3 Key Accounts Payable KPIs for Tracking AP Efficiency

Friday, 8. October 2021 | 0 Comments

Tracking AP Efficiency

Tracking and assessing the performance quality of the Accounts Payable (AP) systems in a business is essential. Performance efficiencies are one of the primary responsibilities of accounts payable (AP) manager or a controller. There are several key performance indicators, called KPIs. Tracking and assessing the efficiency of the performance of an AP system is more manageable with KPIs.

Here we point out the three main KPIs that a controller can use in a business.   

  1. Average Cost to Process Invoices

The average cost to process invoices is probably the most widely used and versatile KPI metric. Amongst the different performance parameters to assess, it is imperative to track the average cost incurred to process invoices. We calculate it by dividing the total AP cost by the total number of processed invoices.

Here are some points of caution:

  • The formula may seem simple but can generate misleading data owing to the varying costs of processing different invoices.
  • Do not underestimate industry costs. Include costs such as lost supplier discounts, audit fees, printing, mailing, etc.

Opting for AP or invoice automation instead of manual AP methods is advisable to avoid these mistakes.

The bright side: Automating the AP processes of your business can help you cut costs by 60 to 70%! Not just that, it will save labor, time and prevent the generation of misleading data. VersaPay and PYMNTS carried out a survey on 400 CFOs. It revealed that 96% have planned or already implemented the automation of the AP processes in their companies.

  1. Average Time for Processing Invoices

Another essential KPI that should be tracked and assessed is the average time required to process invoices. Why? Time is money. This metric owes its popularity because it can efficiently highlight the quantitative insights into the efficacy of the AP processes. Moreover, this KPI shows effectiveness from varied perspectives. This KPI includes monthly, weekly, daily, quarterly, and annually.

While calculating this metric, the time required to do the following tasks per invoice gets added:

  • typing in invoice data
  • reviewing materials
  • approvals
  • payments
  • reconciling
  • updates

The bright side: So, how to make the most of this KPI metric? Go for AP automation instead of manual AP processes. Extensive research has shown that this can help businesses save up to 70% less time. So, you’ll end up avoiding delayed payments, late fees, poor relationships with suppliers and vendors. AP automation can help you reduce the time taken from approximately 10 days to just 3 days!  You can save more time by downloading invoices automatically from various sources.

  1. The Average of Employees required to Process Invoices

The efficiency of invoice processing is directly dependent on the employees’ productivity levels, and it also depends on the use of manual or automated AP processes. You can calculate this KPI by dividing the annual invoice volume by the total capacity of the AP department. This formula will generate the per person invoice processing cost per annum.

The bright side: Extensive research has indicated that the use of automated AP processes can nearly triple the value of this KPI metric. Why? If invoice processing is automated, it will be possible to access and track invoices from different gadgets quickly. Additionally, managers can readily track the productivity level of each employee. How? By checking the number of invoices processed by every employee per day, year, month, week, etc. Digitizing invoice processing and integration with third-party applications help to seamlessly send data across to other systems like ERP or taxation and other software. 

It’s time to debunk and bust the misconceptions associated with the KPI as mentioned above metrics. Automate AP processes to boost the functionality and profitability of your business.

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