In our previous articles, we detailed the true cost of manual invoice processing to your organisation, and why the efficiency of your accounts payable (AP) process is crucial to the wider success of your organisation, not just you finance department.
With a wide array of metrics available to you through your Unit4 Business World (Agresso) system though, it can be difficult to know which KPI’s you should use to measure the efficiency of your accounts payable process.
The selection of these KPI’s is crucial, with them enabling you to uncover any specific areas of underperformance within your accounts payable process that are having a profoundly negative impact on your organisation.
We have detailed below the KPI’s which we believe are key, and explained why they are important in helping you to understand the efficiency your accounts payable process.
Cost per invoice
A KPI that is widely used, this tells you how much on average it costs your organisation to process a single invoice through your existing accounts payable process.
The reported average cost of manual invoice processing varies wildly depending on the organisation and study, with some, such as Rossum, calculating it to be as low as £1.66, while others, such as Ardent Partners, finding it to be as high as £9.85. For context, the adoption of automated invoice processing functionality through our Unit4 Business World (Agresso) Invoice Automation solution can bring the average cost to as low as £0.37.
If you still manually process invoices, your figure is nearly always going to be lower than your true average cost. This is because your calculation will not take into account the indirect and hidden costs of manually processing invoices. These include costs that result from human errors, employee dissatisfaction and slow invoice payments to name a few.
Average invoice processing time
Finding out the time it takes on average for your organisation to process an invoice can be extremely valuable when measuring the efficiency of your accounts payable process.
A 2017 report by Ardent found that organisations who were not in the top 20% when it comes to accounts payable efficiency were taking 12 days to process a single invoice. In comparison, the top 20% were only taking 3.5 days.
Ardent also found that out of the these top performing organisations, 61% were using an automated invoice data capture solution, such as our Unit4 Business World (Agresso) Invoice Automation solution.
Timely payment rate
Closely linked to the KPI above, this will enable you to easily understand how successful your accounts payable process is when it comes to paying invoices on time.
It would also be worthwhile to find out if you have amassed any costs as a result of late payment penalties, and whether you have missed out on early payment discounts. These figures would help you to acquire a more accurate average cost of processing an invoice through your existing accounts payable process.
If you have had any suppliers who have stopped providing you with their products and/or services due to slow invoice payments, you should also look to calculate the internal costs that resulted from having to source and order from new suppliers in order to add to your average cost per invoice.
Number of supplier enquiries
If you are taking a particularly long time to process invoices, and are therefore not paying some on time, it is almost inevitable that your AP team will have to spend some of their time dealing with suppliers chasing payment.
Again, this KPI could help you gain a better idea of your true average cost of processing an invoice, especially when you consider a a more efficient process would enable your finance team to focus more on value-generating tasks. CFO.com found that the finance function in general spends an incredible 49% of its time processing transactions.
Cost of errors
12.5% of manually processed invoices are subject to some form of re-working according to a 2018 report by the Institute of Finance & Management.
The cost of these errors is not just limited to the direct cost of the mistake, whether it is an overpayment, duplicate payments or wrong payment, but also the resources that were needed to spot and rectify the error.
The amount of money and internal time spent on re-working invoices can be draining for organisations, and can often substantially add to the true average cost of processing an invoice.