Are you tracking the same KPIs for the past 5 years?
Discover the top 5 accounts payable KPIs that outstanding finance leaders are tracking nowadays.
The world has changed dramatically due to the pandemic, which requires us to adapt quickly to reach our goals. We have witnessed the fastest technology revolution in history. These sudden changes are impacting the way we work and make decisions. Thanks to the latest technological developments we have new software and ways of working that are easily trackable. We have never had this vast amount of data!
These days we need to be careful with we way we handle the data so we do not want drown in oceans of information; the solution is PRIORITIZING. By looking at the goals in your organization and the available data, you can prioritize the KPIs that are relevant to your business. This step will help you stay informed and in control.
To help finance leaders stay in control and lead high-performance accounts payable teams, we have created a shortlist of 5 accounts payable KPIs for modern AP (Accounts Payable) teams.
If automation is not part of your I2P (Invoice-to-Pay) process today, you may like to know more about how technology can impact your way of working and help you lead a highly productive AP team.
Tracking accounts payable KPIs on today’s world
Over the past 2 years, the world has been brought online, teams are working in hybrid models, and modern technologies have enabled human-robots collaborative work. As the way of working changes and more data is available, it is time to change and rethink the KPIs we use to measure our activities.
BEFORE: Often, accounts payable departments are labeled as inefficient. This is a consequence of the considerable number of manual tasks and how heavily reliant they are on paper and spreadsheets. Manual and paper invoices have become a trigger for error, fraud, lack of visibility, work overload, among other situations.
NOW: As we continue our journey towards digital transformation by implementing technologies such as invoice automation and we start gaining visibility on the processes, we see the need to review the KPIs we measure.
There are some cases in which it is critical to keep closer track of accounts payable KPIs to make sure the process stays healthy in challenging and changing times: acquisitions, merges, company restructuring, and the implementation of new tool or technology. These are situations where a closer and more accurate analysis will pinpoint inefficiencies and prevent costly outcomes, such as past due payments. For instance, when you implement a new accounts payable invoice automation software, it is critical to measure how AP agents are adopting the tool, spot best practices, and set a reporting process to continuously improve performance. The benefits of acting on the right KPIs: cost saving, increased satisfaction (leadership, suppliers, staff), and higher productivity levels.
Accounts payable KPIs: the shortlist
Since time is limited, finance leaders and AP agents must focus on the data that will help them inform their decisions. Actionable accounts payable KPIs that support business by paying invoices on time, prompt higher organizational and supplier satisfaction, help identify errors, low productive steps, and operational inefficiencies, will save you time and money.
1. COST PER INVOICE: we know that paper invoices are more costly to processes than e-invoices, so we would advise you to start by tracking the % of automated invoices you process. The average cost of processing an invoice is one of the accounts payable KPI’s finance leaders look at to measure the effectiveness of their AP invoice process. However, it is not an easy metric to obtain as many of the costs involve might be hidden.
By using AP automation software with reporting capabilities, outstanding finance leaders can track the cost per invoice more accurately. Better management and tracking thanks to the use of technology. AI (Artificial Intelligence) can help you drive the average cost per invoice down.
2. INVOICE PROCESSING TIME or INVOICE THROUGHPUT TIMES: invoice automation helps you shorten cycle times.
The total amount of time that it takes for an invoice to be received, processed, approved, and posted on the ERP. Invoice throughput time is an accounts payable KPI that will help you understand the invoice lifecycle. By using invoice processing automation, you will get visibility on the duration of each step in processing an invoice, and therefore, be able to improve those steps that are causing delays. As you improve your invoice cycle time, you will be avoiding poor vendor relationships, missed early-payment discounts, and delays in closing the month-end .
We recommend that when tracking the processing the time, finance leaders request insights into the number of invoices that are paid on time. We see cases in which suppliers require the payment to be complemented in a brief time, these are challenging, even if you have a short invoice throughput time. With smart tools you can highlight the vendors that need to be paid sooner, making sure that you do not miss any deadlines. This sub KPI will be an indicator of how the process is improving.
Takeaway: Your KPIs should tell you not only about invoice processing times but also how many invoices are paid on time (we seek to be quick while making sure that we pay on time).
By implementing invoice automation technology, you can train robots to flag words, vendors, and patters, so these invoices are flagged, and therefore prioritized in the invoice flow.
In the process of identifying priorities you can also teach the robot to automatically assign invoices based on language, so the invoices in a specific language go to the right agent, shortening that way the throughput time.
3. # OF INVOICES PER ACCOUNTS PAYABLE EMPLOYEE: increase the number of invoices processed per agent thanks to automation and visibility on the invoice process. Do not let averages mislead you.
The number of invoices that each of your AP agents can process per day/week/month/quarter/ year… is an indicator of productivity and efficiency.
Even though these accounts payable KPIs might seem easy to calculate, this metric is not exempt from challenges. For example, the total number of invoices processed per year divided by the number of FTEs in charge of processing those invoices will give you the average productivity per agent. This would be an indirect indicator.
However, depending on their responsibilities, some agents might be spending a lot more time than others who review simpler invoices. Here is another example: An FTE who is responsible for processing the invoices coming from a particular supplier might struggle with the type of invoices such supplier sends (paper only). By using a solution not only able to automate the invoice process but also to collect data, you will be able to identify the challenges some agents face. Addressing these challenges will improve the average per FTE. This is a direct insight collected through technology.
Depending on the country, visibility per agent is not possible. However, by looking at team performance and other data available, it is possible to address the challenges such as invoice quality, supplier collaboration, and shorter invoice approval times.
WITH DATA-BASED INFORMATION YOU CAN REDESIGN PROCESSES TO BE MORE EFFICIENT
4. INVOICE EXCEPTION RATE: track how you are reducing the number of exceptions thanks to AI.
This KPI refers to the number of invoices with errors or inaccuracies, these are exceptions that are important to track as they increase invoice processing time and the cost per invoice. If you can identify your AP teams most frequent exceptions are, you can address the different frequent scenarios: duplicate PO, invoice missing data, etc.
By using modern invoice processing tools, you can bundle exceptions and classify them so your organization can identify corrective actions: contact vendors, change process, or update the tools.
5. AVERAGE TIME TO APPROVE AN INVOICE: Shrink the invoice cycle time by gaining visibility on the invoice approval workflow.
Do you know how long it takes to get an invoice approved? Approval workflows can be tedious, especially in those scenarios where several manual approvals are required. By tracking this accounts payable KPI, you will be able to identify where the process gets bottlenecked and shorten the overall invoice cycle time.
APPROVAL ALWAYS TAKE TIME, EXCEPT WHEN YOU BUILD ESCALATION LEVELS
It is possible to implement different invoice approval routes for different invoice types by using specific invoice automation solutions. This way, you can trigger faster approvals, get insights, and act on them.
Imagine would happen if you could program an invoice to be sent for approval to the next in line (the boss). We have seen that this kind of approval routes trigger a faster reaction from the approvers.
Based on escalations and waiting time you will get information that can help you optimize the process.
- Once you have selected the KPIs that you want to measure it is time to compare your performance against, previous period and industry peers.
- All business functions are using KPIs to measure efficiency and contribution to overall business success. AP should be no different.