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5 Essential KPIs for Effective Accounts Payable Management
Accounts Payable (AP) is a critical function in any organization. It involves processing invoices, supplier relationships, and executing payments, ensuring that these are accurate, timely, and in compliance with all relevant regulations, among other tasks. However, managing AP effectively can be challenging, particularly for organizations with a high volume of invoices to process. This is where Key Performance Indicators (KPIs) come into play, helping organizations track and measure the effectiveness of their AP processes. In this blog post, we’ll explore some of the most critical KPIs for effective Accounts Payable management.
Key accounts payable KPIs organizations need to track for effective AP management today
Invoice Processing Time
Invoice processing time is the amount of time it takes for an invoice to be received, reviewed, approved, and paid. This KPI is important because the longer it takes to process an invoice, the longer it takes for suppliers to receive the payment. Delayed payments can harm supplier relationships and potentially result in late payment fees.
AP managers should closely monitor invoice processing time as it can be an indicator of low productivity.
Daily invoice processing volume by agent
Daily invoice processing volume by agent measures the number of invoices processed by an AP agent daily. This KPI is important for tracking the productivity of the AP team members, establishing performance targets, measuring progress, and identifying areas for improvement in invoice processing steps and procedures.
Cost per Invoice
Cost per invoice is the average cost of processing a single invoice. This KPI is important because high processing costs can reduce the overall profitability of an organization.
The cost per invoice is an important KPI in accounts payable, as it measures the cost associated with processing each invoice. This includes both direct costs such as labor and indirect costs such as overhead. High costs per invoice can impact the overall profitability of an organization, particularly if the volume of invoices is high.
Invoice accuracy measures the number of invoices processed without errors. It is another critical KPI in accounts payable, as errors can delay payments, increase administrative costs, damage supplier relationships, and cause legal disputes.
To reach the ambitioned accuracy rate it is critical to have accurate data. Quality of data is a shared responsibility between a company and its suppliers. It is key to have the proper master data in place and to include the proper PO in the invoices.
Invoice exception rate or % of invoices with deviations
The invoice exception rate measures the percentage of invoices that do not follow a happy flow as they present discrepancies or errors. Such invoices get blocked for payment and require manual intervention or correction, which makes invoice processing longer, and more expensive and affects another important KPI, such as % of invoices paid late. Invoices with discrepancies not only take up time from AP but also from different departments which are involved in the approval process.
By tracking this KPI, organizations can identify trends and patterns in the types of errors that occur, pinpoint areas for improvement in the invoice processing workflow, and take corrective actions to reduce the number of exceptions, improving overall invoice processing efficiency.
Payment timeliness or % of invoices paid on time
Payment timeliness tracks the percentage of invoices that are paid within the agreed-upon payment terms. As payment is one of the key responsibilities of the AP department, this KPI is an important measure of the efficiency and effectiveness of the accounts payable function.
The payment of invoices to the suppliers is the final step in the invoice-to-pay process, and thanks to paying invoices on time, suppliers provide the services and the goods ordered. Good payment behavior avoids late payment fees and blocked accounts and improves supplier relationships allowing you to negotiate better agreements.
Overall, working with accounts payable KPIs is important for organizations that want to get control, improve the efficiency and effectiveness of their AP function, reduce costs, and maintain positive relationships with their suppliers. By monitoring KPIs, organizations can ensure that their AP team is operating in a manner that supports the broader goals of the business.
Modern AP automation solutions such as Cevinio can help enterprises measure and achieve better outcomes across a range of key performance indicators. Contact us and discover how we can help you impact these and other metrics positively.