With advancements in technology, we have entered a world where almost everything can be easily monitored or tracked. There are apps with certain features to remind and give us tabs on our calendars to our travel schedules, our Uber rides to our food orders, and our exercise routines to our heartbeat rate. Nowadays progress is measured most often in seconds rather than minutes.
This also holds for an accounts payable department within an organization. With accurate Accounts Payable KPIs measurements & metrics, companies can address some of the common accounts payable challenges such as:
- Reduce database errors due to manual data entry
- Monitor invoices collection from various channels
- Match invoice data with purchase order, contract value, and goods/services received notes
- Reduce number of exception and manual workflow bottlenecks
- Identify AP fraudulent transactions
- Improve efficiency of multiple accounts payable channels
Why organizations need to track Accounts Payable KPIs?
To identifying bottlenecks and maximize the efficiency of the accounts payable department, companies should define Key Performance Indicators (KPIs) for the AP department. KPIs help the AP team to continuously measure your performance against key business objectives and sets the target for continuous improvement. Accounts Payable KPIs provide very useful data for crafting short and long-term procurement and payment strategies.
Here are 5 KPIs almost every account payable department should focus on reviewing.
KPI#1 Cost for Processing a Single Invoice
The tracking cost per invoice processed is the organization’s first glimpse into overall departmental efficiency. Different costs associated with processing an Invoice are infrastructure and follow-up, staff salaries, managerial overhead, and IT support.
The formula to calculate this KPI is:
Cost per Invoice processed = Total accounts payable costs / Total number of invoices
KPI#2 Time for Processing a Single Invoice
Every organization keeps a trace of how much time is spent on processing invoices. This gives valuable information about how the AP department is performing on payment of fees, productivity, maintaining supplier relationships & availability of early discounts. It is correctly said: Time is Money. To lower average cost and time wasted, there is a necessity to improve on the accuracy of invoice data and to streamline the payment-approval-receipt workflow.
KPI#3 Number of invoices processed per day per AP staff
This is a key KPI that demonstrates two objectives: which supplier’s invoice causes the biggest issues for the AP staff and which staff requires additional training and guidance for proper analysis and review of invoices promptly. Measuring this KPI gives you an idea of where your AP processes demonstrate strength and in which areas they require improvement.
KPI#4 Percentage of invoices related to a purchase order (PO)
One of the most important KPIs is Invoice validation. The purchase order and the invoice has to match for a smooth transaction. If there is any discrepancy, then it is a matter of concern in terms of time to check as well as the cost. The higher the percentage of invoices linked to purchase order, accurate and less expensive is your AP process.
KPI#5 Invoice exception rate
Exceptions are often caused by discrepancies in PO and invoice data, missing/incorrect POs, and bottlenecks in the approval workflow. When there’s a problem with an invoice—pending approval or routing errors—an invoice exception occurs. This can lead the payable process to a screeching standstill, and without verification or centralized information access, can also give chances to duplicate payments and other payment errors.
How to track 5 Accounts Payable KPIs?
Just as important it is to know which accounts payable KPIs to track; similarly having the technology in place to gather, sort, and distribute the data you’re collecting is essential. Accounts Payable (AP) automation can be the first stage towards the digital transformation of your accounts payable department. Try to bring everything on a single platform and eliminate inefficiency related to human intervention and paperwork. With the help of the Accounts Payable automation tools like Aavenir InvoiceFlow developed on the ServiceNow platform, you can execute:
- Intelligent Invoice Data Extraction
- Invoice Data On-boarding on Aavenir Invoiceflow (Accounts Payable Software build on ServiceNow)
- AI-based: 2-Way/3-Way Invoice Data Validation
- Invoice Approval Workflow
- Payment Request
The first two steps might mean pulling some historical data. In case of no historical data, the organization needs to start with an educated guess or defining the new KPI for a trial period to establish its merits. If necessary, multiple targets could be established for a single KPI, to cater to readily identifiable circumstances.
By having access to all invoice data, your AP team will be able to monitor the performance of above mentioned KPIs and then compare it against defined benchmarks to become more efficient and able to cut down operating expenses.
Aavenir Invoiceflow dashboard automates the reporting of all important KPIs, identifies bottlenecks, and defines alerts for next actions (for pending invoice approvals/payments) to improve performance.