CFO Service Finance & Accounting

8 Key Performance Metrics for Accounts Payable Processes

Recently, there has been a lot of attention being placed on accounts payable processes in the world of business. This is because optimizing accounts payable processes just makes business more competitive. And if you want to analyze just how well your business is doing in that area, then there are key metrics that you can pay attention to. Of course, these key figures can in principle be measured and prepared by any paper-based accounts payable department. However, you can access it much easier and faster if the invoice processing runs electronically.  So it may already be a great idea to adopt some kind of electronic invoicing process because it would also allow you to monitor all of the key metrics that you will need to pay attention to. Otherwise, here are some of those key performance Metrics for Accounts Payable to take a look at.

Cost for Each Billing

This is probably the most frequently mentioned measure when it comes to outsourced invoice processing – and the most obvious. At a glance, you can see how many the accounts payable processes cost your business on average. How much a single bill costs depends on many different factors and can be quite different. In any case, however, the potential for savings through the automated workflow is considerable. According to various studies, the savings rate should be around 60 to 90 percent of the cost of processing the invoice. So you may want to look into just how much you can save from the invoicing procedure.

Accounts Payable Processing Time

This key figure indicates the average time in days from the receipt of the invoice to the payment to the vendor, so to speak, evaluates the payment morale of the company. With long vendor run-times, discounts are often awarded, so the company gets charged money. In addition, frequent late payments damage the company’s reputation as a trusted partner. Paying the bills unnecessarily early has a negative impact on the company’s liquidity. Here is the rule: the balance makes it. If the accounts payable processes are outsourced, the terms can be easily managed. You can also usually improve the key accounts payable processing time as well.

Rates of the Savings

The more optimized the processes in Accounts Payable, the faster invoices are booked and the better the discounts can be used. Your business should be interested to know how many discounts you use within a week or a month. Is these savings for the accounts payable metric too low? By finance outsourcing or automating the bookkeeping processes, you will be able to fully exploit the cost savings in the future. Professional solutions for invoice processing, as offered by service providers, will help your business get warned when discount periods expire. Thus, you can improve the rate of savings for your own business.

The Lead Team for Accounts Payable Processing

The lead time is more or less a part of the vendor’s term because it measures the period between the receipt of the invoice and its posting. Unlike the vendor’s term, it only highlights the approval process and measures its efficiency. The lead time is reduced by an average of two days by automating invoice processing. For example, mobile applications that allow employees to approve invoices when they’re out and about can be helpful. Alternatively, the bill is forwarded to a deputy or supervisor in the absence. You must check out this key metric if you want to ensure that the accounts payable processing are done efficiently.

Invoicing per Employee

This key figure measures the efficiency of Accounts Payable. The better the processes, the more invoices a single employee can process. Depending on the initial situation of Accounts Payable, this key figure can be significantly increased by automation. Per employee, 50 to 200 percent more invoices per day can be processed with the introduction of electronic invoice processing and semi-automation. Time-consuming manual work frees employees through electronic processes. This allows them to focus on value-adding activities and manage a larger volume of invoices.

Return on your Investment

ROI is a hugely popular measure among business processes for accounts payable. This metric makes it very easy to measure whether a project is successful. Were the investments in the accounts payable processing or automated invoice processing worthwhile? The ROI will tell you immediately. For those who have yet to convince themselves and want to get a first look at potential savings, you should look at other data for other companies and how much their ROI was in accounts payable processing.

Default Interest for Accounts Payable

Although this is a negative ratio that no one likes to hand out, it is still important for you to able to know about it. If this ratio is very high, it is a real problem for the company to solve. Here, too, automation or outsourcing of your accounts payable processing can help solve. Outsourcing^[1] or automating this kind of workflow solutions guarantee short lead times and draw attention to due dates. This would ensure that you can incur the least amount of interest when it comes to accounts payable for your company.

The Mistakes or Discrepancies in Invoicing

Finally, another crucial key metric to take a look at is the number of errors in the invoicing for accounts payable. Even a small error could cost your business a lot of time and money. It can be a huge drain having to chase down a single error in your accounts payable invoices. That is why you should try and take a look at the percentage of the discrepancies in your invoicing. By adopting an electronic invoicing method you may be able to reduce the number of those errors for your accounts payable, and you can end up saving

A ton of money in the long run for your business, if you automated the accounts payable processing, then you would be able to reduce the number of errors that would occur. This would result in fewer losses for your company. And it would also ensure happier clients and business partners as well. You should always consider investing in some kind of electronic or automated accounts payable invoicing because you would be able to see just how much correcting or reducing.

Read our article:AP Process Cost: A Critical Metric of Finance and Accounting