In this blog, we outline 5 useful AP performance metrics to measure and control, and how using these could create a more successful AP department.
Knowing your performance metrics can help to:
- Define how well your team is performing compared to benchmarks.
- See where areas in your process are slow and need improvement.
- Identify key problem areas in the business overall.
Your Key Metrics:
Invoice Processing Time (days).
On average it takes 10.9 days to process an invoice*. That’s over two working weeks! It’s easy to see where the problem lies here: Processing costs go up, early payment discounts are missed and invoice numbers build up. This leads to additional strain on your resources. Some invoices may be paid late, leading to unhappy suppliers and potentially impacting pricing or discounts available.
With your team working on manual and menial tasks like this, they can’t focus on analysis that could grow the business.
So how can we whittle it down? Common invoice processing issues come from approvals, missing POs, large invoice volumes and payment verification delays. Drilling down into these areas to see where invoices stick is hugely beneficial.
Invoice automation is a goal that many AP teams aim for to help with this issue and to remove manual inputting. A hands-off approach is excellent for getting through the invoices with no issues. Be warned; this method will improve the speed of invoice processing but can leave you vulnerable to error and fraud. It’s advisable to also run invoices through a system that checks for discrepancies, like our risk detection software.
Invoice Exception Rate.
Invoice exceptions require hands-on involvement and analysis from your staff. So, the fewer exceptions, the less time your staff need to spend on them. Comparing your exception rate of invoices to the number you process could not only show where your staff are spending their time when trying to rectify issues, but also where your process is stalling.
A careful analysis of common exceptions, including a root cause analysis, can show problem suppliers, communication gaps, missing invoices or that manual data entry is producing errors. A solution could be to consider introducing e-invoicing to all suppliers as a matter of policy or creating a self-service vendor portal.
Once you make a change, you can then use this metric to measure its success.
Late Payment Rate
Overdue payments can incur hefty penalties, both monetary and in reputation by damaging supplier relationships. By analysing the number of invoices paid on time against those paid late, you can easily track your AP teams’ performance. You can use the initial results as a benchmark, with a view to eliminate late payments altogether. If you then track the average number of days the payment is late by, you can easily see how much delinquent payments are costing you.
Fixing it requires a change in process, whether that is introducing automation into your process or streamlining approvals. Consider building a DPO reconciliation matrix as per the company standard payment terms to understand the shortfalls and devise necessary actions.
Spend recovered/ excess spend prevented.
This metric is very much a success measuring tool. It’s something that is useful in letting the business know that no matter the error, your team is on top of resolving it. Nobody is perfect, so the best we can do is show management how we learn from previous issues.
This metric takes the pressure off the team to identify every spend risk – a virtually impossible task given the volume of invoices dealt with. Instead, it focuses on what you achieve, showing the value of your team.
Staff time spent handling supplier inquiries, discrepancies and disputes.
Fraudsters also exploit reduced staffing levels and a more relaxed atmosphere during summer.
Avoid accepting new payment details or making bank account changes in the days leading up to the holidays where possible.
By implementing this precautionary measure, you minimise the risk of falling victim to unauthorised changes or fraudulent requests.
Automate Risk Management for a Thorough Overview
This statistic belies how effective your payment process is. It also shows how effective your communication with suppliers is.
Supplier inquiries tend to stem from AP payment issues. They could contact your team for updates on payment if it is late or to resolve issues on previous payments. If you find the majority of enquiries are around delayed payments, your first port of call is to refine your processes. Automation of your P2P process can help, alongside a risk review of your invoices before the payment run. Having a streamlined process from invoice receipt, posting to payment is crucial. Making sure that the supplier has all information populated on the invoice is another crucial step, and one that can be communicated at the earliest procurement stage.
This could also show where your team might need training to resolve inquiries faster, whether that is within a call itself or on related software.
Your ERP systems should have reporting and analytics software, and if they don’t, it’s a good idea to request them. FISCAL Technologies provide transactional and supplier risk reports in our own software solution, allowing you to see actionable insights. Using these analysis tools provides a clearer picture to the whole team, allowing you to see the information you need without manually collating data.
In all, measuring these metrics is a great way to get a handle on your processes and where they are going wrong to fix root cause issues. Improvements following this careful monitoring and analysis leads to a more successful AP team. Sharing these performance metrics shows business stakeholders how well your team are performing and gives valuable insights to use for cash flow analysis, planning and budgeting.
*According to Ardent Partners