Sure, Accounts Payable is typically seen as a cost center. But as you set budgets for next year, there’s a viable opportunity to turn your department into a profit center through tracking A/P metrics.
Simply put, A/P has a goldmine of information, notes supply management firm Ardent Partners. When that data is assessed and developed into key performance indicators (KPIs), A/P can provide important insight for you and others (e.g., executives, stakeholders, vendors). That will lead to numerous benefits. For instance, A/P can achieve more streamlined processes and value-added duties. And your company overall will make better informed decisions and earn monetary savings.
So, the big question is: What metrics should your A/P team measure? In their recent research report, How A/P Can Leverage Data to Make an Impact, Ardent Partners breaks it down into three categories:
1. Operational metrics
The first category includes metrics that are necessary for you and your team to understand where your process currently stands.
Of course, Accounts Payable is responsible for processing invoices and paying the bills. So, measuring factors that encompass that process at its core is the first step toward improvement.
Operational metrics include:
- cost/time to process an invoice
- invoice exception rate
- invoices processed per staffer
- on-time payments (percentage)
- discounts scored (percentage), and
- payment errors (percentage).
To get the most thorough results, have A/P measure both your team’s total performance and individual staffers’ performance.
2. Financial metrics
These metrics are critical in seeing how your A/P department impacts the financial well-being of your company overall, says Ardent Partners.
Some financial metrics you may want to measure are:
- days payable outstanding (DPO)
- cash impact as a result of discounts
- goods you received but were not invoiced for, and
- A/P operating expenses (i.e., actual versus budgeted).
Since these metrics are important to both A/P and Treasury, consider using them to create a bridge between the two finance functions. For example, you could all discuss ways to improve metrics and encourage more collaboration on payment strategies.
3. Supplier metrics
With your internal operations well accounted for, the last category of metrics your team should track focuses on your external business partners.
Because A/P relies on vendors’ cooperation to do their job efficiently, your team should monitor those aspect of the process, too. There’s also a risk management component involved. In other words, you want to know if vendors are complying with contract terms, policies and regulatory requirements.
A few metrics to consider are:
- number of queries
- amount of disputes (i.e., vendor issues)
- e-invoices (percentage), and
- e-payments (percentage).
Armed with this data, your A/P team can then pinpoint common issues, identify ways to reduce those errors, note problem vendors and work with Purchasing to improve payment strategies.
Final note: Because tracking metrics is an ongoing process, be sure to check in with A/P periodically (e.g., monthly, quarterly) to make sure it’s staying on top of the task and reporting the results.
