5 KPIs TO HELP YOU GET THE MOST OUT OF ACCOUNTS PAYABLE

By Shannon Kreps, VP Product Marketing, Medius

 

Measuring the performance of a business function and how it contributes to the overall health of the organisation is critical to success. Without key performance indicators (KPIs) in place, it can be difficult to make smart decisions or know if your company is meeting its strategic goals.

Accounts Payable (AP), for example, often relies on slow, manual processes which are not only error-prone but also drain resources and impact cost. A KPI for the AP department should be a quantifiable data point closely aligned to its key function; it should be specific, time bound, agreed by all participating members, and evaluated on a regular basis.

To help get you started, we’ve identified five KPIs you should be measuring when evaluating your AP process.

 

  1. Identifying hidden invoice costs

Defined as the total average costs of processing one invoice across the organisation, cost per invoice can vary among businesses. This figure can appear deceptively low and hurt profit margins as hidden costs haven’t been considered. In the UK, for example, the typical cost per invoice can vary between £4-£25, according to research firm Gartner. A company with a highly manual or paper-based invoice process should consider the labour and operational costs AP clerks spend on this time-consuming task, as well as the scope for human error.

Other major contributions include expenditure on systems and equipment, overpayment or late payments to suppliers, and audit costs. With such a wide range of factors impacting calculations, performance can be tricky to measure. You should use this KPI carefully, focusing on monitoring results over time rather than comparing like-for-like with external peers.

 

  1. Tracking invoice lead time

Another important metric is tracking the total time it takes for an invoice to be received, processed, finalised, and made ready for payment in your financial system. This includes the time taken to digitise the invoice into a standardised data format, matching the invoice to supporting documents such as purchase orders, approvals and/or deviation analysis, as well as a completing a final review before it is synchronised with the ERP.

If an organisation is using an AP automation solution, the entire process from receipt to posting, is tracked within the system, meaning metrics can be easily obtained. While benchmarks show that the average organisation using automation to process order-based and expense invoices take around six to seven days, best-in-class providers can reduce these numbers to less than one day for both types. By removing manual steps and implementing a solution that takes on a heavy workload behind the scenes, businesses can save valuable time and redistribute resources to more value-added work.

 

  1. Calculating invoice efficiency performance

The simplest way to arrive at this figure is to take your annual invoice quantity and divide it by the number of full-time employees within your AP department.

Similar to cost per invoice KPI, this metric can be complex and requires some thought before just grabbing the number and comparing it with industry benchmarks and peers. While measuring invoice efficiency can provide a good indication of your AP team’s overall performance, it may not provide a complete view as this depends on the function’s role within the wider organisation.

Driving invoice processing automation will reduce the workload of the AP team and save time in day-to-day tasks. With the resources saved, organisations can use this opportunity for more strategic duties, including reporting and data management, to support the finance department and overall business.

 

  1. Streamlining automated invoicing

Automatically sending invoices to the correct approver through a streamlined AP invoice automation tool can save a lot of time from hunting down lost or misplaced invoices. Implementing a KPI which focuses on ‘automatic distribution percent’ will provide metrics on the percentages of total invoices that have been automatically distributed to the right person without user intervention. In addition, more sophisticated tools can apply coding to ensure the invoice is routed across multiple locations and departments.

Our benchmarks show that the average organisation using a modern AP automation solution achieve a 55% automatic distribution rate, with companies using a best-in-class solution hitting close to 100%. Performance of this KPI is determined by the capabilities of the automated tools used and how well the configuration of unique business rules has been set up. Metrics can improve over time and should be a focus for system configuration and invoice data quality improvements.

 

  1. Measuring touchless processing

While the term ‘touchless’ or ‘straight through’ can be used loosely to describe an invoice’s journey, it’s important that only true touchless processing is measured – that is zero intervention at any point in the invoice process. This applies to invoices that are automatically matched to supporting documents in the AP automation tool or ERP such as purchase orders, good delivery notes and contracts with a payment plan. By removing manual steps and increasing touchless processing rates, other KPI’s will be positively influenced, reducing costs and shortening processing time.

Measuring and improving performance by adopting AP specific KPI’s is not only cost effective, but it can also give your AP team more control over the process, boosting productivity and enabling resources to be redirected to more valuable tasks, benefiting the overall success of the organisation.

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