10 Important KPIs for Accounts Payable Automation
Originally Published May 26, 2015 – Updated August 24, 2022.
In today’s turbulent market, most mid-market companies are focusing on ways to conserve and increase cash. While headcount reductions and broad budget cuts may have felt like the faster, more effective response during periods of uncertainty in the past, today’s finance leaders are paying more attention to B2B automation solutions — as a means to reduce costs, improve efficiency, and gain better control. Nearly 70% of mid-market companies are prioritizing accounts payable automation for 2022, with the top two outcomes of implementing accounts payable automation and improving accounts payable reporting and data analytics.
Why metrics matter in accounts payable automation
If you’ve committed to rolling out accounts payable automation software, you’ve taken the first step toward transforming your AP function into a valuable asset. Let accounts payable automation benchmarks guide you the rest of the way.
“If you're not measuring what's going on in your AP department, chances are you don't have an appreciation for things that are going well, things that aren't, and what best-in-class looks like. And if you're not measuring, you can't improve.” — Bob Cohen, Vice President of Research at Ardent Partners
Metrics help finance leaders identify:
- Which tactical roadblocks are preventing the AP function working more strategically
- Reasonable milestones to achieve over set periods of time
- Where to improve once goals are met
According to the AP Pulse on the Mid-Market in 2022 report by Ardent Partners, 51% of companies reported that their number one challenge is invoice exceptions. A high number of invoice exceptions drives up processing costs and approval times, and it indicates that too many manual processes and too few self-service supplier tools are involved. Metrics can help you break down the components of exception handling (or other hurdles such as lengthy approval times and high costs) to solve the problem faster.
10 useful metrics and KPIs in accounts payable automation
The Ardent Partners’ Accounts Payables Metrics that Matter in 2022 Report is an excellent reference guide. It’s a compilation of the industry’s best and most widely-used AP benchmarks, such as:
- Electronic invoices as a percentage of total. Electronic invoices are quicker and cheaper to process. Track the percentage of e-invoices as a percentage of the total, as well as the percentage of suppliers sending them.
- Average cost to process a single invoice. What could you do with an extra $9.25 per invoice? Explore what factors, such as labor, overhead, and technology, contribute to this high number and make changes accordingly.
- Average time to process a single invoice. How much time passes from invoice receipt through to ready-to-pay status? Track the overall time to approve, and break it down for each leg of the process — data entry, routing, approval, exception management to see where you can speed up.
- Percentage of touchless processing. How many invoices can be received and approved with the payment ready to be approved with no intervention from your AP team? Touchless processing is significantly cheaper and faster than any other invoice approval workflow process and creates excellent operational and financial efficiencies.
- Invoice exception rate. How many invoices are ending up in the exception queue? Are there certain invoice types or vendors that have more exceptions than others? Identify commonalities and address them in order to steadily reduce exceptions.
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- Average cost to process a single payment. Look beyond the obvious factors such as AP staff, printing, and mailing to include managerial overhead, IT support, and the work it takes to stop, void, and return checks. A single investment in going paperless could slash this figure.
- Time spent responding to inquiries. Analyze why suppliers are contacting your AP team and investigate how self-service tools and a supplier management program can act as the first point of contact. Reducing the time AP spends on inquiries frees up more resources for strategic activities.
- Adoption of ePayables technology. How broadly does your AP team onboard and use automation across invoice-to-pay, P2P, and B2B payment operations? Point solutions in distinct areas may seem like the best investment at the time, but they actually create bottlenecks elsewhere and limit automation’s overall effectiveness.
- Measurement of key AP metrics. How will your AP team set, track, and ultimately achieve its goals — and drive continuous improvement? Establishing and measuring relevant and actionable metrics, no matter how basic, are critical first steps.
- Having a strategic, multi-year plan. What is your roadmap to transform AP into a strategic internal asset? Define how you will want AP to collaborate with key stakeholders and to work within the broader P2P arena.
The report also summarizes what AP leaders expect their specific function will look like in two years as well as the skill set and expertise needed for the next great generation of AP professionals.
Solid AP metrics can turn your implementation process from one that merely checks the boxes into an initiative that supports the entire finance organization, such as keeping the business on-budget and closing the books faster to meet financial goals.
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