Key Performance Indicators: The Most Important Accounts Payable Metrics
Accounts Payable is one of the last places within companies where paper processing is still the rule, rather than the exception. This situation is slowly improving, but there’s still a lot of opportunity to make a big impact with automation. Getting some clear measurements of what’s going on now is arguably the foundation of any strategic initiative.
According to a recent report by PayStream Advisors, Invoice & Workflow Automation: Optimizing Invoice Movement and Management, companies have made significant strides in their ability to receive invoices by electronic means such as email, EDI, web portals and networks.
However, receiving invoices electronically is only the first step in the invoice processing workflow. Many companies do not use electronic methods to continue the P2P process. We know that the lack of visibility that comes with paper processing results in many challenges, including higher processing costs. What’s surprising is that nearly half of survey respondents did not measure processing costs.
Since the survey found that the biggest barrier to automation is the belief that current processes are working, doing some measuring to see if this is true seems like a good learning opportunity. PayStream suggests tracking the following KPIs:
- 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.
- Supplier e-invoicing onboarding. Develop a supplier recruitment and enablement campaign to get suppliers on board. Track results and change tactics if you are not making progress.
- Number of invoices processed per day per operator. What are your best people doing that others can learn from? Does it make sense for your operators to specialize in certain types of invoices?
- Average cost to process an invoice by type. Not all invoices are created equal. Invoices with exceptions and non-PO invoices could be costing significantly more than clean ones. Understanding costs is the first step to controlling them.
- Exception invoices as a percentage of total. 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.
- Average time to approve from receipt to payment. Slow payments could be causing you to miss discount opportunities, and at worst, incur late fees. 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.
- Discounts captured as a percentage of discounts offered. Keep track of the dollar amounts of missed discounts and use reason codes to figure out how and why discounts are being missed.
- Erroneous payments as a percentage of total payments. Duplicate payments and other payment errors are a huge drain on AP time. In addition to tracking down dollars lost due to errors, keep a log of error codes to identify holes in your process that may be consistent sources of errors.
As AP looks to become more strategic, measuring processing costs is a good place to start. No two organizations are alike of course, but it’s always helpful to have a starting place and you can iterate from there.
Solid metrics can be used to make the case for improving processes and automating the workflow, to measure the effectiveness of technology implementations after the fact. The ultimate goal is for routine processing to run like a well-oiled machine so you can focus on making higher order contributions to the bottom line.
Want to learn more about invoice workflow automation? Get the full report here.