Is your accounts payable (AP) department being tasked to better monitor, track and improve key performance indicators (KPIs)?
The Accounts Payable (AP) department is becoming one of the central drivers of business profitability, and keeping track of metrics is important for guiding your decision-making process and measuring your organisation’s success. If you can’t track it, how do you know you’re meeting business objectives?
Measuring Key Performance Indicators (KPIs) can be a daunting task, and there are an infinite number of KPIs to track that measure AP performance. Deciding on which AP KPIs are most important to measure depends on your organisation’s overall goals, however, we’ve found that there are a handful of metrics that are valuable for all AP departments to measure. Here are the top 5 AP KPIs you should be tracking:
5 Accounts Payable KPIs You Should Be Tracking
1. Cost to process a single invoice
Your suppliers need you to pay your invoices, and preferably on time. Processing invoices (especially manually) can be expensive, and the total cost is hard to pinpoint when considering the combined costs of salaries, IT support, routing invoices, etc.
What does the data say? According to a 2021 Ardent Partners study, the average cost to process an invoice with little automation is $10.95. Yikes – that’s a big hit to your bottom line! Those that have developed a more mature level of automation are processing invoices at only $2.25 on average.
2.Time to process a single invoice
Time is money, and AP is no exception. The time it takes to process an invoice is great for determining how much value an AP department is either wasting or adding. To maximise AP’s profit-generating potential, companies need to identify what’s slowing them down.
What does the data say? According to the previously mentioned 2021 Ardent Partners study, the average time to process an invoice with little automation is 11.9 days, while those with mature levels of automation process invoices in 3.3 days on average – that means companies that leverage automation process invoices 73% faster.
3. Number of invoices processed per day per AP clerk
To further optimise your AP invoicing, you can measure staff productivity, which is great to know which suppliers are causing the most problems. To calculate: (1) take the number of invoices processed per month, (2) divide by the number of FTEs who process them and (3) factor in who’s responsible for what aspects.
What does the data say? Measuring this KPI can provide a clear record of how many invoices are coming per day and employee activity. An IOFM study found that organisations with no automation can process 10,353 invoices per FTE on average. But with automation, that number increases to 14,792 per FTE.
Parts Town is a great example. They were able to increase productivity 60%, going from 57 invoices per day per user to 92!
4.Invoices linked to a PO
Validating an invoice is where delays can happen in the AP process and can be a great cause for concern to the team. Typically, the higher the percentage of the invoices linked to a PO, the faster and less expensive your AP process will be.
What does the data say? According to findings from Ardent Partners’ 2020 study, the market average for the percentage of invoices linked to a PO is 44.3%. On the other hand, those dubbed as “best-in-class” with high levels of automation have an average of 80.2%.
5.Invoice exception rate
Invoice exceptions are the bane of existence for AP clerks. Accounts payable staff spends a staggering amount of time managing and correcting invoice exceptions, which can be caused by discrepancies in PO and invoice data, missing/incorrect POs, and bottlenecks in the approval workflow.
What does the data say? Based on findings from the same Ardent Partner study cited above, the market average for invoice exception rates is 25.5%, compared to 10.1% for those in “best-in-class” standing.
AP transparency through real-time analytics and dashboards
Having the technology in place to gather, sort and distribute the data you’re collecting is just as important as knowing with AP KPIs to track. A robust AP automation solution should provide you with real-time analytics and customisable dashboard to make tracking easy.
Want to learn more about which accounts payable KPIs to track? Download our newest eBook, 10 Accounts Payable KPIs you Should be Measuring.
-Written by Justin Cunningham