You know your bills are being paid, so evidently your Accounts Payable process is working. But do you know how well it’s working? More importantly, do you know what to do to make it work better? Tracking the right metrics will give you solid answers to both of those questions.
Why You Need to Track the Right Metrics
Tracking metrics, also known as Key Performance Indicators (KPIs), gives you two critical pieces of information. First, you’ll know how effectively your operation is running. Second, you’ll be able to identify areas where you’re not as effective as you could be. You’ll also be able to set goals for improvement, and track how well you’re meeting them.
Accounts Payable Metrics
Choose the metrics that are most important for your operation. Here are some examples.
1. Total Number of Invoices Received
Choose a period that makes sense for your business. If you process large numbers of invoices, you may want to track by day, or it might make more sense to track by week or month.
2. Number of Invoices Processed as a Percent of the Total
This metric will let you determine how efficiently you’re processing invoices. Over a three or six month period, you should be processing at least 90 percent of the invoices coming in. If you’re not reaching that goal, revisit the workflow to identify ways to become more efficient. Automation will have a large role to play in increasing this percentage.
3. Average Cost Per Invoice Processed
This metric will show you the factors that feed into the cost of processing invoices. From there, you can look for ways to reduce costs.
Manual processing using a paper-intensive process is costly and time consuming. You’ll see your average cost per invoice processed numbers plummet when AP automation is used for paperless processing. These ongoing savings will more than offset the initial cost of implementing an automated system.
4. Average Time to Pay
Track the amount of time it takes from the date you receive an invoice until it is paid. Identify the types of invoices that have the lowest average and determine what you can do to put the majority of invoices in that category.
5. Electronic Invoices Received
Track the percentage of invoices that you receive electronically. This will let you focus on finding ways to work with your vendors to increase that percentage since electronic invoices are so much less expensive to process. In addition, as the automation level increases, you should see the average time to pay decrease, and the percent of discounts taken increase.
6. Exceptions as a Percentage of Total Invoices Received
Exceptions will happen even with the best automated system. Tracking exceptions and their causes will help you to identify ways to reduce exceptions, such as problem vendors or accounting practices that result in data being entered or scanned into the system inaccurately.
7. Discounts Taken as a Percentage of Discounts Offered
An important goal of automating accounts payable is to take advantage of discounts whenever they’re available. Streamlining your AP workflow and automation should let you accomplish that goal. However, it’s a critical metric to track. If you discover that you are missing a significant percentage of discounts, you can track them through the system to determine what is happening, then resolve those problems.
Track metrics that will help you resolve specific issues in your AP process. For example, you may be surprised at how much money you’re losing when you miss early-pay discounts. If the time it takes to get invoices approved is reducing the discounts you can take, you’d want to track that metric.
As you implement automated accounts payable solutions, you’ll see substantial results in a number of areas:
- You’ll significantly reduce your average cost to process an invoice by eliminating manual processes.
- You can reassign staff and budget to more important tasks that will further streamline your operation.
- You will increase profitability by increasing early-pay discounts.
The experts at ACOM can help you find the accounts payable solutions that will help you meet your goals. Call us at 800-699-5758, or contact us online for more information.