Track these five KPIs for improved AP efficiency
Your organisation’s accounts payable (AP) department is integral to generating and maintaining an accurate balance sheet and managing cordial relationships with suppliers by ensuring timely payments. AP is primarily responsible for receiving and processing invoices, maintaining vendor data, and authorising payments. All these are potentially time-consuming and labour-intensive manual tasks. With the volume of financial and supplier data, it is prudent to track metrics and KPIs for AP processes to maximise efficiency and profitability.
Accurately tracking key AP metrics can help speed up processes and identify bottlenecks in procurement and payment strategies.* The data collected can help in strategic business decisions to improve operations, reduce expenses, boost business agility, and better understand vendors. Here are the five key AP metrics that organisations can’t ignore.
The average cost to process a single invoice:The cost to process a single invoice is the ratio of total AP expenses over a fixed time (a week, a month, a quarter, or a year) and the number of invoices processed during the same period. Contributors to invoice processing costs include expenses on AP infrastructure, labour, paper, printing, postage, and auditing. Once you know how much you are spending on these aspects, you can take steps to reduce these expenses, such as incorporating digital processes, including data capture tools and digital payments to save time, labour costs, and paper.
The average time taken to process a single invoice:You can track the overall efficiency of the AP department by monitoring the time elapsed between the receipt and the approval of an invoice. This metric is a fixed period divided by the number of invoices processed in that period. Delays in invoice processing are usually caused by errors in invoice data and can increase costs, damage relationships with vendors, and cause an organisation to miss out on early payment discounts. Switching from manual to automated systems can ensure error-free invoice data and a streamlined workflow.
The number of invoices processed monthly per employee:Tracking the number of invoices each AP employee processes in a month provides detailed insights into the strengths and weaknesses of an AP team. Calculate this figure by dividing the total invoices processed in a month by the number of AP department employees. Not only does monitoring this AP metric identify which employees need additional training, but it also helps identify which vendor’s invoices cause the most processing issues for the AP department.
Days payable outstanding (DPO):This is the average number of days it takes an organisation to pay vendors for services rendered once an invoice has been received. On the one hand, a high DPO, based on agreed-upon credit terms can be advantageous as it means more liquidity for the organisation’s short-term activities. On the other hand, it could also indicate that some suppliers are not being paid on time; this could result in strained relationships, late payment charges, and missed discounts. It is important to identify bottlenecks in the AP process and deploy a system to ensure an optimum DPO.
Invoice exception rate:Invoice exceptions are a result of data entry errors, discrepancies in purchase orders, issues with approval, or missing paperwork. This key AP metric is a result of dividing the number of exceptions generated over a period by the total number of invoices paid over the same duration. Since exceptions can cause deferred or incorrect payments, as well as bottlenecks and delays in the AP workflow, they negatively affect other key metrics by adding time and cost to invoice processing. AP departments that primarily use manual or paper-based methods will surely see more exceptions due to human error. Automating repetitive tasks such as data extraction and entry and switching from paper documents to digital formats can massively reduce invoice processing errors, bring down costs, and enhance the efficiency of the whole AP process.
How can Infosys BPM help?
Incorporating automation into your organisation’s AP processes can help you better track these key AP operational metrics and drive strategic decision-making while boosting the AP department’s overall efficiency. The Infosys BPM Accounts Payable on Cloud platform can help you track these and more KPIs for AP processes, using artificial intelligence and machine learning algorithms to improve how your AP team carries out its duties.
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