7 Accounts Payable metrics that will grab your CEO’s attention

CEOs can be somewhat dismissive of Accounts Payable as the remit of the CFO or Finance Director, while they focus on overall growth and organisational strategy. But in fact, AP performance can have a distinct bearing on working capital, the cost and effectiveness of the whole P2P process, and your company’s relationships with key suppliers – all of which should matter as much to your CEO as sales and income.

Your organisation’s operational proficiency, financial dexterity and supply chain savvy are inextricably interlinked, and are a source of competitive edge. So, if your CEO’s eyes glaze over at the mention of payables, here are seven KPIs that will provide them with meaningful insight into the health of your AP department and its impact on the wider business.

Why should you track accounts payable metrics?

Tracking your Accounts Payable (AP) metrics is beneficial in many ways, but the ultimate aim is to measure and analyse results for improvement. Without tracking, measuring, and analysing your metrics on a regular basis, it will be difficult to identify AP areas that require change.

The key accounts payable metrics

In a 2018 report by Ardent Partners, they found that successful AP departments benefited from AP automation featuring not only strategic KPI tracking, but straight-through invoice processing, 3- way matching, and a centralised repository for document management.

Key KPIs essential to elite AP operations include the following: average cost to process and invoice (by type), discounts captured vs. invoice processing times, late payments and penalties, number of supplier inquiries, percentage of straight-through invoices, and the ROI on invoice automation.

AP Metric #1 – Average cost per invoice type

This is an obvious measurement when it comes to automated invoice processing – yet one of the most fiendishly difficult to calculate, given the number of steps involved. Not all invoices are created equal: those with exceptions and non-PO invoices may well be costing more than clean ones.  It can be very helpful to refer to a benchmarking study that indicates average and best-in-class measures, to determine how your AP performance compares with your peers. The potential savings achievable through invoice automation are considerable – anywhere between 60% and 90% per document, depending on the maturity of your current processes.

Accounts payable benchmarks – why is it important to benchmark and know where you stand?

AP benchmarking is a powerful way of understanding how well you’re performing. At its core, benchmarking is the act of comparing your performance with peers. Benchmarking answers important questions, such as: Where are my AP processes at now? What is my current AP performance?

Benchmarking evaluates the various aspects of your businesses current AP processes and then compares them to the processes of “best practice” companies.

AP Metric #2 – Average invoice processing time

The longer the average time it takes to process an invoice, the more likely it is that your AP team is tied up in labor-intensive, low-value tasks rather than focusing on strategic, judgement-based activities. Market estimates vary according to organisational size and type, but the typical processing time per invoice in high-performing units is around 3 – 4 days, while laggards take an average of 17 days. One way to eliminate approval bottlenecks when staff are out of the office is to provide on-the-go access to your AP system via mobile, enabling employees to expedite approvals wherever they may be.

AP Metric #3 – Discounts captured vs. offered

When AP processes are optimised, invoices can be processed faster, enabling your business to take advantage of early payment discounts. Keep track of the monetary value as well as number of missed discounts and consider using reason codes to identify how and why you’re failing to take advantage of discount opportunities. To improve this KPI, look for an invoice processing solution that will automatically notify you when a discount window is about to expire, to trigger timely payment.

AP Metric #4 – Late payments and penalties

Nobody likes to dwell on bad news but ignore this metric at your peril. The higher your percentage of late payments, the more money your business will be hemorrhaging – often needlessly – through fees and statutory interest, not to mention the damage to your company’s reputation. Even though the goal of 100% on-time payments is an ambitious one, don’t be afraid to set the bar high – a reputation for paying promptly can pay dividends in terms of supplier relationships and negotiations.

AP Metric #5 – Number of supplier inquiries, discrepancies, and disputes

Obviously, the lower this figure, the better. Handling supplier enquiries, discrepancies and disputes ties up valuable resources which will torpedo AP efficiency. E-Invoice automation should reduce the volume of supplier interactions needed by eliminating opportunities to introduce human error, and providing an unambiguous channel for electronic document transmission, which lowers the risk of duplicate invoices and payments.

AP Metric #6 – Percentage of straight-through invoices

Exceptions require manual rework before they can be approved, and lead to late payment, increased operating costs and unhappy suppliers, making them one of the biggest sources of friction between AP and Procurement. To increase straight-through processing, you need an automated process for delivering invoices into your AP system, and an intelligent workflow to deal with the inevitable remaining exceptions (which should drop to around 10% or less). Validation rules can be automatically applied to root out exceptions, while machine learning can deliver “smart” recommendations for general ledger coding which the business user simply reviews and confirms with a single click.

AP Metric #7 – ROI on invoice automation

The AP function is often lagging when it comes to automating the cash flow cycle – more companies have automated their payroll and employee expenses than their AP processes. Digitisation and optimisation offer the real-time visibility and transparency your CEO needs to drive strategic decision-making, efficiency and growth. Investing in invoice automation will almost certainly yield significant uplift across all your AP KPIs, but if you’re having difficulty providing numerical justification for your business case, try using an ROI Calculator to determine the potential savings and convince your CEO of the value of automation.

While you can attempt to measure and monitor all of these metrics manually, embedded analytics can provide immediate, powerful insights based on the data generated by electronic workflows to help you and your CEO navigate the path to financial agility and operational excellence.

How do you measure accounts payable performance?

When you automate your Accounts Payables operations, you unlock the ability to track your KPIs more closely while using your metrics to influence change within your overall organisation. Through AP Automation and actively reviewing your AP metrics, you can significantly limit errors and decrease supplier inquiries.

When it comes to measuring AP performance, automation allows for the centralised data collection of all your payment data. The more you automate, the more data the system collects. Then advanced and predictive analytics gives you a full view of your organisation’s entire spend profile, meaning you get total insight, oversight, and hindsight into your AP operations.

Accounts Payable Metrics Quick List

1. Average cost per invoice type
2. Average invoice processing time
3. Discounts captured vs offered
4. Late payments and penalties
5. Number of supplier enquiries, discrepancies and disputes
6. Percentage of straight-through invoices
7. ROI on invoice automation