Read about how crucially AP metrics matter to businesses, and specifically about the 10 AP KPIs you should be measuring that impact your AP performance the most.
I’m a big believer in numbers; there’s no doubt that they get us a long way in life. I’m lucky to have a good head for them; two of my family members studied Maths at Cambridge and I opted for Economics at Sheffield.
With my 4-year old, perhaps numbers can perhaps be over used – do I really know how many windows are on his friend’s house that we walk past on the way to school EVERY day? In some areas, however, they’re very much underutilised, and in the current economic climate we need to keep count of the things that matter.
Today, I’m looking at this from the perspective of the Accounts Payable (AP) department. If you don’t measure it, you can’t track it, and you certainly can’t improve on it. Businesses are impacted as much as households by tumultuous economic times, and it really is true that every penny counts.
From a business perspective, what we’re really talking about here is KPIs (Key Performance Indicators). These precious numbers denote how well (or badly) departments are performing, drive decisions and optimise efficiency, benefiting that all-important bottom line.
However, tracking KPIs often seems easier said than done. If business leaders and decision makers don’t know what they need to track, or how to track performance with the right tools, they’ll certainly struggle to make the right choices to transform their Accounts Payable department.
The first issue comes in where to start. There are an infinite number of KPIs and metrics available to an AP department, and certainly not all of them matter! With that in mind, here are Esker’s thoughts on the 10 metrics that really matter to Accounts Payable teams, why they count, and how automation can help steer the numbers in the right direction. Figures throughout are quoted from Ardent Partners epayables business research and Esker’s own automation results.
1) Cost to process a single invoice
Incorporating staffing, IT, processing and routing costs, ultimately the backbone of the AP department is processing invoices. With non-automated costs averaging £10.95, a mature level of automation can bring this down by over 75%, to an average of £2.25. For businesses processing thousands of invoices a year, there’s no questioning the sum total savings this can bring to the bottom line.
2) Time to process a single invoice
Time is most definitely money in business, and these are two numbers that quickly add up. There are early payment discounts to be had for best-in-class AP departments, and conversely, late fees for those falling behind par. A co-ordinated end-to-end automation solution can eliminate manual, time-consuming tasks associated with invoice processing, reducing average processing time from 11.9 days on average to 3.3 days on average.
3) Invoices processed per day per FTE (full time equivalent)
Staff productivity is a metric used across many business departments, and in AP it certainly shows its worth. Calculating the average daily output of an AP staff member can identify bottlenecks and pinpoint inefficiencies in invoice processing. Here, automation can boost the numbers by 50% or more – Parts Town saw their invoices per day per user jump from 57 to 92 by implementing the right technology.
4) Invoices linked to a PO
Here it’s matching the numbers that matters. Invoices linked to a correct purchase order number (PO) can be processed more quickly and efficiently. The market average for matched invoices runs around 44%, however ‘best-in-class’ automated businesses see this average over 80%.
5) Invoice exception rate
Exceptions can really take up time in invoice processing. Which, if you remember back to #2, directly impacts business costs by causing the delays. Most common exceptions are caused by missing or incorrect PO numbers and data and approval bottlenecks. With an automation employing 3-way matching technology, issues are handled quickly and effectively and can reduce exception rates by over 60%.
6) Touchless invoice processing
‘Straight-through’ or touchless invoice processing can literally count the clicks an AP specialist needs to make: zero. In the case of Feu Vert, AP automation allows processing of a staggering 9 out of 10 invoices without human intervention. Just imagine what you could with that time saving!
7) Volume of electronic supplier invoices
The Covid-19 pandemic had few lasting positive impacts on the world. However, a marked shift to home-working and in turn e-invoicing can be counted among them. Businesses can not only make themselves more receptive to electronic invoices, by providing the right technology, but can also encourage and onboard suppliers to really boost this metric. Sunway are a shining example of how well this can work – with a dedicated supplier portal they now receive 50% of invoices electronically.
8) Early payment discounts captured
As alluded to in #2, early payment discounts can make crucial savings much-needed for businesses. A streamlined AP process is vital for this; not only speeding up invoice approvals and payments, but also logging, tracking and flagging those critical payment due dates.
9) On time payments
The business world has always been a tough landscape, but with strained supply chains in many industries, now more than ever vendors rely on on-time and accurate payments. With real-time visibility, AP automation facilitates the possibility of 100% of payments made on time. Supported supplier relationships, a healthy cash flow and faster cycle times can help to bring about positive sum growth for all in the supply chain.
10) Days payable outstanding (DPO)
Anyone who’s been near a finance department is no stranger to DPO, essentially an efficiency measure on how quickly suppliers are paid given their payment terms. It goes without saying that suppliers want this figure to be as low as possible, but from an AP perspective having a consistent DPO benefits overall business cashflow and can demonstrate the overall strategic value of an AP department.
The sum of all these metrics? Automating AP processes can have a massive impact on the KPIs that matter. An efficient, unified approach brings invoices directly into a cloud-based solution, automatically.
A cloud-based solution such as Esker manages and analyses invoice data, automatically queuing received requisitions and tracking the important details mentioned above – PO numbers, due dates, early payment discounts, and so on.
And still – the best is yet to come. Customisable dashboards display live analytics and can track any KPI you can imagine – no calculator needed! Take a look at how Routeco optimised their AP process, automating 100% of invoice processing and re-routing 50% of AP staff time to higher tasks.
Want to learn more about how Esker can help you add up to AP success? Find out more about our AP automation solutions or contact us for more information.
