The success of businesses depends on profitability, and there are only a few parameters better than RoI when it comes to estimating the net profit an investment brought to the firm.
Return on Investment (RoI) is a financial parameter that is used extensively to estimate the probability of acquiring a return from an investment. This ratio compares the gain or loss resulting from an investment compared to its cost.
Accounting plays a pivotal role in managing a business because it lets you track income and expenditures, ensures legal compliance, and provides investors, administration, and government with quantitative financial reports. This information can get utilized in executing business decisions.
Primary KPIs you might track include revenue, gross profit, cost, processing time, and fraud prevention. Here are other primary indicators that must be tracked, analyzed, and dealt with by the accounting department of your company:-
Monitoring and evaluating your Operating Cash Flow is pivotal for understanding your financial competency to pay for deliveries as well as routine operating expenses.
This KPI gets implemented as per the total wealth you have in use, an analysis that reveals whether your operations generate ample cash to support your capital investments and advance your business.
Cash that is immediately accessible is Working Capital. You can deduce your Working Capital by subtracting your business' current liabilities from its prevailing assets.
Cash in hand, short-term investments, accounts receivable, accounts payable, loans, and accrued expenses make up this KPI equation.
This KPI metric educates you about the current condition of your business by informing you about its available operating finances. It does so by revealing the extent to which your available assets can meet your short-term financial liabilities.
The Return on Equity KPI tells the total income of your company compared to each unit of shareholder equity (net worth). By juxtaposing your company's net income to its overall wealth, your ROE reveals whether your net income is adequate for your scale.
A high ROE tells your shareholders that their investments are getting optimized to grow the business.
Debt to Equity is a ratio determined by evaluating your business's total liabilities compared to your shareholders' equity. This KPI reveals how well your business is financing its growth and how effectively you utilize your shareholders' investments.
A high debt-to-equity ratio indicates a practice of burning through funds for growth by accumulating debt. This critical KPI lets you concentrate on your financial accountability.
This KPI juxtaposes your revenue for a chain of business to your estimated revenue for the same. Tracking and analyzing inconsistencies between the gained revenues and your estimation figures lets you evaluate the financial performance of a department.
This factor is one of the two employed when calculating the Budget Variance KPI, which compares the estimated and actual operating budget totals.
Developing value and slashing the net cost of ownership invites some frustrating factors within your business because of technological deficiencies.
One such factor is incremental costs, like those associated with accounts payable (AP) processes that include invoice processing.
There is no specific number for invoice processing costs as it depends on the individual tabulating it. Research firm Sterling Commerce places the average cost of processing a single invoice between $12 and $30, while some firms set it between $12.90 and $15, and some set it as high as $40.
Because Accounts Payable makes a big part of a company's finances, reducing the cost associated with your invoice processing can take down the business expenses significantly. Invoice frauds, error prone AP workflow, slower approval rate, and manual invoice processing adds to the overall business expenses. Let’s take a look at them one by one:-
Accounts payable fraud is a type of deception that aims at a company’s accounts payable department, which pays suppliers and vendors.
Accounts payable fraud can be carried out internally by employees, externally by vendors, the two parties functioning in concert, or by a third party intending to gain access to the accounts payable systems of the firm.
A typical company loses 5% of its revenue to fraud each year, with a median loss of $125,000, as per the Association of Certified Fraud Examiners (ACFE). Fraud activities often go unnoticed for about 14 months, leading to average losses of $8,300 a month.
Accounts payable fraud deals with fraudulent disbursements, the most common of which include billing schemes, check tampering, and expense reimbursement plans.
An employee might be running a billing scheme by setting up a shell company and submitting fake invoices, a fraud that is easy to commit if the invoices are for things that are not physical commodities, such as consulting services.
In a check tampering scheme, an employee steals and forges checks from the management and steals money from the firm. Suppliers commit fraud by purposefully overbilling or double-billing for services and then stealing additional funds.
Since an AP automation software centralizes all incoming invoices and internal approvals, the entire process gets streamlined and alleviates the opportunity for fraud.
AP automation software helps you implement additional approval layers. With several levels of approval, fraudulent actions are easier to identify.
The Accounts Payable approval process facilitates businesses to supervise and manage their cash outflow via the A/P system. Approval controls can help determine the Approval Status for various vouchers entered or modified.
These controls are set up as per the voucher's gross or taxable amount, document category, business unit, firm, or any combination. When A/P Approvals get activated, the system prevents payment on any voucher that lacks Approval Status regardless of its payment status.
Here is the summary hierarchy implemented to assess the vouchers -
Businesses typically have a rational process set up to deal with incoming invoices. While the processes differ from one company to another, they can be classified generally into two -
Check out these steps that organizations can implement to ensure quicker and more systematic approval of invoices -
To process invoices within time, all crucial information in the invoice must get captured or entered manually into a company's invoice approval loop.
The second step of the process is categorizing the invoice. It deals with the process of spotting and linking other related purchasing documents such as purchase orders, purchase requests, order receipts, and more.
When invoices fall short in the validation stage because of discrepancies or void information, they should get forwarded to certain people who can correct errors and reroute them for approval.
After validating and matching invoices, they get routed to the appropriate approvers as per the information mentioned in one of the shopping documents (PO number, requester name, department).
If an invoice gets approved, it must get forwarded automatically to the finance department for payment processing. After the processing of a payment, an invoice can be closed.
Approval channels are rules concerning invoices, expenses, purchase orders, and payments to managers or team leaders for approval.
Check out these best practices for swift and secure AP approvals -
Consider setting up at least two levels of approval. One way is to categorize this by establishing a dollar threshold; for instance, invoices above $1,000 will go through two different approvers. Some systems let you modify this flow so that an invoice only proceeds for payments after seeking approval from both approvers.
The manager who approves invoices must be different from the one who authorizes payments. This gesture will boost your risk prevention strategy of business funds getting crippled fraudulently.
Devise a formal organizational framework of your approval channels and adhere to that. Your defined structure must precisely define the approver, their delegated timeline to complete the approval, and the person to be the secondary approver in their absence.
GAAP (Generally Accepted Accounting Principles) proposes the segregation of duties for best practices in accounting. Dividing duties restrict the acquisition of financial decisions by a single person.
Establish internal rules to purchase before ordering. Build a requisition for internal approval that receives authorization by a manager or finance department and then gets sent to the supplier. Several workflow management systems enable setting up trigger-based actions to regulate purchase orders.
Traditional invoice approval processes comprise several process gaps and inefficiencies. Companies that employ manual and semi-automated invoice approval procedures encounter more delays than those who use digital invoice management software.
Digital invoice approval solutions involve data capture, contract management, automatic routing, and integration facilities in a unified platform.
Automation software lets you cater to invoice approvals, eliminates paperwork, alleviates manual error in data collection and retrieval, stimulates the approval cycle, and promotes straight-through processing.
Enterprises and SMBs alike enjoy several benefits that include -
The advent of paperless invoicing has become a convenient substitute for manual invoice approvals and payments. In most companies, the Accounts Payable process is time-consuming and requires you to pass hard copy invoices across your workspace.
However, with AP automation, you can make your workflows entirely electronic, making the process faster and boosting reliability.
Paperless invoice processing removes manual touchpoints from your Accounts Payable workflow. Rather than entering each supplier invoice into your accounting program, invoice OCR software lets you capture and import the information automatically.
You do not have to search your office for the corresponding purchase orders and receipts, as the automation system provides each document at your fingertips.
Rather than comparing all the information manually, automation software verifies that each line element is correct by employing advanced Robotic Process Automation (RPA) technology for companies.
Return On Investment is a key performance indicator (KPI) used by businesses to determine the profitability of an expenditure. By deducing RoI on your accounting process, you can better know the progress and shortcomings of various implementations.
There are specific parameters mentioned above that you must track to monitor your RoI efficiently and make crucial decisions for your company. To gain the most out of an investment, resort to automation to save invoice processing costs, steer clear of accounts payable fraud, streamline the process of invoice approvals, and avail of other benefits.
In today’s dynamic business world, filing and archiving official documents in the digital form makes it handy, and works wonders in the future or in unforeseen circumstances.
Optical Character Recognition (OCR) is the technology to convert an image of text into machine-readable text. It is the underlying technology for various data extraction solutions including Intelligent Document Processing. However, OCR is not smart enough to figure out the context in a document - it works simply by distinguishing text pixels from the background and finding a pattern. This limitation could cause inaccuracy in captured data that could directly impact the output of your data extraction model.
Accounts payable is a key financial function for any business. Corporations can have thousands of suppliers; even for relatively smaller businesses, the number of suppliers could be in hundreds. All the invoices they receive from these suppliers come in multiple formats, layouts, and templates - some semi-structured, some unstructured. Therefore, firms expend time and resources to capture invoice information through manual data entry and verification of accounts payable. Manual data entry is not feasible in the long run, definitely not on a large scale. Before we talk about how intelligent invoicing solves the problems associated with manual invoicing, let’s discuss the challenges in much detail.
As most of an organization's information is available in an unstructured format, processing it requires an automated system that can handle documents with minimum human interaction. OCR is one such technology, but its scope is limited as it requires human interaction and is highly dependent on the layout and structure of the document to be processed.These limitations are overcome by Intelligent Data Extraction.Using artificial intelligence, the Intelligent Data Extraction technology extracts data from documents and transforms it into useful information through the extraction process. It functions as a singular tool for extracting information from any type of document and aids in optimizing company operations.