Are the Accounts Payable Operations measuring their performance? If not, how can progress toward goals be measured? How can issues be identified before getting calls from Vendors? Or worse, Management and Customers?
Key Performance Indicators (KPIs) for Accounts Payable can cover everything from the productivity of each AP team member to whether invoices are paid on time or, if late, how late. If the results are not as expected for a specific period, the reason should be determined. Was it a one-time anomaly or did something change that may affect future results until the root cause is identified and corrected?
Here are some examples of AP related KPIs to consider. Maintain a 12-month rolling trend analysis as well.
- Number of invoices received per month – identify seasonal fluctuations
- Number of invoices processed into the ERP per month – is the trend affected by things other than vacation periods?
If the number of invoices processed into the ERP is less than the number of invoices received, and the backlog is not growing, why aren’t all the invoices getting processed? One common cause is the vendors are sending duplicate invoices. Find out why the vendors are doing so. Instruct them to stop. The receipt of duplicate invoices results in time wasted on attempting to post or in the risk of a duplicate payment.
The “Number of invoices processed into the ERP per month” can also be used to determine the cost of invoice processing. How do the costs compare to industry standards?
What is the average amount of time it takes AP Operations to process an invoice from the Invoice Date to the Posting Date recorded in the ERP? Is it different for PO invoices than for Non-PO invoices? If so, why? It has been my experience that in a manual processing environment, the time from the invoice date to the posting of Non-PO invoices in the ERP takes longer since G/L account coding needs to be assigned and the invoices sent out and about for approval. Or maybe the time lag between the date of shipment to the date of posting goods receipts causes PO invoices to take longer to process than Non-PO invoices. If so, is there a delay between the physical receipt of the goods and posting the goods receipt? This issue, once identified, can be addressed.
Another KPI to consider; number of invoices processed by each AP processor. This measurement should not be used to compare one processor to another but to identify swings in numbers. Is a processor experiencing issues that are affecting their work? Are they dealing with invoices from a new vendor that are taking longer? Or did a person take time during the month that causes a fluctuation? When need be, work with the processor as soon as possible to keep production up.
On occasion, senior management may ask AP if vendors are being paid on time. Don’t assume that a lack of calls from vendors means they are being paid to terms. Pull data from the ERP to determine the number of invoices, and dollars, paid early, on time and late. If paid late, consider measuring the number of days late. Tracking this KPI can alert a company to issues with invoices, POs, and possibly with vendors. For example, is the company receiving invoices from the vendor promptly?
The list of possible KPIs for Accounts Payable can be lengthy. The intent of KPIs is to identify “problem” areas or areas that can be improved. In a manual operation, the pulling and analysis of data could take a half of a full-time person’s time depending on frequency of reporting and the ease of collecting data.
There is another way. Implement an Accounts Payable Workflow Automation system. Not only could multiple processing steps be automated, reports could be created and run on demand saving the analyst’s time to address issues rather than just pulling the numbers together.
Want to learn more? Contact New England Document Systems. They have the experience, and the resources to assist you; from answering your questions about available solutions to helping you to implement the right tool with the required reports. Contact us to discuss just how much improvement you want to see in your Accounts Payable Operation, especially if the company is growing.
This article is part of New England Document Systems’ partnership with industry experts. This contribution was written by Anne Wheeler of CS Process Flows, LLC. Anne is a Consultant and Project Manager specializing in Accounts Payable processes and systems.