysis of accounts payable data to gather actionable insights. This includes examining data related to vendor payments, invoice processing times, discounts taken and outstanding liabilities. By analysing this data, organisations can identify trends, patterns and anomalies that can help them streamline their AP processes and boost financial and operational efficiency.

Benefits of accounts payable analytics

AP analytics offers several key benefits for organisations:

1. Improved cash flow management: By analysing AP data, organisations can identify opportunities to optimise payment schedules, utilise any discounts given for early payment, and negotiate favourable terms with vendors. This can help improve cash flow and working capital management.
2. Improved understanding of spend patterns: AP analytics helps organisations better understand their spend patterns, which helps to plan better for future expenses. Overspending in any area can be identified and controlled. Spending goals and budgetary adjustments can be better managed too.
3. Enhanced visibility and control: AP analytics provides greater visibility into the payables process, allowing organisations to track invoice statuses, monitor payment trends and identify potential bottlenecks. This visibility enables better control over the AP process and helps prevent fraud and errors. For example, late payments and the associated risks can be identified and mitigated leading to improved supplier relationships. Reasons for delays in invoice processing can be identified and corrected so that the process can be expedited. Potential fraud and irregularities can be identified too. The risks associated with such activities can be controlled at the right time.
4. Cost savings: By identifying and eliminating inefficiencies in the AP process, organisations can reduce costs associated with late payments, duplicate payments and manual processing. AP analytics can also help identify opportunities to negotiate better terms with vendors and optimise payment strategies.
5. Improved vendor relationships: By analysing vendor payment patterns and histories, organisations can better understand vendors. This can help foster stronger, more collaborative relationships with vendors, leading to better terms, discounts and service levels.

Implementing accounts payable analytics

To leverage the benefits of AP analytics, organisations should follow certain key steps:

1. Define objectives: Clearly define the objectives of the organisation’s AP analytics initiative, such as improving cash flow, reducing costs or enhancing vendor relationships.
2. Gather data: Collect relevant data from the AP system.
3. Data cleaning and preparation: Clean and prepare the data for analysis, ensuring its accuracy and completeness.
4. Choose the right analytics tools: Select the right analytics tools and technologies, such as data visualisation tools, predictive analytics or machine learning (ML) algorithms.
5. Perform analysis: Analyse the data to identify trends, patterns and outliers that can provide insights into the AP process.
6. Generate insights: Use the insights gained from the analysis to make informed decisions and drive improvements in the AP process.
7. Monitor and iterate: Continuously monitor the AP analytics initiatives and iterate on organisational strategies to drive ongoing improvements.

Tracking AP KPIs for best results

Understanding and tracking certain key performance indicators (KPIs) associated with AP can help organisations analyse and manage their AP processes efficiently. A few useful KPIs include:

1. Cost per invoice: It indicates the cost effectiveness of the organisation’s AP processes. It calculates the cost of processing each invoice. AP invoice costs include salaries, payment processing costs and other software costs. Lowering this cost can help organisations make significant savings, especially in high-volume transactions.
2. Days payable outstanding (DPO): Also known as AP days, the metric gives figures for the average time taken by the organisation to make vendor payments. A high DPO implies more invoices are paid after the expected date, indicating longer payment terms. A low DPO could also mean an efficient cash flow management process. 
3. Invoice processing time: This metric gives numbers for the time taken for invoice processing right from when it is received till it is paid. This metric differs from DPO as organisations may hold payment to maintain a sufficient cash flow even after an invoice is processed. The KPI helps identify bottlenecks, measure employee efficiency and maintain good vendor relationships.
4. Supplier compliance rate: High compliance rates indicate smooth vendor relationships and fewer disputes. It indicates that vendors are complying well with the contractual terms and conditions.
5. Late payment rate: This metric gives a clear insight into how frequently late payments are made and monitoring it helps organisations maintain good supplier relationships and a healthy cash flow.

Challenges and automation

While the challenges of implementing AP analytics are quite manageable, the first step is acknowledging the hurdles. This is where AP automation plays a significant role. It helps build a strong foundation for efficient AP analytics. Automation drives accuracy and consistency as well as the timely availability of data in the required format.

• Data availability and quality: Data used for analysis must be accurate, of a high quality and easily available for best results. AP automation can help enhance data quality by ensuring real-time data is readily available and manual data entry errors are reduced.
• Experience and expertise: Organisations must have personnel with the right skills to understand AP analytics. AP automation platforms reduce the need for high levels of expertise by offering user-friendly dashboards and interfaces.
• Acceptance of change: Implementing a data-driven approach often meets with resistance from the staff if they are more used to traditional methods of working. It is necessary to educate and train staff to overcome this challenge.

The real-time data analysis offered by AP automation enables organisations to respond quickly to both emerging opportunities and challenges. Decisions can be made in real time, and when necessary, anomalies that crop up can be corrected immediately or even proactively.

How can Infosys BPM help?

Infosys BPM’s Spend Analytics Services enhances an organisation’s procurement ecosystem with spend classification, AI-enabled data management, opportunity identification and other critical domain services to overcome business challenges. You can use our Dynamic Guided Opportunity Analysis to continuously identify and validate improvement opportunities.