An often-overlooked element of your business is the metrics and department for accounts payable (AP)!
It’s uncomfortable to think about since it’s a source of money that’s going out rather than coming in! Appropriate Payments (AP) can be seen as a “necessary evil.”
Changing your perspective on accounts payable can be as simple as paying close attention to your AP processes and breaking free from old ways of thinking. Accounts Payable (AP) metrics can determine how effective your AP department is.
Why Should You Care About Your Payroll Account’s Accountability Metrics?
The metrics measure how well AP is accomplishing target goals! It’s possible to use metrics to enhance staff quality, increase employee performance, and reduce AP-related expenditures.
Identifying the essential payment parameters may realize several tangible AP benefits.
- Transparency in accounts payable procedures, revealing where time, money, and assets were squandered without justification
- Reduced account payable costs by eliminating duplicate invoices and lowering the amount of work needed.
- It effectively measures department and personnel performance and tracks progress towards measurable AP performance goals.
- A great work environment in which workers are held to higher accountability and automation is viewed as a positive one.
Why is it Essential to Keep Track of Accounts Receivable Indicators?
A well-run accounts payable department is alluring, pinpointing exactly where and how your Account Payable department may be made more efficient.
You can quickly identify methods to streamline your accounts payable processes if you measure the essential indicators of your firm. The data from AP can also be used for budgeting, planning, and other critical sorts of financial analysis, so you’ll have better financial reporting. These are the essential metrics to monitor when paying bills.
Top 8 Accounts Payable Performance Metrics
1. Within a certain period, how many bills were received?
Before measuring any statistic, you should keep track of the overall invoices received by the AP department during a given period. Every day, weekly, or even monthly is OK. This information will help you understand the typical workload and establish benchmarks against which you may compare future performance.
2. Divide the invoices handled for a given period by the total received.
To gauge the productivity of your AP team, you should monitor this indicator. In the case of a 3 or 6-month study, this percentage should be at least 90%.
Processes could be delayed as a result of yet-to-be-identified bottlenecks. Is any component of your account payable process still handled by hand? A problem with exceptions? Identify and eliminate the obstruction, whatever it may be.
3. The average cost of each bill.
Cost is an essential indicator in accounts payable because it provides insight into the factors that drive it. When keeping tabs on invoice expenses, don’t forget to include software licenses, IT support fees, hardware costs, employee wages and perks, and other costs that impact the bottom line.
4. The time it takes for an invoice to be processed.
Here you may track your receipt-to-payment cycle. When an invoice is received, the average time required to process it from beginning to end is calculated.
Eliminating penalties as well as increasing your company’s ability to receive early payment discounts are two benefits that can be achieved through streamlining operations.
5. Payment errors as a share of total payments.
The number of payments made in error in a given period is divided by the invoices paid simultaneously. Your objective is to keep this figure as low as feasible. There’s a significant impact on a business’s bottom line if payments are made in error.
6. Discounts recorded.
Early payment discounts are typical among suppliers, but it’s possible that a company won’t be able to take advantage of them altogether.
To save money and boost your company’s bottom line, you should try to secure as many discounts as possible. Workflow automation can assist you in this, but you must keep track of the proportion of total discounts offered by suppliers that have been captured to ensure that no stone is left unturned.
7. Electronic invoices as a proportion of total invoices received
Don’t spend time and money scanning and recording data using electronic invoices. It’s essential to know how many (and what kind) of suppliers are sending you paper invoices to eliminate them. Processing time and costs decrease as the volume of electronic invoices you receive rises.
8. Head Count of AP personnel.
Over time, how many people were involved in processing a particular number of invoices is measured here. It is possible to measure efficiency and find strategies to cut headcount by tracking the number of AP personnel. Be mindful of this parameter, but don’t sacrifice productivity or quality. The invoice system may need an overhaul if this number is high.