With an avalanche of invoices to pay, measuring Accounts Payable performance might be a low priority for your finance team. Especially as an IOFM report found the median number of invoices processed by AP teams climbed 28% year-over-year while headcount dropped 12%.
But effective AP performance measurement can have a direct impact on your business’s bottom line. By benchmarking against other organisations and identifying inefficiencies, you can start to streamline your AP processes. This leads to quicker processing, lower costs, fewer errors and less loss to fraud.
Sound good? Here are 10 Accounts Payable metrics that your business needs to track.
Top 10 KPIs for Accounts Payable teams
This one’s a given. You can’t track AP performance without knowing how many invoices you receive. Track invoice numbers in a set period – monthly or quarterly – and you’ll be able to work out other metrics such as discounts achieved, manual interventions required and the average cost per invoice.
Cost per invoice
Every business process has a cost – from staff time to software subscriptions. Working out your AP costs and dividing them by the number of invoices you process gives you your cost-per-invoice. This is helpful because it shows you what costs contribute to team overheads and provides a benchmark for monitoring them. Research shows a $10 discrepancy in cost-per-invoice between the best performers and the rest of the field.
Invoice cycle time
This is the average time it takes from receipt of an invoice to payment. It can tell you whether your processes are fast or flagging. If your cycle time is high, it could mean you have processes that need optimizing or bottlenecks in your workflow.
Invoices paid on time
Paying your invoices on time makes good business sense. You can avoid late fees, maintain good relationships with suppliers and reduce reputational risk. So, it makes sense to set a high % of on-time payments as an AP KPI.
Early birds catch payment discounts. For businesses with a lot of invoices, this can represent a significant saving. So, track how many invoices offered an early payment discount and what percentage of those you achieved.
All invoices are not equal. Invoices attached to PO numbers are easier and cheaper to process, as are invoices received electronically compared to hard copy. Tracking the type of invoices you receive – and mapping how this impacts other metrics like average cost or cycle time – can help inform future tactics.
Any manual interventions in the AP process take time and cost money. Monitoring the source and nature of interventions is the first step to eliminating them. Using invoice intelligence software can also help reduce the administrative burden of correcting suppliers’ mistakes.
Everyone makes mistakes. But that doesn’t mean payment errors should go unrecorded. Tracking errors like overpayments and duplicate payments can help spot trends and address costly issues. Again, invoice intelligence software can help speed up this process.
Invoices per staff
This metric involves measuring the number of invoices you process against the number of full-time or FTE staff you have. It’s a useful benchmark to compare with similar organisations or between teams. Poor performance on this metric could indicate that inefficient processes are hampering your team’s potential.
Level of automation
Research from IOFM shows a direct correlation between AP performance and process automation. So, it’s important to measure the level of automation in your AP processes, to be able to set relevant benchmarks and KPIs according to the technology you use.
Comparing the performance of an Accounts Payable team with no automation vs a highly automated, AI-augmented team isn’t helpful or fair. Research from Ardent Partners in 2019 found best-in-class performers – compared to all others – take 7 days less to process a single invoice and the average cost per single invoice is $10 lower.
Introducing AP metrics and improving efficiency
Remember, when you’re implementing these KPIs, reassure your AP team that this isn’t about judging them personally. Introducing Accounts Payable performance measures could easily be interpreted as punitive. Instead, explain that they’re about aligning people, processes and technology to deliver greater efficiency. Some businesses may even tie incentives to these metrics.
Improving efficiency doesn’t just benefit a business, it also frees staff from ineffective and frustrating processes, so introducing AP metrics is beneficial to everyone involved. For more information on the benefits, check out our article: Six reasons your efficiency-obsessed AP manager deserves a raise
Tired of tracking AP performance manually?
In a busy Accounts Payable department, manually monitoring and reporting on performance can be a real drain on resources. If you’re tired of tracking AP performance manually, software can help.
Xelix’s AP software has a KPI tracker for all of the metrics above, available via an intuitive user dashboard that makes performance management a breeze.
Performance monitoring is just a fraction of Xelix’s functionality.
As the world’s first invoice intelligence platform, we offer unique features to maximise AP performance. Powered by AI, our intelligent system effortlessly spots invoicing errors and fraud before you pay out. Whilst our wide range of automations relieve staff of repetitive manual tasks, freeing them up for more strategically valuable work.
Discover how invoice intelligence software can streamline your AP processes – and deliver ROI before it’s even launched. Book your Xelix demo today.