PROACTIS Blog

Accounts Payable: Benchmarking your KPIs

Charlotte Sutton
Charlotte Sutton,
PROACTIS
Relying on key performance indicators can help improve your overall Accounts Payable (AP) performance. Use some of the advice below to get started and spot opportunities for much-needed improvements:
Do a quick litmus test on your current AP processes:
  • How many FTEs in Accounts Payable?
  • How many invoices do you process per annum?
This provides you with the number of invoices processed per FTE per annum.
 
According to analysts, high performing AP departments outperform all others and process 27,097 invoices per FTE, per annum (APQC). More optimistic surveys even suggest 42,000 invoices per FTE, per annum (Hackett Group). That’s quite a difference and statistics should be taken with a ‘pinch of salt’. But they do act as a good basis for discussion. 
 
At PROACTIS, we see high performing organisations process in excess of 40,000 invoices per FTE per annum and top performance in excess of 90,000 invoices.
 
However, there is a wide variation in AP invoice processing efficiency according to sector, size of business, invoice profile and technology utilisation e.g.: the cost to process an invoice is significantly higher in sectors with a high percentage of non-stock trade vs. stock trade; and best-in-class operations are nearly 60% more likely to have standardised invoice receipt & workflow processes as part of their AP function. 
 
Yet, even the worst-performing AP departments don't seem to realise how far they lag behind their peers. In fact, organisations with good scores are more willing to see further improvement opportunities.
 
Now find out:
  • What percentage of invoices are received in electronic form (OCR, EDI, XML, PDF, EXCEL, Self-billing, PO-Flip, PCards etc.)? 
  • The percentage of time spent in process (checking of invoices, data entry, PO matching, approval workflow & release for payment)
  • The profile of invoices (PO/non-PO, stock/non-stock) and how they are dealt with etc.
This will provide you with a good idea of how much administration is required to deal with paper and problematic invoices plus savings already achieved from straight through processing (STP).
 
However, when asking these questions take caution of the context to the replies e.g. are electronic invoices received straight-to-process or do you receive PDF's/ emails that need to be opened, detached & re-keyed? This could skew your results and thinking. 
 
According to a Forrester Consulting survey, some of the key issues companies are looking to address include:
  • Inadequate technology: A significant minority of AP departments live without basic applications that others use to streamline their processes. Of our respondents, 47% get more than half their invoices in paper form, 26% match them with physical POs and other supporting records, and 42% insist on physical signatures to evidence approval. All these manual paper-handling tasks increase costs, delay processing, and increase errors. 
  • Poor purchasing discipline: Even AP clerks manually processing invoices can do far more than 5,000 a year if the invoices match supporting records. The most time-consuming invoices are those where the business hasn't raised a PO or has got the price wrong.
  • Complex invoice categories: Not everything fits the "PO, receipt, invoice" sequence. Businesses that buy a lot of services face extra manual verification effort. Many finance functions create extra work for procurement by insisting on after-the-fact POs so they can still do a three-way match - this keeps the finance system happy but delays processing without noticeably improving control
 
Combining electronic invoicing with eProcurement makes success twice as likely. Persuading suppliers to send invoice electronically cuts manual data capture tasks, such as document scanning and data entry. Even without that, the use of eProcurement reduces discrepancies and hence the clerical time wasted on resolving them. Together these two process improvements combine to maximise straight-through processing (STP), where the system approves invoices for payment without any human intervention.
 
In summary, analysts state that organisations with standardised invoice receipt and workflow processes:
  • Reduced their invoice cycle time by 51%
  • Rated their visibility into invoice receipt and workflow status at a 30% higher level
  • Lowered their invoice-processing costs by 12%