Measuring the correct accounts payable metrics is essential as it directly affects your business’s bottom line.
However, only 9% of respondents think their method of measuring AP metrics is exceptionally effective. Still, 66% of businesses use Excel spreadsheets, and 38% use whiteboards/emails.
Well, tracking the right Accounts payable metrics can help improve operations & processes, understand suppliers, and save you cost.
Here you can check the top accounts payable metrics suggested by industry experts for an efficient AP process:
ROI on Invoice Automation
Invoice automation is vital in streamlining your accounts payable processes. Hence, investing in this technology and regularly reviewing the ROI you are getting is crucial in optimizing AP efficiency.
Low ROI indicates a problem with the invoice automation process that denies your business the benefits of an automated invoice processing system. Moreover, low ROI may indicate invoice automation technology mismatch with your business. Adopting the wrong technology will make your AP efficiency poor, thus affecting overall business performance.
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To improve ROI on invoice automation and optimize AP efficiency, simplify the onboarding process. With a smooth onboarding process, employees understand the technology faster and apply it to their invoice processing tasks.
Lucia Jensen, The CEO of WeLoans
Total Number of Processed Invoices
You should also keep track of how many invoices your team can handle in the same amount of time. If the number is low, it’s probable that bottlenecks in your accounts payable process are harming your efficiency and capacity to process invoices on time. Consider the consequences of continuing to approve invoices manually. To speed up the process, and AP automation solution may be necessary.
Cindy Corpis, CEO of SearchPeopleFree
Average Time taken in Invoice Processing
This is a measure that indicates how long it takes to process an invoice on average. Knowing how long it takes to process an invoice on average might help you spot inefficiencies. Due to related labour expenses, the longer it takes to process a single invoice, the more expensive invoice processing becomes.
Jordon Scrinko, the Founder & Marketing Director of Precondo
Late Payment and Penalties
While it is not that beneficial to render late payments as it may affect the company’s cash flow, it is also important to know whether your current AP process is affecting this metric.
Clients have a lot of other responsibilities to attend to, and missing out on payments isn’t new, which is why to prevent these instances from occurring, managing bills and deadlines should be handled efficiently. This also allows the company to save from paying fees that aren’t necessary.
Lucas Travis, Founder of Inboard Skate
Discounts & Late Payments Captured
Most suppliers provide exclusive discounts for on-time payments to promote early payments. Late payments are rarely made on purpose, but manual processes make it difficult for employees to take advantage of early payments and discounts available due to limitations such as forgetting to set up reminders and notifications manually.
Late payments, as we all know, not only eliminate the possibility of receiving discounts but also increase the likelihood of incurring additional late penalties that are sometimes overlooked.
Corrigan Duffy, Owner of Corrie Cooks
Invoices Paid twice
I believe the average paid duplicate invoice rate is 1.24 percent. That may seem low. No. 1.2 percent of your bills likely amount to tens of thousands in the mid-market. Thousands of dollars extra per month is a problem.
This may cost firms millions of dollars each year. Paying duplicate invoices is like throwing money in a rubbish can. Duplicate invoices are wasteful. Fortunately, tracking this KPI can help you spot duplicates.
The bad news is that addressing duplicate payments takes time and effort. To be clear, this number should be 0. Avoid duplications. And that is doable. To achieve this, you may need to invest in relevant automation technology.
Mark Valderrama, CEO & Founder
Digital Invoices as a Percentage
Paper, in my opinion, is a substantial cost to your organization. Filling and maintaining each filing cabinet costs $25,000 and $2,000 per year. In addition, 7.5% of paper documents are misplaced.
And it takes an average of 18 minutes for an expert to locate a single paper document. Simply expressed, the true cost of paper is 30 times the cost of the paper itself. Even if we exclude the astounding expense of paper, the drain on your AP department is mind-boggling.
There is a reason that 52% of AP leaders see paper as their primary barrier to change; paper has the ability to halt AP in its tracks. Therefore, determining how much of your AP department is still paper-based is crucial.
The percentage of electronic invoicing is a starting point for assessing your organization’s progress toward digital transformation. The more paper you use, the more unattractive all of your other metrics will appear. Seriously! Keep an eye on what occurs when you begin increasing this proportion. It will appear to be magical.
Kenny Kline, President & Financial Lead at BarBend
Number of Supplier Discrepancies and Disputes
Time and money, both valuable resources to any company, are spent dealing with discrepancies and disputes. Thereby reducing their numbers is inversely proportional to AP efficiency.
Therefore, a business’ KPIs should always include the number of discrepancies and disputes to get to the root cause of such problems. Automating systems for supplier concerns is one of the best ways to address this as duplicate invoices, erroneous payments, invoices missing information, delivery errors, and other issues will be reduced.
Tommy Mello, CEO
Exceptions to Billing Rate
According to my understanding, your AP department’s final boss would be an invoice exception. An invoice exception is created when routing, matching, data entry or approval fail when the invoice data does not match the associated order data. Billing exceptions might be risky.
They lead to overpayments, departmental bottlenecks, and vendor relationships that deteriorate quickly. Invoice exceptions add time, expense, and late payments to all other measures. Excessive transaction costs and inefficiencies in finance divisions waste an average of 4% of organizations’ external spending dollars.
For a $100 million corporation, that’s a $4 million pure leakage from your end-of-year forecasts! Accounting exceptions can help uncover and remove unnecessary costs and inefficiencies. Business owners receive multiple bills, but only pay 33%. In reality, many businesses do not recognize duplicate payments.
That’s just inefficient. Bill exceptions may be the start of this waste. Tracking but not preventing invoice exceptions may be simple for organizations that use partial automation (which costs 20x as much as complete automation), complicating matters; many manual processes ignore exceptions.
Steve Scott, CTO at Spreadsheet Planet
Conclusion
By tracking the above metrics and keeping them at your fingertips, you can limit errors, overpayments, duplicate payments, and vendor disputes. Take a note of metrics you are not considering currently but can help to improve the process.
If there is a limited resource in your AP department or you find it overwhelming and time-consuming to manage the AP process efficiently, considering accounts payable services can enable you to optimize the operation and improve the KPIs.
Accounts Payable outsourcing practice is common among businesses to cost-effectively administer invoice processing or bill-related processes.