Finance leaders in most companies are looking at their Accounts Payable department to find opportunities for improvement, and to determine when bringing in new technology makes financial sense. The best way to accomplish both of those goals is to establish and track Key Performance Indicators (KPIs). Key performance indicators measure the quality of an organization’s performance and provide the base-line for developing performance goals and strategies. Developing KPI’s may take a bit of time, but the exercise is not terribly complex. It basically requires your ability to bridge the gap between goals and the results. Here are ten top KPIs’ that can help you in Accounts Payable:
1. Track the Total Number of Invoices Received
All of the other metrics will be put into perspective based on an understanding of the volume you’re dealing with. For example, you’ll discover where there are peaks and valleys in terms of volume, meaning that you won’t be tempted to gear up operations to run at a peak volume all the time. If you’re in a growth mode, you’ll also be able to see that processes that worked at one volume start to fall apart as the volume of work increases.
2. Electronic Invoices as a Percentage of the Total Number of Invoices
Most AP departments are working to increase the number of invoices they receive electronically because the costs are lower and they’re faster to process. Keep track of your efforts to move your vendors to invoicing electronically to gauge the success of your efforts. You’ll also be better able to understand the impact because you’ll see improvements in other KPIs as this number increases.
3. The Number of Suppliers Using Electronic Invoicing as a Percentage of the Total Number of Suppliers
As you encourage more and more of your suppliers to transition to electronic invoicing, you’ll want to see the results of your onboarding approach. Tracking this number will show you the progress you’re making, which will let you evaluate and improve your approach.
4. Number of Invoices Processed Per Day Per Employee
Your best employees will find ways to make invoice processing more efficient. Tracking this KPI will let you identify the things that your best people are doing, and share those tips with the entire team. This KPI also gives you a foundation for counseling an under-performing employee.
5. Average Cost to Process an Invoice by Type
Each Accounts Payable department will have its own definition of invoice types. You may assign types such as exceptions, non-PO invoices or invoices from a specific class of vendor. You can use this metric to track the types of invoices that take significantly more time than others do. As you work to identify the causes and find solutions, you’ll see the impact in this KPI.
6. Exception Invoices as a Percentage of the Total Number of Invoices
This KPI will help you to gauge where your exceptions are coming from. You can analyze this data to determine the causes for the exceptions, and work to find ways to eliminate them. If you’re seeing a trend in a particular category of invoice, include it as a type (see KPI No. 5) so that you can also track costs and see them decrease.
7. Average Time to Approve
From the time of receipt, track how long it takes to get each invoice approved and paid. You’ll always want to track this average and work to reduce it. If your payments aren’t being processed quickly enough, you may lose discounts, or incur late fees.
8. Discount Dollars Lost as a Percentage of Available Discount Dollars
Some people prefer to track the dollar amount of discounts captured, and either approach will work. You may want to track discounts lost, as this puts the emphasis where it needs to be. It’s easy to start thinking that you’re doing well because you’re capturing 75 percent of the discounts offered, but depending on the size of your AP department, that other 25 percent could represent a large loss. Use the reason codes for missed discounts to help you improve this KPI.
9. Erroneous Payments as a Percentage of Total Payments
The time and money spent to correct payment errors such as duplicate payments can put a huge strain on any AP department. Assign and track error codes for erroneous payments as a tool for identifying and resolving the causes of these errors. You should also see this number fall as you increase your ability to automate payments.
10. Automated Payments as a Percentage of Total Payments
Since making electronic payments is cost effective and saves a significant amount of time, there’s no reason not to automate it. It makes little sense to automate invoice processing up to the point of payment, then return the process to a manual approach using paper checks and mailing envelopes. Tracking this KPI lets you concentrate on increasing this percentage, and you’ll see the benefits in lower costs, fewer errors and improved vendor relationships.
Tracking the right Key Performance Indicators (KPIs) in your AP department will show you where your processes are working well, and where you have the opportunity to update processes and add technology solutions. When you’re able to reallocate resources to more strategic issues, you’ll start moving your AP department toward making a contribution to the company as a profit center.
Are you ready to take your accounts payable to a new level? The experts at ACOM are prepared to help you meet your KPI’s from invoice through payment processing. Call us at 800-699-5758, or contact us online.