Are You Tracking the Right Accounts Payable Metrics?

Tracking the inflow and outflow of cash is a business fundamental. Yet, accounts payable (AP) professionals have watched their peers in payroll and HR receive automation first. The good news is the tide is changing for AP. With a pandemic push alongside business leaders recognizing the value AP can provide, they’re getting their day in the sun. Forty-eight percent of businesses are currently in the process of automating their AP operations.

It doesn’t just stop at automation, though. To become a best-in-class department, you must track your KPIs and use those insights to make strategic changes. Automation makes that tracking easier, of course.

For a second, though, let’s consider what it was like to track AP prior to back-office digitization. It might have looked like working off spreadsheets, manually keying in information from invoice headers to line-item data, keeping tabs on forms and files that easily get lost, misfiled, or incorrectly filled out, and wasting time trying to move invoices through the approval process. In a manual world, keeping tack of invoices is hard enough. Getting real-time insight into cash flow status is impossible.

That previous state is cumbersome, to say the least. AP automation shifts those tedious, manual AP tasks off staff and over to software. Invoice processing, approval routing, document management, and more becomes streamlined, providing AP staff the time to focus on more strategic initiatives. That’s where those KPIs come in, which can answer important questions like: What is my current AP performance? Where do we need to focus our efforts for improvement?

With that in mind, let’s dive into the five key metrics that are now much more easily tracked via technology and can help you act on the right insights.

Metric 1: Tracking Invoice Digitization

Metric 2: Average Invoice Lead Time

The longer it takes to move an invoice through the process, the more likely it is that the AP team is caught up in low-value tasks.

The average business requires 14.1 days to process a single invoice. In our age of same-day payments and expectations of quick turnaround, this metric is one that’s important to track. In doing so, AP staff can look deeper into the data to identify where bottlenecks are occurring.

Often, a common roadblock is around approval delay. Of course, automation helps smooth this roadblock by allowing companies to set business rules, approval thresholds, and limits throughout the workflow. But by keeping an eye on this metric, AP teams can improve or maintain processing lead time which often means taking advantage of early payment discounts.

Metric 3: Average Cost of Processing

How much does it cost to process a single invoice? Lower is clearly better when it comes to delivering real value to the business, and that’s why it’s such an important metric to track.

At the lowest level of automation, the cost per invoice is nearly nine dollars. That’s according to the IOFM. As automation rises to the highest level, that cost decreases to below two dollars. So, in essence, it costs 5x more to process invoices in an organization with limited automation.

This is one of the most complex KPIs to track as there’s a lot that goes into the final number and it’s nuanced. For organizations where there’s a high amount of manual processing, they must consider hard costs like mailing and printing. In general, businesses can’t ignore soft costs as well like labor and operations. Some of the most important aspects of this metric to consider are lost supplier discounts, late payments, and audit costs. Those can not only result in additional costs to the business but harm supplier relationships.

Measuring efficiency and productivity are paramount in a tough labor market, where operators are often running short-staffed. AP automation allows you to keep your AP running smoothly with minimal headcount, while also providing the data you need to make better decisions.

Metric 4: Amount of Duplication

Duplication of invoices can have serious – and costly – repercussions for accounts payable teams, making it a core KPI to track.

If there have been cases of duplication, then you want to know the amount of money and time lost. It’s also important so that teams can identify loopholes and effectively close them.

Luckily, by using intelligent AP automation software, instances of duplicate invoices can end. A best-in-class software can recognize duplicated invoices and protect your business against loss.

Metric 5: Number of Invoices Input per Full-Time Employee

Efficiency and productivity are top goals when it comes to the AP function. Tracking this KPI can provide great insight into areas of improvement.

Automation, if you haven’t guessed yet, can amplify the number of invoices processed by a single employee compared to a manual method. The IOFM averages the number of invoices processed per full-time employee with limited automation to be 1,350. With significant automation, that number reached to more than 23,000. That makes a marked difference in how well a business can scale.

There are two methods to track this KPI. One way to gather benchmark data is by taking the total annual number of invoices processed and dividing it by the number of full-time employees as part of your accounts payable department. Another way is by leveraging modern AP automation software for even greater insight into the number of invoices handled by specific staff. With that level of insight, finance and operations leaders can assign work accordingly to employees for a more productive environment.

Ready to see how your AP operation stacks up? Find out in our Accounts Payable Health Check and then explore ways to improve your back office – and business.