5 key metrics to know for tracking and amplifying AP performance
Five key metrics to know for tracking and amplifying AP performance
Accounts payable performance can have a huge effect on working capital, cost and effectiveness of the P2P process, and business relations with key suppliers. While it typically hasn’t been a CEO’s number one focus, AP performance should matter to them as much as the business’ income and sales metrics.
Here is a quick guide to some of the key metrics your should understand for tracking and amplifying AP performance.
Average cost per invoice type
There are a number of steps involved to accurately ascertain this value. Not all invoices are created the same; for example, invoices that include exceptions or non-PO invoices may cost more than “clean” invoices. Benchmarking studies that indicate average measures and best-in-class datasets are a useful tool for gaining a frame of reference for your company’s performance compared to your industry as a whole.
Average time it takes to process an invoice
If your average invoice processing time is longer than it should be, then it is very likely that too much of your AP professionals’ time is spent performing repetitive, labor-intensive, remedial tasks, instead of than focusing their time and effort on strategic, value-add tasks. Typically, it should take to 3-4 days for high performing units to process a single invoice; laggards can take up to 17 days. By introducing on-the-go access and mobile capabilities to your AP system, you’ll be able to expedite approvals, no matter where your AP employees are, which will circumvent holdups when staff is out of the office.
Late payments & penalties
As inefficient AP process continue to cause more and more late payments, your business becomes responsible for an ever-increasing amount of capital owed due to late fees and interest. Consistent late payments also strike a serious blow to the reputation and credibility of your organization as a whole. Your goal should always be to make payments on time, though this may not always be a possibility. In spite of this, you should try to set an expectation for paying promptly, as this can help boost relationships, secure vendor loyalty, and open up opportunities to take advantage of early payment discounts.
Discounts captured as a percentage of discounts offered
Many suppliers offer discounts for paying an invoice early, but many businesses are unable to capture most discounts that are offered due to a lack of visibility into potential discount opportunities or inefficiencies in AP workflows that lead to lengthy approval processes. Businesses should make a point to track down all these neglected opportunities to gain insight into why they missed. AP employees will then be able to identify these invoices in the future and prioritize them, allowing them to be processed faster and increasing the chances of capturing early payment discounts.
ROI of invoice automation
The AP function is typically slow to incorporate automation in the cash flow cycle; because of this, many businesses have automated payroll and employee expenses, but their AP processes remain manual and inefficient. Automation, optimization, and digitization can offer real-time insight and transparency that leaders require to make confident decisions to optimize efficiency and growth. Investment in automation can generate significant return on investment; if you’re having issues providing numerical evidence, an ROI calculator can help determine potential savings and convince a CEO of the value of automation.