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Improving Accounts Payable Performance: KPIs That Count

KPI_BlocksAn old saying goes “What gets measured, gets done!” In the world of accounts payable, “measurement” is critical to helping to improve performance and increase operational efficiencies.

So, what are some of the key performance indicators (KPIs) that AP departments should track and monitor in order to help improve performance of their operations?

  • Percentage of electronic invoices and payments
    If an organization has implemented an electronic invoicing and/or electronic payments solution, then a good metric to track may include the percentage of invoices received electronically (invoices that require no manual data entry, not just email invoices) and the percentage of payments made electronically to suppliers (via ACH or wires, non-check payments).
  • Percentage of invoices needing dispute resolution
    It goes without saying that exception invoices, or invoices that need dispute resolution, generally take up more time to process and can cost more than invoices that flow straight through without any issues. The objective of any AP department should be to help reduce the percentage of exception invoices coming in by identifying the root cause of these exceptions and then putting steps in place to help eliminate them.
  • Time taken to process an invoice
    How long does it take to process an invoice from the time it is received to the time it is approved and ready to be paid? This metric may vary significantly depending on whether an organization has a centralized invoice receipt process (all invoices received at the AP department versus decentralized process (invoices are received in the field and then forwarded to AP). It may also depend greatly on whether invoices are received in paper or electronic format.
  • Number of invoices processed per full-time employee (FTE)
    This is a metric that measures productivity of the AP department staff – on average how many invoices does an FTE process in a given time period. This could be further broken down by the different functions performed within AP – invoice receipt, data entry, coding, validation, dispute resolution etc. Again, this is one metric that may vary depending on whether an organization is still receiving paper invoices or has moved to electronic invoices.
  • Percentage of negotiated discounts captured
    A number of organizations negotiate discounts with suppliers for early payment, but often times, many of them are unable to capture all available discounts. Tracking the percentage of discounts captured helps enable an organization to increase discount capture by focusing on reasons why discounts are lost or prioritizing review and approval of invoices with discounts.
  • Percentage of duplicate/erroneous payments
    Payments errors are quite common in the AP process – missed discounts, over payments, duplicate payments, etc. Understanding what percentage of payments has an associated error and identifying the cause of those errors can go a long way in helping to reduce those erroneous payments.

These are just a few metrics to keep in mind. Of course, the type of metrics an AP department tracks depends on its industry, size, processes and a number of other factors. Another important aspect to be aware of when measuring performance is that benchmarking against another organization is not always effective because each organization may measure and report metrics differently. What is likely  more valuable is benchmarking against your own organization – tracking metrics on a periodic basis and looking for areas to improve going forward.



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