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Accounts Payable KPIs for Effective Management
Accounts Payable (AP) is a critical function in any organization. Among other tasks, accounts payable departments are responsible for processing invoices, supplier relationships, and executing payments. They must perform these tasks while ensuring accurate, timely, and compliant operations with all relevant regulations. However, managing accounts payable teams and processes effectively can be challenging, particularly for organizations with a high volume of invoices.
This is where Key Performance Indicators (KPIs) come into play. KPIs help organizations track and measure the effectiveness of their accounts payable invoice process. Below we explore some of the most critical indicators for successful accounts payable management.
Key accounts payable KPIs organizations need to track
Invoice Processing Time
Invoice processing time is the amount of time it takes for an invoice to be received, reviewed, approved, and paid. This KPI is important because the longer it takes to process an invoice, the longer it takes for suppliers to receive the payment. Delayed payments can harm supplier relationships and potentially result in late payment fees.
AP managers should closely monitor invoice processing time as it can be an indicator of low productivity among the team. Also, it could be a signal of a deficient process.
Daily invoice processing volume by agent
Daily invoice processing volume by agent measures the number of invoices an AP agent processes daily. This KPI is important for tracking the productivity of the AP team members. It will allow you to establish performance targets, measure progress, and identify areas for improvement in invoice processing steps and procedures.
Cost per Invoice
Cost per invoice is the average cost of processing a single invoice. This KPI is important because high processing costs can reduce the overall profitability of an organization.
The cost per invoice is an important KPI in accounts payable, as it measures the cost associated with processing each invoice. This includes both direct costs such as labor and indirect costs such as overhead. High costs per invoice can impact the overall profitability of an organization, particularly if the volume of invoices is high.
Invoice accuracy measures the number of invoices processed without errors. It is another critical KPI in accounts payable. The reason why is that errors can delay payments, increase administrative costs, damage supplier relationships, and cause legal disputes.
To reach the ambitioned accuracy rate it is critical to have accurate data. Quality of data is a shared responsibility between a company and its suppliers. It is key to have the proper master data in place and to include the proper PO in the invoices.
Invoice exception rate or % of invoices with deviations
The invoice exception rate measures the percentage of invoices that do not follow a happy flow due to discrepancies or errors. Such invoices are blocked for payment and require manual intervention or correction. As a result, the invoice processing time increases, as well as the cost. These invoices incur additional expenses. Here we see two important KPIs, the cost of processing an invoice and % of invoices paid late. Furthermore, invoices with discrepancies not only consume time for the accounts payable department but also for different departments involved in the approval process.
By tracking this KPI, organizations can identify trends and patterns in the types of errors that occur, pinpoint areas for improvement in the invoice processing workflow, and take corrective actions to reduce the number of exceptions. Subsequently, invoice processing efficiency increases.
Payment timeliness or % of invoices paid on time
Payment timeliness tracks the percentage of invoices that are paid within the agreed-upon payment terms. As payment is one of the key responsibilities of the AP department, this KPI is important to measure the efficiency and effectiveness of the accounts payable function.
The payment of invoices to the suppliers is the final step in the invoice-to-pay process, and thanks to paying invoices on time, suppliers provide the services and the goods ordered. Good payment behavior avoids late payment fees and blocked accounts and improves supplier relationships allowing you to negotiate better agreements.
Working with accounts payable KPIs is crucial for organizations to control, enhance AP efficiency, cut costs, and maintain good supplier relationships. Organizations can track KPIs to ensure that their AP team is working towards the business’s overall goals. Tracking KPIs helps organizations monitor the performance of their AP team. This allows them to make necessary adjustments and improvements to align with the business’s objectives. By doing so, organizations can ensure that their AP team’s efforts contribute to the achievement of the business’s overall goals.
Modern AP automation software solutions such as Cevinio can help enterprises measure and achieve better outcomes across a range of key performance indicators. Contact us and discover how we can help you impact your KPIs positively.