In automating your accounts payable (AP) processes, it’s essential that you track some key metrics. In this post, we’ll explain why this is important, which accounts payable metrics to track, and how to use each one to improve your invoice processing system.
In the end, you should be able to to straighten out your AP workflows and optimize your invoice processes considerably. Let’s get to it.
Why should you track accounts payable metrics?
Tracking your AP metrics is beneficial in many ways, but the ultimate aim is to measure and analyze results for improvement. Without tracking, measuring, and analyzing your metrics on a regular basis, it will be difficult to identify AP areas that require changes.
These metrics are key performance indicators (KPIs), which can be used as measurable values to show how effectively your AP team is meeting targets and achieving departmental objectives, and to determine how to best make use of time and resources. If you don’t track your accounts payable metrics, you may not know how productive your team is or how potentially productive they can become.
Tracking also provides clearer visibility into your invoice processes and approval steps. Visibility is important for efficiency and growth. It lets you see what’s working and what’s not in your current AP strategy. With it, you’ll be able to make decisions based on data, instead of guessing based on limited information.
If pulling a few numbers in order to get better results sounds intriguing to you, read on to discover the most important accounts payable KPIs to track.
The key accounts payable metrics to track
1. Total number of invoices received within a given time period. Before you measure any metric, you should want to track the total number of invoices that come into the accounts payable department within a certain period of time. It can be daily, weekly, monthly, or even yearly. This knowledge will give you an idea of the normal volume of work and let you set some baselines to make it easier to measure other metrics.
The total number of invoices received directly depends on the size of your organization — the bigger the company, the more bills it has to pay, and the more invoices it’ll receive.
2. Total number of invoices processed as a percentage of the total number of invoices received within a period of time. The reason for tracking this metric is to measure your AP team’s work rate. For long-term analysis, like three or six months, this number should be above 90%. If it’s not, then something is wrong and you need to re-evaluate your strategy.
Could there be unidentified bottlenecks that slow down processes along the way? Are some parts of your AP workflows still managed manually? Are there issues with exceptions? Whatever the obstruction is, identify and remove it.
Striving to improve this metric will improve your team’s efficiency and effectiveness.
3. Average cost per invoice. Cost is one of the most important accounts payable metrics to track as you’ll be able to gain insights into factors that drive it. You’ll also be able to find ways to reduce your invoice spend and reduce costs.
In tracking invoice costs, consider things like software fees, paid IT support, cost of hardware, staffers’ salaries and benefits, managerial overhead, and other things of financial consequence.
Invoice type also matters, as exceptions and non-PO invoices are more costly to process than straight-through and PO-based invoices, respectively.
Generally, the cost of an automated system is lower than the cost of manual operation. With automation, you won’t have to spend big money on manual data entry as you’ll be able to auto-capture invoice data quickly.
4. Invoice cycle time. This is where you track the average receipt-to-pay time. It measures the average working time it takes to process an invoice from when it is received to when it is paid and archived.
This metric can help you identify which tasks take the most time, and it generally informs you how your team spends their time. A low invoice cycle time is definitely a good thing. If it’s high, you should streamline your AP processes in order to accelerate your workflows. Complete automation is the best way to do this.
By accelerating workflows, you’d be able to eliminate late payment penalties and make your company more easily eligible for early payment discounts.
5. Rate of wrong payments as a percentage of total payment. This metric measures the number of erroneous payments made over a certain period of time, divided by the total number of invoices paid over the same period of time. Though humans make mistakes, you want this number to be low.
Duplicate payments, overpayments, and other erroneous payments can be a huge drain on a company’s finances.
One of the core aims of automation is to reduce errors and minimize incorrect payments. Workflow automation makes it easy to track bad payments.This means workflow automation can help you identify holes in your process that yield errors, letting you quickly fix them and maybe even recoup money from your vendors.
6. Rate of exceptions as a percentage of total number of invoices processed. You should push for a system that lets you quickly process a majority of your invoices without any issue.
Even with an automated system, some invoices may be flagged as exceptions because of discrepancies on the supplier’s end. Invoices that result in an exception mostly require manual intervention (like correcting a field) before they can be approved for payment. And since exceptions cost more to process than straight-through invoices, it makes sense to track the rate of exceptions.
Doing this will help you identify common sources of these exceptions (like vendors with the most exceptions on their invoices), common reasons for the exceptions, and ways to easily resolve them.
7. Discounts captured as a percentage of discounts offered. While most suppliers often offer discounts for early payments, a company may be unable to score all the discounts that they are eligible for.
You should aim to get as many discounts as possible in order to save costs and improve your company’s bottom line. Workflow automation will help you do this, but in order to leave no stone unturned, it’s important to track the rate of discounts captured as a percentage of total discounts offered by suppliers.
Tracking this metric will help you know why discounts were missed and present you with ways to respond accordingly.
8. Electronic invoices as a percentage of total invoices received. Electronic invoices are quicker and cheaper to process, as you don’t waste time and resources scanning and capturing data.
The aim of tracking this metric is to know the percentage (and kinds) of suppliers sending them, so you are better equipped to eliminate paper invoices. The more electronic invoices you receive, the less time and money you spend to process them.
9. Number of AP operators. This metric measures the number of workers who process a certain amount of invoices within a period of time.
An automated invoice processing system is designed to help you get more done with as little workforce as necessary.
By tracking the number of AP workers, you’re able to measure efficiency and find ways to reduce headcount, all while getting more done. Aim to keep this metric low without sacrificing efficiency and work quality. If you find yourself with a high number here, you might have to reassess your invoice processing system.
Does a high volume of invoices still require manual touch even after automating your system? Are your team members actually implementing the new automated system?
Whatever is going on, resolving the issue will help reduce the number of human workers and free up your staffers’ time to do more important tasks and cuts costs in the process.
Management expert and author Peter Drucker is often quoted as saying, “What gets measured gets improved.” It certainly holds true for business today. If you want to improve upon making your invoice processing as smooth and streamlined as possible while enjoying great returns on your investment in a workflow automation tool, then you definitely need to track, measure, and use your accounts payable metrics.
This should be done on a regular basis, whether it’s monthly, quarterly, every six months — whatever makes the most sense for your organization.
Start simple with a small number of metrics and then move up from there.
Some workflow automation tools like Pyrus will even provide you with your AP process history and metrics as it caches them over time.
Pyrus is the most reliable way for accounts payable teams to automate their processes and track accounts payable metrics. You can start using Pyrus for free today by requesting a demo using the form below.