Establishing and measuring relevant and actionable metrics is an important part of any business function since it provides the opportunity to set, track, and ultimately achieve goals and objectives while providing the key inputs to drive continuous improvement efforts. With process automation tools in place, an accounts payable (AP) department is significantly better able to capture performance metrics than in a manually-driven environment.
While AP automation can be a critical step towards improving performance, it is the level of access and visibility into key performance indicators (KPIs) and the analytical capabilities to understand and act upon that data that enables intelligence and allows for continuous improvement.
Developing Metrics at an Appropriate Time
Metrics can, and probably should, be developed and implemented in phases. For example, during an initial period of an AP transformation, it will be more important to focus on efficiency and reducing costs. As these metrics begin to improve, an AP group can introduce new metrics that are more focused on effectiveness like reducing exceptions and improving “touchless” processing, as well as focusing on measuring the volume and depth of supplier connectivity.
As groups mature, it is important to note that focusing on too many metrics at any given time can reduce the impact of those that matter most. Additionally, it is important for AP leaders to ensure that metrics are well-defined, clearly communicated, and directly-linked to larger business objectives.
Which Metrics Really Matter?
To get better results, it is important that AP groups measure the right things. There isn’t really a set list of metrics that every team can measure and immediately determine high or low performance. There are, however, a few basic categories of key performance indicators that AP can use to determine what specifically needs to be tracked. These categories are:
- Operational Metrics are the types of key indicators garnered from the process of approving an invoice, and includes information such as the average cost to process an invoice and the number of invoices processed per full-time employee. Percentage of early payment discounts captured and the exception rate are also examples of operational metrics.
- Financial Metrics track closely with the financial goals of the organization. This includes financial indicators such as days payable outstanding (DPO) and the cash impact from any early payment discounts that have been captured. To track these metrics, it’s ideal for AP to collaborate with the finance team.
- Supplier Metrics track most closely with supplier performance and activity, and can involve working closely with the procurement team—depending on what the organization wants to measure. A few examples are the number of supplier inquiries, the number of disputes, and the percentage of suppliers enabled for electronic invoicing.
Final Thoughts
There are no two ways about it: metrics matter in every business environment, and accounts payable is no different. While the classification of metrics may change, the truly important part is that the AP team understands what’s important to the organization and uses that knowledge to track key indicators that can be used to improve business results. Only then can AP teams begin to improve the invoicing process and have a strategic impact on the enterprise.
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