Insights from DCS
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The 3 Automated AP Metrics that Really Matter
There are plenty of performance indicators that can signal the overall health and contribution of the accounts payable department. Automating invoice processing moves all of these indicators in the right direction. But as you may guess, calculating the ROI of automation is haphazard at best.
Now might be a good time to let go of trying to nail down precise ROI. The only three best-in-class accounts payable performance metrics that really matter are very easily measurable.
Most everyday AP concerns (measurable or otherwise) can be arguably be considered a subset of one or more of the following:
Account Payable Performance Metric 1: Average Time Spent Per Invoice
Invoice processing time varies wildly. A good accounts payable KPI benchmark for average time spent per invoice run at about 4 days per invoice.
For properly struggling account payable departments it’s more like 17 days. Late invoice payments can place your supplier relationships at risk.
If your AP department is closer to 17 days than 4, the chances are there’s a lot of manual-handling tasks still being performed in the process.
These low-value, black and white data ingestion and validation matters that require no powers of judgement can and should be handled by an automated process.
Essentially more time spent per invoice not only lowers your chance of hitting the KPI account payable metric benchmark, it also leads to the following consequences.
- More time equals more monetary cost.
- More time equals reduced likelihood of securing early repayment discounts.
- More time also equals increased likelihood of late payment penalties.
You indeed should constantly monitor the average time per invoice – it is a great high-level indicator!
Pro-tip: Modify your performance metrics further by splitting into invoice types for more granular detail (eg PO invoices, non-PO invoices).
Accounts Payable Performance Metric 2: Percentage of Straight-Through Processing
The new modern standard for invoice processing relies measuring the proportion of invoices that sail through an automated process applying pre-set validation.
Workflows that display exceptions to human operators in a user-friendly manner give an edge to hitting your straight-through processing for accounts payable KPIs.
The higher the percentage of invoices processed ‘straight-through’ the better Accounts Payable is pulling its weight in the organisation. So monitor this key performance metric closely as well.
Accounts Payable Performance Metric 3: Number of Discrepancies
The fewer the better, obviously. It is a drain on efficiency to get tied up dealing with errors, loss or duplications. Human error is usually the cause and so an automation solution that reduces human handling reduces risk as well as time spent.
Monitoring discrepancies is a metric that not only provides insight into the current state of AP workload but is also an indicator of the state of relationships with suppliers.
Discrepancies should reduce in roughly inverse proportion to the increase of straight-through processing.
A Missing Accounts Payable Key Performance Metric? Caution with the cost-per-invoice Metric
Why didn’t we include average cost-per invoice as one of the best metric options? Two reasons: firstly, it can be expressed several different ways depending on what factors go into the calculation, and secondly because cost-per-invoice is largely dependent on the above three metrics.
Of course someone ultimately has to look after the numbers, but with an efficient invoice processing solution in place and with those three easily observable key metrics under constant monitoring, we could dare to suggest that ROI and solution running costs will take care of themselves…
- Accounts Payable