Is your Accounts Payable department performing at its best? How can you tell?
In order to be successful, organizations should strive for continuous improvements and establish evolving objectives to push innovation, efficiency, and success. However, identifying areas for improvement and implementing change can be difficult without first understanding your current situation. Your accounts payable department is no exception.
How much can your AP department improve? According to Canon’s High-Performance Accounts Payable whitepaper, “there can be a dramatic difference in performance between a high-performance and the average AP department…” Below is a chart from Canon, illustrating these vast differences.
|HIGH PERFORMANCE AP DEPARTMENT VS. AVERAGE PERFORMANCE|
|Performance Metrics||Average||High-Performance||High-Performance Advantage|
|1.||Cost Per Invoice||$19.10||$2.20||88.48%|
|2.||Invoice Cycle Time||13.5 Days||3.3 Days||75.56%|
|3.||Invoices Processed Per FTE/Month||1,335||3,559||166.59%|
|4.||Invoices Processed Straight Through||18.40%||44.20%||140.22%|
|5.||Suppliers Converted to eInvoicing||14.50%||41.80%||188.28%|
When it comes to measuring and analyzing your current AP processes, you must first establish a strong set of key performance indicators (KPI) or metrics to track and analyze. These accounts payable metrics will set the foundation of your research as your begin to develop and alter your current operations to drive improved efficiency and accuracy.
Accounts payable metrics can be broken down into 3 primary categories – operational, supplier, and financial metrics.
Key Accounts Payable Metrics
- Average total processing time of an invoice
- Average cost to process an invoice
- # of invoices processed by each member of your AP staff
- % of “touchless” or straight-through invoices
- % of duplicate payments
- % of payments made on time
- % of exceptions
- % of electronic invoices vs. physical invoices
- # of supplier inquiries
- # of discrepancies or disputes
- % of suppliers enabled
- Good received not invoiced
- Days payable outstanding
- # of early payment discounts received vs. missed
By identifying and recording these metrics, you will soon find yourself in a position to drastically improve your accounts payable department. Without tracking business process metrics, it is impossible to know how effective your staff truly is – and how effective they can become.
Metrics Guide and Justify
Keeping strong metrics will not only help you make decisions moving forward – it will also help you measure the success of those decisions. For example, utilizing a document scanning solution with workflow automation software is a fantastic way to reduce the time it takes for your staff to process invoices by eliminating manual tasks such as data entry and approvals. However, the true benefit of AP automation can go unnoticed if you do not have the proper benchmarks in place.
In order to make the most of your AP KPI data, it is imperative that you utilize your Accounts Payable performance goals to lead corrective actions. According to The Accounts Payable Network, as Accounts Payable’s goals are met, “corrective actions should be implemented based on what is learned…” In order to determine what corrective actions to take, The Accounts Payable Networks suggests:
- Implementing detailed reporting systems
- Document all issues
- Source input from other financial professionals and functional departments
- Establish clear goals and incentives
- Perform a root-cause analysis