One way to improve your accounts payable (AP) process is to monitor, measure, and analyze your AP metrics. In fact, regularly tracking these values is key to knowing whether your AP team is meeting its targets and objectives.
It enhances the visibility of your invoice management and approval processes. And it enables you to pinpoint the successes and shortcomings of your current AP strategy, so you can make the right decisions to increase your business efficiency and growth.
But this only works if you track the right metrics. Let’s take a look at 5 of the most important AP metrics you should start tracking ASAP.
Top 5 AP Metrics that SMBs Need to Track (in No Particular Order)
While there are dozens of metrics out there that Controllers and AP Managers can keep tabs on, the following five arguably have the greatest potential to impact your bottom line and overall productivity.
1. Average Cost Per Invoice
Each step in the AP process has a corresponding cost, from transaction fees to software subscriptions to labor. Calculating the average cost of processing each invoice is helpful, as it enables you to determine the contribution of invoice processing to your AP overhead. It also allows you to set realistic benchmarks.
Here’s how you calculate your average cost per invoice. First, you identify your overall AP costs annually. Then, divide the total by the number of invoices you process in a given year. The result is your average cost per invoice.
For example:
$100 in AP costs / 10 total invoices = $10 per invoice
It’s important to note that research has found at least a $10 discrepancy in cost per invoice between the most efficient AP processes and the rest of the field. However, if you find you’re spending more than you’d like to on invoice processing, you can win back some of that cost by using invoice automation. In fact, with invoice automation, you can actually save anywhere from 60% to 90% per document.
2. Average Invoice Processing Time
The longer it takes your AP team to process an invoice, the more likely it is they’re being bogged down by labor-intensive, low-value tasks. By pinpointing the average amount of time it takes to get from invoice receipt to payment, you can figure out how extensive your workflow bottlenecks are and figure out which steps need optimizing.
AP teams with fully optimized processes usually take three to four days to process an invoice, while laggards can take up to 17 days. One way to effectively cut down on the amount of time you spend on invoice processing is to have mobile access to your system, which managers can use to review and approve documents on the go.
3. Discounts Offered vs. Captured
If your AP team processes invoices quickly, your business can benefit from early payment discounts. Thus, it helps to track the amount of invoices that come with discounts, and more importantly, the percentage you’ve taken advantage of.
It’s also useful to take note of which discounts you’ve missed, as doing so can help you identify the reason you’re missing out on these opportunities.
Once you’ve collected this data, take some time to figure out how you can best capitalize on discounts when they’re available. One way you can do that is by adopting an automated invoice processing solution that sends out notifications when a discount window is about to close, so you can trigger timely payments.
4. Late Payments and Penalties
Paying invoices on time is critical if you want to take control of your organization’s finances. Not only does it help you avoid late fees and statutory interest, but it also enables you to maintain good relationships with your vendors and avoid reputational damage.
As a result, it makes good sense to keep careful track of your late payment percentage and set a goal to get 100% payments in on-time. It may be a bit ambitious, but having a reputation for prompt payments will pay dividends in high-quality vendor relationships and incentives.
5. Number of Vendor Inquiries, Discrepancies, and Disputes
Taking care of vendor inquiries, discrepancies, and disputes eats up valuable time and resources, which can affect your AP team’s efficiency. So naturally, you want to make sure you know exactly how often those types of issues are arising.
Your work shouldn’t stop there, though. In fact, once you’ve identified the problems you’re dealing with, you need to figure out how to minimize the incidents.
Invoice automation allows you to cut down the frequency of negative vendor interactions by ensuring that the AP process is completed with no interference or errors caused by manual data entry (e.g., duplicate invoices and payments).
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