Companies are able to improve productivity and significantly conserve cash reserves through analyses on Key Performance Indicators.
Key Performance Indicators (KPIs) are quantifiable measurements of important factors related to efficiency and performance in a particular department. These indicators provide a wealth of information on your current productivity and also reveal goals for increased productivity and efficiency.
Within an Accounts Payable department, leaders strive to conserve time and money through the conversion of vendors from traditional billing to the more efficient method of electronic invoicing and payment. With this goal in mind, here are the most important KPIs to track.
1. Total Number of Invoices Received
The total number of invoices received per month, season, or per year will be the starting point upon which to measure all other KPIs.
Why this is important to track: Not only will this information be used in base comparisons for other KPIs, but it can be used to predict intervals of high volume in expenditures as well as increases in workload volume in the accounts payable department.
2. The Number of Electronic Invoices Versus Total Invoices
The processing of electronic invoices is typically faster than the processing of paper invoices, and less prone to human error.
Why this is important to track: With this percentage, an AP department will be able to effectively determine how fast they’re able to convert vendors to electronic billing.
3. The Number of Traditional Invoices Versus Total Invoices
Using the cost to process traditional invoices, an AP department can track progress or regression through the volume of traditional invoices received.
Why this is important to track: Productivity can be increased by monitoring this metric while working to periodically reduce this number by switching vendors to e-invoicing.
4. Time Per Invoice type
Measure the average time it takes for employees to process traditional paper invoices versus electronic invoices or other variables such as invoices related to purchase orders.
Why this is important to track: This KPI will provide plenty of data to support employee cost versus the various types of invoices. Determine which invoice types have the longest lead times and receive valuable insight on where improvements can be made.
5. Cost Per Invoice Type
Measure the average cost per employee to process each invoice type such as electronic, traditional, PO-associated, non PO-associated, and/or invoices from vendor classes.
Why this is important to track: Identify which invoice types result in the highest cost per employee. This will enable the AP department to uncover problem areas and find solutions.
6. Track Suppliers Via Invoice Type
Keeping track of which suppliers use e-invoicing versus traditional will aid in future conversions.
Why this is important to track: With a regularly updated list of vendors and their invoice types, it will be easier to keep in regular contact with the group of vendors who use traditional invoicing in an effort to move them to e-invoicing.
7. Employee Productivity
Track the number of invoices processed per day per employee.
Why this is important to track: This KPI will pinpoint your most effective and efficient AP employees. Some of your more efficient members may have tips to share with the team. Identifying the least efficient members of the team could signal a need for change.
8. Invoice Exception Rate
Track the number of invoice exceptions out of total invoices.
Why this is important to track: Become immediately aware of any invoice exception rate increase. Keeping tabs on this number, and an analysis of the most common exceptions by vendor or vendor type, will enable the department to more efficiently work on problem resolution.
9. Invoice Lead Time
Track the average time to approve invoices from beginning to end. From the receipt of invoice, through processing, finalization, and payment approval.
Why this is important to track: A high lead time can result in late fees or higher interest rates when applicable while a low lead time could result in discounts. Keep track of average lead time to make sure sudden delays in the process are not going unnoticed.
10. Timeliness of Payments
Are your vendors receiving payment within their Net 30 or 60-day terms? How fast are your payments delivered after finalization?
Why this is important to track: This metric can be used to convince vendors to switch to e-invoicing and e-payment if there is a regular delay in payments sent after approval.
11. Discounted Dollars
Track discounted dollars lost versus available discounted dollars and discover how much money could be saved by taking advantage of discounted rates for early payment.
Why this is important to track: Identifying possible discounts and applying priority status to those approved vendors with discounts will increase efficiency and decrease unintentional expenditures.
12. Erroneous Payments
Track how many erroneous payments are made as a percentage of total payments. By assigning and tracking error codes, the department will be better able to identify problem areas and work to resolve issues.
Why this is important to track: Resolving erroneous payments can be time consuming and a massive strain on resources. Regular tracking of these problems when they arise can cut down on costs to manage.
13. Automated Payments
Automated payments, or e-payments, have become top priority for AP departments. AP Automation through electronic payments will reduce general AP expenses related to paper, checks, ink, postage, and employee time.
Why this is important to track: This is a KPI metric that should increase over time as accounts payable works to move vendors from traditional invoicing and payment to a more efficient and fully electronic method of payment.
14. PO-Related Invoices
An important metric to watch is the amount of invoices that are related to a purchase order versus total invoices.
Why this is important to track: Invoices that are related to and confirmed by purchase orders are usually processed much faster. This metric is useful in communications with other departments to request regular application of purchase orders.