“What gets measured gets improved” is an old adage which is still very applicable to any business, or for that matter any task. The accounts payable process has a number of moving parts and people and unless certain metrics are identified and performance measured against these indicators, it is quite likely that something will fall through the cracks.
KPIs should be measured at least once every quarter or six months. These accounts payable metrics or key performance indicators (KPIs) become all the more critical when a company is going through a merger or acquisition, new technology implementation or organization restructuring. Measuring and comparing KPIs before and after any of these are a good indication of the impact it had on the AP process.
Here are some key KPIs every AP department should track on a periodic basis.
1. Number of Invoices Processed Per Day Per Operator
These metrics enable organizations to optimize their departments’ process flows. For example, if some operators (AP clerks, mailroom clerks, etc.) are processing many more invoices than their colleagues, they might be able to share tips or train others that are lagging. Organizations can also use this information to allocate invoices to different operators based on the time it takes them to process different types, such as PO vs. non-PO invoices, invoice by spend type or by geographic location/business unit.
2. Average Total Cost to Process an Invoice (By Invoice Time)
Calculating processing costs can bring valuable insights into the factors driving the costs, as well as ideas on reducing costs. Organizations should include salaries and benefits, facilities and hardware, software and IT support, and managerial overhead in their cost calculations. They should also calculate processing costs by different types of invoices, (e.g. clean vs. exception invoices) and by the steps involved in processing a typical invoice (e.g. data entry vs. exception resolution).
3. Exception Invoices as a Percentage of Total Invoices
Because processing exception invoices costs much more than clean invoices, identifying the average number of exception invoices each month gives an organization a much clearer picture of how much they could potentially save with fewer exceptions. Organizations should track the number and dollar value of invoices that end up in an exception queue and log invoice details such as expense type, vendor information, and type of exception.
4. Average Time to Approve an Invoice from Receipt to Payment
Knowing how long it takes to process an invoice from the time it gets to the AP department to the time it is ready for payment can help organizations identify where process bottlenecks are occurring—and helps them to compress the invoice receipt-to-pay cycle.
5. Discounts Captured as a Percentage of Discounts Offered
While a lot of suppliers may offer a discount for paying an invoice early, most companies are unable to capture all the discounts that are offered to them due to lack of visibility into possible discounts, or because of lengthy approval cycles. Organizations should track the missed-discount invoices with reason codes that explain why the discount was missed. AP staff can then prioritize these invoices and try to process them more quickly in the future, raising their discount capture rates.
6. Erroneous Payments as a Percentage of Total Payments
Duplicate payments, missed discounts, un-reconciled returns, and other errors in payments are a huge drain on an organization’s bottom line. Tracking dollars lost to payment error codes can help organizations recoup losses more quickly, as it helps to illuminate the source of these errors.
7. Electronic Invoices as a Percentage of Total Invoices
Electronic invoices are one of the fastest and least expensive invoice types to process, as there is no mail float, desk float, or data entry involved. Organizations should track the percentage of electronic invoices and the percentage of suppliers sending them in order to compare average processing times and costs against other invoice types.
Educational information provided by:
Joy Fischer….Business Development Strategist… (704) 790-7126