A core finance process, accounts payable (AP) involves all of the essential activities of an organization to pay its suppliers. As one of the primary organizational candidates for early automation, AP is ripe for innovation through process improvement and automation. These improvements can liberate AP professionals from transactional tasks in order to best make use of their valuable time.
Reflecting this potential, top-performing AP functions have standardized, largely automated processes that elevate the finance function with more efficient and analytical performance. APQC has found how such top performers have achieved this.
APQC’s recently released Blueprint for Success: Accounts Payable (Second Edition) provides a framework for improving AP processes, automating tasks, and providing AP staff with the bandwidth and training to focus on the most strategic activities. APQC has published this second edition of the Blueprint with updated benchmarking data from APQC’s extensive Open Standards Benchmarking® research in accounts payable and expense reimbursement.
4 KPIs Set Good Accounts Payable Organizations Apart
This Blueprint presents a process-based framework for evaluating and improving AP processes using core key performance indicators (KPIs) that every organization can use to benchmark their AP processes. The following core KPIs, recommended by APQC, encompass cost, productivity, efficiency, and cycle time metrics:
1. Costs—A prime concern at all organizations, cost KPIs are the most traditional process performance measures. APQC suggests anchoring cost metrics with the KPI of total cost to perform the AP process per invoice processed. This includes personnel, systems, overhead, and third-party vendors. APQC finds that AP costs for top performers is one-fifth of what it is for organizations performing in the bottom quartile. And even organizations with median performance are incurring twice the costs of top performers.
2. Productivity—Productivity KPIs measure an output produced per an input, thus revealing where organizations can focus on lowering costs or boosting efficiency. The central productivity metric for AP functions should gauge the number of invoices processed per AP employee, or full-time equivalent. Again, top performers are five times more productive than bottom performers at processing invoices.
3. Efficiency—Organizations are looking especially to automation to increase how efficient resources are in performing work. For an efficiency KPI, APQC recommends the number of AP FTEs per $1 billion in revenue, which indicates the resources an organization needs to process payables relative to revenue. This KPI is vital because labor costs in AP tend to consume the lion’s share of total AP process costs. APQC finds that bottom performers need four times as many FTEs to perform the AP process.
4. Cycle time—Cycle time KPIs measure the duration of AP activities such as the time to enter data into a system, approve and schedule payments, and transmit payments. It affects contractual agreements, supplier relationships, and early-pay discounts. The core concern for AP in this respect should be the cycle time in days from receipt of invoice until payment is transmitted. This reflects the total cycle time (in calendar days) from receipt of the invoice until the payment is made to the supplier. According to APQC’s benchmarks, top performers take half as many days to process invoices, from receipt to payment. Even reaching median benchmarks can help bottom performers shave a week off of their cycle time.
These core KPIs provide a foundation for AP functions to improve and, when appropriate, automate processes, as well as better utilize AP professionals. To provide the critical context, Blueprint for Success provides detailed definitions and calculations for each of these KPIs.
The report also details the key benchmarks and performance drivers for each KPI. Benchmarks specify baseline and top performance. And the report’s process, technology, and people-related drivers help organizations understand how to improve specific metrics through proven best practices. Updated examples—regarding automation, process standardization, revamping roles, and RPA implementation—reinforce APQC’s advice for how to benchmark AP processes.
Blueprint for Success: Accounts Payable can help AP functions better understand how these four KPIs provide a framework for process improvement. Read the full report here.