Why AP metrics matter: Quality, cost efficiency and productivity
A recent Hyland survey conducted in partnership with the Institute of Finance and Management revealed how challenging it is for some AP organizations to view and track performance metrics. When an organization compares this data to the degree of its automation, one thing becomes clear:
The greater the degree of automation, the easier it is to gather performance metrics.
Why metrics are important
Most measurable performance indicators fall into one of three categories that help improve accounts payable operations: quality, cost efficiency and timeliness. Put more simply, think: better, cheaper, faster. All of these things matter to the organization’s bottom line, effectiveness and vendor relationships.
Let’s take a look at these metrics and how they help AP.
1. Quality
Some quality metrics that are worthwhile to track include:
- Percentage of duplicate payments
- Percentage of invoices processed without defects
- Successful two or three-way match rate
- Count of exception types and resolutions required
- Number of returned or voided checks
2. Cost efficiency
AP usually benefits from analyzing these important cost factors:
- Processing cost per invoice
- Cost to process a paper check vs. an electronic payment
- Percentage of discounts captured and lost
3. Productivity and timeliness
Useful reports in this category include:
- Invoices processed per FTE
- Days payable outstanding (DPO)
- Time from receipt to payment
- Time to get approvals
- Average time to resolve a problem invoice
Each one of these metrics can help you focus on where you can improve your operation. However, metrics must be actionable to be useful.
While you may be able to track many or even all of these things, you’ll want to zero in on the ones whose improvement will give you the greatest gains. Then, as you realize improvements, you can shift your attention to the next tier of metrics.
In short, the fastest path to failure is trying to fix too many things at once.
It’s a balancing act
When it comes to looking at improvements to cost, quality and efficiency, you’ll sometimes hear it said that you can pick any two, but you can’t have all three.
There may a shred of truth in this argument. Work too fast, and quality suffers. Take the time to be painstakingly accurate, and you may need more employees—which translates to additional labor costs.
However, the beauty of collecting reliable metrics is that they do more than just give you the business intelligence you require to improve your operation. Accurate reporting also allows you to strike a balance among the key performance indicators by observing holistically how a change you make to one of your processes impacts the overall effectiveness of AP. The data will clearly tell you if your process changes are working.
Significant improvement requires automation
For AP departments lacking automation, collecting and reporting performance data can be burdensome—so much so that this important function may take a backseat to merely getting the day-to-day work done. As a result, many of the rich insights they could gain from regularly reported metrics are lost.
Manual reporting isn’t only a hit-or-miss proposition. It’s also enormously error-prone and wasteful, with key business intelligence often being overlooked.
Automation and the valuable reporting it provides can deliver many benefits, including:
- Facilitating data sharing with financial managers who need to know the value of outstanding invoice liabilities for their reports
- Helping you make staffing and performance decisions
- Assisting procurement in identifying non-PO-type vendors who might be consolidated to obtain better discounts
- Ensuring your vendors are happy
- Providing overall process and performance efficiencies that save the organization considerable money
For example, Hyland’s Brainware for Invoices provides a complete audit trail for tracking invoices that allows you to capture AP metrics that provide the insights you need to improve your quality, efficiency and cost effectiveness.
If you don’t yet have automation in place to perform these important tasks, it’s worth doing a cost analysis. It may well turn out not to be a question of “Can we afford to automate?” but rather one of “Can we afford not to?”
To help, Hyland and the Institute of Finance and Management have partnered to create the AP Control Panel, a first-of-its-kind tool to evaluate your AP department’s level of control over operations, cash flow, compliance and security. Learn more here.
