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Account payable metrics: What are they, and why should you track them?

By:
Harish Sivakumar, Manager
march 09, 2021

For the uninitiated, the term "account payable metrics" may not sound important. But for anyone working within the AP department, the term signifies deeper meaning.

Accounts payable metrics are Key Performance Indicators or KPIs that allow you to track and measure your Account Payable team's effectiveness and efficiency in meeting their goals and objectives.

When put to good use, these measurable values can do so much for your AP department. The values give incredible insight into ways to improve overall employee performance and individual performance. They also throw light on unnecessary expenses that can be curbed. With AP metrics in your hand, you can master the art of optimizing the use of available resources to enhance the processes.

So, what happens if you choose to ignore the AP metrics? For starters, you will not know how your team is performing, nor will you be able to identify how potentially productive they can be. Without tracking your AP metrics, you will not gain insightful data to make well-informed decisions. In a nutshell, ignoring the AP metrics can hurt your business processes in multiple ways, which is why virtual bookkeeping companies are time and again underlining their significance.

Key AP metrics that virtual accounting companies want you to track

There are numerous KPI's that can be very helpful for your business in terms of invoice processing. The following metrics given in this article are a tad more important than the rest.

So, here's the list:

Periodical tracking of invoices.

The first step to streamlining your invoice processing is to track every invoice that comes into the AP department within a certain period. It can be monthly, bi-monthly, weekly, daily, or annual. This data will help you set the baseline for other metrics.

How many invoices you will receive entirely depends on the volume of business and the size of your organization. The bigger your company is, the more invoices you will be receiving. That is why periodic tracking simplifies the process of keeping a tab on multiple invoices.

Periodical tracking for the total number of processed invoices as a percentage of the total number of invoices received.

This metric will shed light on your team's efficiency. If the number is anything below 90%, it is clear that not all received invoices are being processed. It is time to identify the pitfalls and bottlenecks that are slowing down the process. The bad percentage can also be a result of manually-managed processes. Keeping track of this metric will shed light on obstructions that can be removed before they clog up the entire process.

An illustration of accounts payable with bar chart, line chart, pie chart all displayed in one analysis sheet, dollar in coins and notes, a calculator, eraser, a hand holding pencil evaluating the accounting sheet, ATM cards, a wallet, a diary and a cup of brewed drink.

Average expenditure per invoice.

An invoice is simply a technical term for an expense. Whether big or small, each invoice is an expenditure for innumerable reasons. You will receive invoices for software fees, IT support, staffing support, miscellaneous expenses, maintenance, salary and benefits, and so much more.

Besides, the invoice type also matters. You will be paying more for non-PO invoices and exceptions than PO-based, straight-through invoices.

Scrutinizing the invoice details will help you gain a grasp over your expenses and curtail those that you deem unnecessary.

Percentage of improper payments versus total payments.

Want to know where your team has messed up with the payments? This is the metric that you should track. Divide the number of improper payments with the total number of payments made in a certain period, and you will end up with an answer that clearly shows the human error.

A majority of erroneous payments are made when processes are manually done. Automation of processes can drastically reduce unnecessary errors like overpayments and duplicate payments.

Cycle time of an invoice.

This is a crucial metric that measures the amount of time taken to process, pay and archive an invoice from the moment it arrives at your AP department. You can straighten out several processes with this metric in hand:

  • Identify tasks that slow down the quick processing of the invoice.
  • Identify how the team works to navigate the invoice through each process.
  • Identify processes that you can automate to save time and resources.
  • Accelerate workflows to avoid late payment penalties.
  • Pay on time and avail discounts for early payment.

Discounts scored versus the percentage of discounts offered.

How responsive is your AP team in making use of the discounts offered for early payments? Are all the discounts scored or not? An efficient team will leave no stone unturned in availing of every discount that comes your way. Workflow automation will also aid the process. Track this metric to know why and when discounts were missed and devise strategies to avoid the same.

Number of members in your AP team

If you are an employer or the head of the AP department, it is crucial to know how many members are taking care of your invoice processing. Even if the workflow is automated, you will require a minimum number of employees to take care of the processes.

Tracking the number of AP employees will give you insightful data about:

  • Getting efficient work done with a minimum headcount.
  • The expertise of your team in dealing with automated processes.
  • Processes that still require manual supervision despite automation.
  • Strategies to reduce costs and use human resources for more important tasks.

Electronic invoices versus the total number of received invoices

If you are a super-sized organization, you ought to be better equipped to eliminate paper invoices. This metric will shed light on the number of electronic invoices received and track the suppliers sending them to put the plan to practice.

The more electronic invoices you receive, the lesser time and resources you spend processing and archiving them.

Tickmarks: The best among all virtual accounting companies in the USA

Tickmarks, Inc operates from Virginia, USA. We offer the best virtual accounting and online bookkeeping services that streamline your workflow and allow you to channel your precious resources towards your core business objectives. To avail of online accounting services from one of the USA's best virtual accounting companies, you can just reach out to our team.

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