Choosing the Right Accounts Payable Metrics
February 04, 2015
1. What metrics do you record now?
Most AP teams only use one or two basic metrics such as number of invoices processed per month, or cost per invoice to evaluate their performance. There are many more available to choose from. Are you using the right ones? By building and adding to your current metrics, a dynamic picture of how your AP team is working and contributing to the organisation’s overall goals will emerge.
With this data, process improvements can be made to bring cost efficiencies, improved supplier relationships and an overall more satisfying work environment.
Ten of the most popular AP performance metrics are:
Cost per invoice
Days Payable Outstanding (DPO)
Average time to approve an invoice (receipt to approve)
First time pass rate as a %
Exception invoices as a %
Discounts captured as a %
Invoices matched with PO as a %
Number of invoices processed per FTE
Number of credit memos as a %
Number of duplicate payments per month
To request a copy of our full Performance Metrics Checklist, click here.
2. How do you choose which metrics to record?
It is important to take some time to decide on the most appropriate metrics and ensure these relate to your annual team and company objectives. Remember who the ultimate audience of the metrics is – likely the senior management team (SMT). There are a number of factors to take into account, including:
Relevancy - Pick metrics relevant to you and your team (or following discussion with SMT). This will depend on the size of your organisation and your business sector (e.g. retailers and local authorities will measure different areas).
Motivation – You want to start with metrics that reflect the best of your team’s performance and then build in tougher metrics in a second phase.
Ease of calculation – Due to time constraints and those of your accounting system there are certain metrics that would be too difficult to calculate. Choose metrics that are feasible to work out weekly.
3. How do you extract the metrics?
Many useful metrics can be generated directly from your ERP system or via ad-hoc queries to business intelligence solutions. You may find that other metrics can only be produced with the help of your own spreadsheet programs. Specialist software is also now available which can be used to automatically generate performance metrics in the form of early or late payment reports, supplier change summaries or low activity supplier indicators for example, which will give you specific insight into payment processing habits, missed discount opportunities or potential supplier fraud.
4. How often should you measure / communicate?
Many AP teams measure just monthly, quarterly or annually. However, daily or weekly could be more useful. By tracking metrics daily, you will pick up fluctuations in patterns or any distractions. For example one FISCAL customer discovered a significant performance drop off on Fridays due to a variety of reasons. Processes were put in place to remedy this situation and the number of invoices processed improved by 8%.
How often you measure will in many cases be determined by the systems you use and what reports are readily available.
Regular communication of the metrics with the team is vital—the simple act of posting key indicators where the entire team can view them will focus attention and drive performance. It is also essential for AP teams to communicate relevant metrics upwards to Finance and Senior Management – through a monthly bulletin, or ideally in person in the regular meetings.
For more information on measuring and reporting AP performance, see the excellent white paper produced by the IOFM entitled Must Have Metrics for Accounts Payable. This 40-page report can give you more detailed insight into how to choose the right metrics for your organisation.