7 Accounts Payable metrics that will grab your CEO’s attention
Wednesday, 25 Apr 2018
Senior Presale Consultant
CEOs can be somewhat dismissive of Accounts Payable as the remit of the CFO or Finance Director, while they focus on overall growth and organizational strategy. But in fact, AP performance can have a distinct bearing on working capital, the cost and effectiveness of the whole P2P process, and your company’s relationships with key suppliers – all of which should matter as much to your CEO as sales and income.
Your organization’s operational proficiency, financial dexterity and supply chain savvy are inextricably interlinked, and are a source of competitive edge. So if your CEO’s eyes glaze over at the mention of payables, here are seven KPIs that will provide them with meaningful insight into the health of your AP department and its impact on the wider business.
Metric #1 – Average cost per invoice type
This is an obvious measurement when it comes to automated invoice processing – yet one of the most fiendishly difficult to calculate, given the number of steps involved. Not all invoices are created equal: those with exceptions and non-PO invoices may well be costing more than clean ones. It can be very helpful to refer to a benchmarking study that indicates average and best-in-class measures, to determine how your AP performance compares with your peers. The potential savings achievable through invoice automation are considerable – anywhere between 60% and 90% per document, depending on the maturity of your current processes.
Metric #2 – Average invoice processing time
The longer the average time it takes to process an invoice, the more likely it is that your AP team is tied up in labour-intensive, low-value tasks rather than focusing on strategic, judgement-based activities. Market estimates vary according to organizational size and type, but the typical processing time per invoice in high-performing units is around 3 – 4 days, while laggards take an average of 17 days. One way to eliminate approval bottlenecks when staff are out of the office is to provide on-the-go access to your AP system via mobile, enabling employees to expedite approvals wherever they may be.
Metric #3 – Discounts captured vs offered
When AP processes are optimised, invoices can be processed faster, enabling your business to take advantage of early payment discounts. Keep track of the monetary value as well as number of missed discounts and consider using reason codes to identify how and why you’re failing to take advantage of discount opportunities. To improve this KPI, look for an invoice processing solution that will automatically notify you when a discount window is about to expire, to trigger timely payment.
Metric #4 – Late payments and penalties
Nobody likes to dwell on bad news, but ignore this metric at your peril. The higher your percentage of late payments, the more money your business will be haemorrhaging – often needlessly – through fees and statutory interest, not to mention the damage to your company’s reputation. Even though the goal of 100% on-time payments is an ambitious one, don’t be afraid to set the bar high – a reputation for paying promptly can pay dividends in terms of supplier relationships and negotiations.
Metric #5 – Number of supplier enquiries, discrepancies and disputes
Obviously, the lower this figure, the better. Handling supplier enquiries, discrepancies and disputes ties up valuable resources which will torpedo AP efficiency. E-Invoice automation should reduce the volume of supplier interactions needed by eliminating opportunities to introduce human error, and providing an unambiguous channel for electronic document transmission, which lowers the risk of duplicate invoices and payments.
Metric #6 – Percentage of straight-through invoices
Exceptions require manual rework before they can be approved, and lead to late payment, increased operating costs and unhappy suppliers, making them one of the biggest sources of friction between AP and Procurement. To increase straight-through processing, you need an automated process for delivering invoices into your AP system, and an intelligent workflow to deal with the inevitable remaining exceptions (which should drop to around 10% or less). Validation rules can be automatically applied to root out exceptions, while machine learning can deliver “smart” recommendations for general ledger coding which the business user simply reviews and confirms with a single click.
Metric #7 – ROI on invoice automation
The AP function is often lagging when it comes to automating the cash flow cycle – more companies have automated their payroll and employee expenses than their AP processes. Digitisation and optimisation offer the real-time visibility and transparency your CEO needs to drive strategic decision-making, efficiency and growth. Investing in invoice automation will almost certainly yield significant uplift across all your AP KPIs, but if you’re having difficulty providing numerical justification for your business case, try using an ROI Calculator to determine the potential savings and convince your CEO of the value of automation.
While you can attempt to measure and monitor all of these metrics manually, embedded analytics can provide immediate, powerful insights based on the data generated by electronic workflows to help you and your CEO navigate the path to financial agility and operational excellence.
Ready to dig deeper into the topic of automated invoice processing? Check out our blog on E-invoicing: The Accounts Payable (AP) best practice behind productivity.
If you have any questions, or just want to talk through your options, you can get in touch via our contact us.