How To Measure AP Performance
Data is one of the driving forces in the success and efficiency of businesses today. When it comes to your company’s accounts payable (AP) performance, data measuring and tracking are key components to your overall productivity and financial growth.
In the digital age, more and more businesses are moving to paperless processes and technology software that tracks key performance indicators (KPIs). By measuring your AP performance with these KPIs, your business can speed up processes, cut down on losses, and improve efficiency.
Why Measure AP Performance?
If you’re asking why your company should measure your AP performance the answer is simple: if you can measure it then you can improve it.
Today’s world is all about improving and increasing efficiency. Your company may be losing valuable time, money, and resources by failing to accurately track and measure your AP performance.
The future of accounts payable is AP automation for this exact reason. AP automation removes the object of human error that comes with manual invoice processing and offers the luxury of tracking and measuring KPIs that will benefit your business.
Measuring your AP performance is the first step in increasing efficiency and smoothing the daily processes of your company, but what KPI should you be tracking?
These four KPIs will help you analyze and evaluate your AP department’s efficiency so you can adjust and improve.
Average Number of Invoices
To measure other AP KPIs you must first begin by tracking the number of invoices received in a given time period. The time period may vary depending on the size of your company and the volume of invoices that run through your AP department.
If you see a significant number of invoices per day then it may be best to measure per day but you can also measure by week, month, or year depending on the sheer volume of invoices that your company sees and your AP efficiency goals. Once you determine your time value of measurement, you can use that daily or annual invoice volume to track the number of invoices received in relation to the number of invoices processed.
Average Invoice Processing Time
The average invoice processing time is a metric that should always be tracked when it comes to AP. Especially if your company is still manually processing invoices with an AP team, the invoice cycle times are a KPI that should be put at priority.
If your average invoice processing time is longer than 14 business days, then your team may need to reevaluate the speed of your approval steps and productivity rates. Once you measure the average time it takes to process an invoice, you can identify potential bottlenecks in the process.
Your company’s invoice processing time may be slowed when key employees that are required in the approval process are out of the office. AP automation fixes the approval process with tools like on-the-go invoice approval features through mobile access that significantly speeds up the processing time to only two to three days.
The payable department may also be slowed down with mere manual data entry that may be taking longer than expected. Once you measure the average time it takes to process an invoice, management can reassess department productivity and evaluate if an AP automation software will be the remedy to increase timely payments.
Average Invoice Processing Time versus Average Invoices Received
Remember that time measurement that we talked about early? Take that period of time that you chose for your company (per day, per month, etc) and compare the number of invoices processed in that time period to the number of invoices received.
By tracking this KPI, you can accurately measure your AP efficiency. You should be aiming to process as many invoices as the volume that you receive within that month. If your company’s number of invoices processed in the given period is significantly lower than the number of invoices received, then it’s time to re-evaluate.
Look for areas to increase the speed of your invoicing process and then track your AP processing performance over time to see which process efficiency practices are working.
Average Cost per Invoice
The average cost per invoice is a crucial KPI to track and measure when it comes to APs. Many companies are shocked to see just how much they are losing in profit margins when they evaluate cost metrics.
APs can have significant hidden costs due to operational costs like staff salaries, managerial overhead, software costs, printing fees, and hardware expenses. Organizations may be paying anywhere from $15 to $40 per invoice, but with the simple technology implementation of AP automation, costs per invoice can be reduced to only $2.
Beyond just operating costs, human error in the manual entry may lead to bad payments, duplicate payments, late payment penalties, and unclaimed discounts that add up. Within the broader KPI of average cost per invoice, you can increase your efficiency metric measures by tracking specific costs like the average number of wrong payments and the volume of discounts missed.
By specifying these areas of costs, you can improve AP efficiency tracking and narrow down the problem areas that need improvement. For example, if the percentage of invoice costs is the highest in the category of duplicate payments, then you should reevaluate how you review new invoices in comparison to those that were already paid.
Once you measure your company’s average cost per invoice, you can implement strategic tasks to reduce losses or consider adopting AP automation software. Cost savings is one of the most common reasons companies automate B2B payments.
The software can also track these KPIs for you so that all you are left to do is analyze the data and do some organizational restructuring according to the areas that need improvement. Electronic invoices through AP automation software also increase the accuracy of invoices and prevent erroneous payments by scanning the document to ensure that it isn’t a duplicate invoice.
AP automation delivers speedy and accurate payments by trimming down the slow manual steps in physical review tasks that human processing relies on. Advancements in technology have simply accelerated our business processes and it’s time to take advantage of it.
To accurately measure your company’s APs, speed up your invoice processing cycles, and reduce invoice costs, check out our AP Automation Software and Contact Us today to get started.