Measuring Your Team’s Success
There are so many Key Performance Indicators (KPIs) to choose from in Accounts Payable that it can be difficult to determine which ones could have the biggest impact on your department’s success. But without setting goals and tracking your progress, it’s easy to get off track or distracted.
Fortunately, benchmarking data from the Institute of Finance and Management (IOFM) provides a guide. It suggests there are five measures of operational efficiency and effectiveness that are most important to achieving best-in-class results. These metrics will put you and your AP processes on your way to success.
1. Percentage of Early Payment Discounts Captured
One of the easiest ways to know whether your Accounts Payable department is operating at a high level is to measure the percentage of early payment discount offers that your business captures.
Buyers earn an early payment discount of two percent on the typical invoice. The potential opportunity for discounts earned on early payment can grow significantly based on a buyer’s total annual spend.
Best-in-class Accounts Payable departments capture an impressive 85 percent and 95 percent of early payment discount opportunities, per IOFM’s Is Your AP Performance Top Tier? However, most Accounts Payable departments have a lot of room for improvement, especially those that are the least automated. The average Accounts Payable department captures 66 percent of early payment discount opportunities, while departments in the bottom quartile capture just 40 percent of opportunities.
2. Number of Invoices Processed per FTE
Another critical KPI to achieving best-in-class results is the number of invoices processed per FTE (calculated by dividing the total number of invoices processed annually by your total number of FTEs).
A lack of automation has a big impact on staff productivity. With a significant level of automation – where at least 70 percent of supplier invoices are received electronically and processed using an automated workflow – a single FTE can process nearly 23,000 invoices annually. Departments that receive most of their invoices as paper struggle to hit one-quarter of that number.
At a time when departments are being pressured to do more with less, FTE productivity is a key KPI.
3. Percentage ofInvoices Paid on Time
Best-in-class Accounts Payable departments know that on-time payment of supplier invoices reduces late-payment penalties, decreases inquiries, and strengthens relationships with valued suppliers.
Departments with a significant level of automation pay a lot more of their invoices on time. Approximately 29 percent of Accounts Payable departments with significant automation pay their non-PO invoices on time at least 96 percent of the time. In contrast, only 13 percent of departments with moderate automation pay their non-PO invoices on time at least 96 percent of the time, IOFM finds.
4. Average Cost to Process a Single Invoice
The average cost to process a single invoice is another key driver of achieving best-in-class results. IOFM calculates this measure by diving an Accounts Payable department’s total labor cost by the total number of invoices processed annually. While this figure does not include all expenses – such as overhead and third-party services – it provides an easy way to compare costs across departments.
The cost differences between departments with significant automation and those with little or no automation is significant. Overall, there’s a four-fold difference between top and bottom performers, per IOFM’s Is Your AP Performance Top Tier?
In fact, the worst-performing Accounts Payable departments with significant automation process invoices at a lower cost than top-performing departments with limited automation, IOFM finds.
5. PO First Pass Match Rate
Matching invoices to POs is a key step to improving the speed and accuracy of the invoice approval process. The more invoices an Accounts Payable department processes manually, the harder it is to maintain high first-pass match rates. Best-in-class Accounts Payable departments match invoices and POs on the first pass at least 90 percent of the time, IOFM finds. However, bottom-performing Accounts Payable departments match invoices and POs on the first pass only 70 percent of the time.
Tracking these KPIs will help your Accounts Payable department achieve best-in-class results. Is automation in your plans? Let’s discuss how Canon can help. Learn more about how AP Automation can help your organization here in this AP Automation success story.
Our team is here to help! Explore CIIS Virtual Office and speak with our Solutions Consultants about how Canon can assist your organization navigate through the current challenges, to maintain business continuity and manage document processes, while setting the stage for future process transformation across your business functions.