9 KPIs Your Accounts Payable Department Should Be Measuring

You may think your department is at the top of its game, but unless you’re measuring these key performance indicators, you may be fooling yourself.

The late Mayor of New York City, Ed Koch, used to go around asking residents, “How am I doing?” That’s a question you should be asking about your accounts payable department, and, if you can’t answer it with solid stats, you can’t really measure your success or shortcomings. PayStream Advisors included AP’s most essential KPIs as part of their recent 2014 Invoice & Workflow Automation Report, which we posted earlier this week. The only way you can really measure the benefits of invoice workflow automation or any initiative, for that matter, is to measure the impact it has on your department’s operations and processes.

So here are the things your department should be measuring quarterly:

1. Number of Invoices Processed per Day, per Full Time Employee – This will give you a clear picture of who, in the department, is performing well and which employees may need additional training to bring them up to speed.
2. Average Cost to Process an Invoice, by Type – The more you can categorize your costs, the better you can identify where your biggest cost drivers may be. And that insight may help you reduce costs.
3. Exception Invoices as a Percentage of Total Invoices – Since handling exceptions is so much more costly than straight through processing, finding where these exceptions occur, whether by vendor, by type, or by department, will give you the information necessary to hopefully reduce these costly invoices.
4. Average Time to Approve an Invoice from Receipt to Payment – An invoice workflow automation solution will identify how long each invoice takes to go through its lifecycle. This will allow you to see where in the process, from data entry to final approval and payment, the longest timeframes occur. And that knowledge will let you make the necessary corrections at the appropriate touch point.
5. Electronic Invoices as a Percentage of Total Invoices – Because e-invoices cost so much less and are quicker to process than paper invoices, it’s important to track not only the percentage of e-invoices, but the percentage of suppliers sending invoices in electronic format as well.
6. Number of Suppliers Onboarding Invoicing as a Percentage of Total Suppliers – Tracking this will enable you to identify which suppliers should be targeted to steer them from paper to electronic invoices.
7. Discounts Captured as a Percentage of Discounts Offered – This is huge. One of the major issues that most respondents in the report cited was the inability to capture early pay discounts. Since not all suppliers offer the discount, fast-tracking of invoices for those that do will generate more revenue.
8. Erroneous Payments as a Percentage of Total Payments – Once your invoice process is automated, you should see a decrease in duplicate or other payment errors. However, not all of your suppliers are likely to have implemented e-invoicing, so keeping tabs on lost dollars due to payment errors will allow you to contact those suppliers early to recover funds.
9. Developing the Paper Invoice Quotient (PIQ) – This is actually a metric developed by PayStream Advisors to give enterprises a quick view of where they fall when it comes to dependency on paper. And this can indicate where you are when it comes to process efficiency.