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Measure, Monitor, and Track the Critical KPIs for AP

Learn how to optimize your accounts payable process using the most relevant KPIs and data-driven benchmarks.

Whether you’ve been tasked with increasing the efficiency of your current accounts payable process, or you simply feel like you’re not reaching your true potential of productivity in AP, it can seem hard to find a place to start for process optimization. Thankfully, the technology development for AP has uncovered a wealth of data and opportunities far beyond the traditional solutions that were commonplace five or more years ago.

What KPIs are critical for AP?

To start, it’s important to highlight the key performance indicators (KPIs) that are integral to the success of your AP department. A KPI should be a quantifiable data point, closely tied to the success of a specific business project. Good KPIs should be specific, agreed upon by all project members, and time-bound. KPIs should be measured on a regular basis, at least quarterly, to ensure the accounts payable process is in line with goals and to identify areas of improvement.

The saying goes, “What cannot be measured, cannot be met” and couldn’t hold more true for accounts payable. If you’re not keeping track of the KPIs you have, there’s no accountability to reach your goals, and no sense of visibility into how you’re truly performing.

For AP departments with some level of automation in place, there are four KPIs that we find to be the most useful:

  • Touchless Processing Ratio – the percentage of invoices processed with no human intervention between receipt and the point where it is ready to be posted in the financial system (ERP) for payment.
  • Invoice Lead Time – the total time it takes for an invoice to be received, processed, finalized and made ready for payment in the financial system (ERP).
  • Invoices Processed per FTE – the number of invoices process per accounts payable full-time employee over a measured period of time, usually by month or annually.
  • Automatic Distribution Percent – the percentage of the total expense invoice volume that is automatically distributed to the appropriate approver by a solution with no human intervention.

Of these four KPIs, you’ll likely find that one or two take precedence in importance, depending on the particular goals of your business and constraints of operational logistics. Regardless, these metrics are essential to highlighting where you stand in the process of achieving goals and how you improve, or diminish, over time. 

How can I benchmark my AP department?

The modern AP manager is driven by data from the AP process, thanks in part to the digital transformation happening to accounts payable departments across North America. In order to maintain a highly efficient and fast accounts payable process, AP managers rely on closely monitoring their KPIs and identifying opportunities for improvement along the way. However, just measuring data points is not enough to ensure your AP’s performance is in line with industry standards.

That’s where benchmarks are critical. Benchmarks are generally defined as “a standard, or a set of standards, used as a point of reference for evaluating performance or level of quality.” While this is good in theory, you need to be careful and make sure you understand the origin of the benchmark numbers – it can range from interviews and surveys to vague estimates based on personal experience. Watch out, or you can end up comparing yourself to something that does not make any sense for your business.

If you have access to analytics tools to gauge your current performance levels and valid industry benchmarks to compare your own metrics with, you can set realistic goals and start implementing improvement tactics based on actual data instead of guesses or hunches.

What are the best-practice tactics to improve automation levels?

AP departments that rise above their peers as best-in-class follow certain “best practices” that help them move the needle and make a difference that affects the entire business and bottom line results. 

First and foremost, your financial systems need to be able to support your end goals and focus on automation. Measuring and monitoring KPIs requires a tool that provides you with detailed analytics and reporting. You also want to ensure that the data feeding the reports you’re viewing is accurate and up to date, which is why we recommend a cloud-based system.

AP leaders also take a holistic approach to the invoice process, meaning not only are they optimizing for both PO- and non-PO-based invoices, but they keep track of metrics and performance for all parts of the process where invoices are concerned, from invoice receiving (capture) all the way to how data is being fed into the ERP system.

Best in class AP teams foster close relationships with their suppliers, regularly analyzing the invoice process to highlight which suppliers are causing delays in the invoice process and aligning with them on invoice format and data quality requirements. They also know which suppliers bring in the bulk of the invoices, and create target suppliers that must be made priorities for alignment and training on any relevant requirements. A close relationship with suppliers also means that they will recognize their customers in good standing who regularly pay on time or early, opening up new opportunities for early payment discounts.

How to get started on optimizing your AP to be best-in-class

Sign up for this complimentary Learning Lab: Measure and Benchmark Your AP Process Efficiency.

This learning lab series further expands on the most important (KPIs) we introduced in this blog post and gives actionable guides for how to make your own AP process best-in-class for efficiency.

Sign up now

Meredith Grace

Meredith Grace

AP Automation Editorial Team

meredith.grace@medius-group.com