Almost every business unit uses performance metrics to gauge themselves and accounts payable (AP) is no different. Going by the saying ‘what cannot be measured, cannot be achieved’, we should treat AP as a quantifiable data point. The only challenge with AP is that, sometimes, it can be hard to identify what to measure.
So, the above statement will most likely apply to AP processes that have several moving parts, multiple people across the business, and potentially manual process steps. Typically, building a business case for AP automation is necessary for invoice management transformation. Without it, you might not convince relevant stakeholders on the importance of automating the accounts payable function. So, understanding current AP metrics is essential for finding out the potential that comes with leveraging automation.
According to a survey carried out by the Institute of Finance and Management (IOFM), more than half (59%) of accounts payable departments believe automation should be an investment priority. Surprisingly, a majority of accounts departments still run on manual or semi-automated processes. Thankfully, there are quite a number of distinct metrics that can be linked to AP. Here are four useful AP metrics that matter the most.
- Cost per Invoice
This is defined as the amount incurred in processing one invoice within a business. However, this cost often varies across organizations, as many factors come into play. While this cost may seem deceptively low, several hidden costs could hurt your profits. For instance, if your organization relies heavily on paper invoices or highly manual, then there are operational and labor costs associated with the time spent by employees on preparing invoices. There is also the risk of human error, which could raise your overall expenses. Other factors that affect the cost per invoice include
- Audit costs
- Systems and equipment
- Lost supplier discounts
- Errors such as overpayments
- Invoice Time Cycle/Invoices Paid-on-Time
The sad reality is that only 4% of organizations pay their invoices on time. In some cases, this figure of bad payers could even account for more than 7% of the cases. The problem is usually linked to delays in approving invoices. This may cause an unmanageable backlog, strained relationships with suppliers, difficulty in rectifying cash flow, and late-payment penalties. It also means that the company will miss out on early payment discounts.
- Staff productivity
Manual invoice processing is often a daunting exercise. Employees need to open mail, validate the invoice by matching it with purchase orders and shipping details, and physically tracking the invoice across the departments. In some cases, staff key in invoice data into company systems. All this stress can be eliminated through automation, enabling staff to be more productive. Be sure to visit our website to learn how to get rid of manual processes. Automation enables staff to process up to 10 times more invoices per month.
- Percentage of First-Pass match Invoices
Most accounts payment units often handle over three-quarters of invoices they get. But a lower first-pass could easily increase the overall cost, delay approvals, and open room for errors. So, automation will boost the first-pass match rate, enabling faster transmission of information to ERP systems.
Improving any of the above performance metrics should be a priority to senior executives. Some businesses may be interested in other performance indicators like timeless payments, but the most important thing is to understand how well your AP performs.