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Accounts Payable Key Performance Metrics: Are You a Top Performer?

Author

Monica Neumann

https://www.linkedin.com/in/monica-neumann-pmp/
monica.neumann@auxis.com

PMP | Sr. Manager - Finance Transformation

Monitoring Accounts Payable key performance metrics can have a direct impact on your business’ bottom line. But measuring the success of your AP process requires more than tracking how many invoices are past due.  

Traditional accounting departments are wrought with inefficiencies, overworked and crunched for time beneath a growing mountain of invoices, high staff turnover, and outdated manual processes that place heavy reliance on paper and spreadsheets.

Top-performing AP teams process nearly four times the number of invoices than bottom performers, according to American Productivity & Quality Center (APQC) benchmarking data. The cost per invoice processed is also almost five times higher in a bottom-performing organization.

Using key performance indicators (KPIs) to uncover bottlenecks and shape a strategic approach to improving your AP process builds a bounty of benefits: increasing agility, cutting costs, mitigating risk, improving cash flow, driving additional revenue, strengthening vendor relationships, and aligning the accounting department with your organization’s overarching goals.

Ultimately, the Accounts Payable key metrics you choose should reflect what matters most for your business. But four KPIs stand out as essential to improving effectiveness and efficiency.

Here are the Accounts Payable key performance metrics every AP team should be tracking to make sure you are asking the right questions and gauge the impact of process improvements throughout your performance improvement journey.

4 Accounts Payable key performance metrics every organization should track

1. Cost effectiveness (cost per unit)

Measuring cost effectiveness is critical to understanding how well your AP operating costs are managed. Determining your total cost and dividing it by the number of invoices you process reveals your cost per unit. The lower the number, the better your AP performance.

For instance, if your AP team’s payroll is $10,000, and the team processes 500 invoices (units) in a typical month, dividing $10,000 by 500 reveals a $20 cost per unit. APQC benchmark data categorizes this organization as a bottom performer – performing worse than 75% of AP organizations.

Top performers complete the same task at a $2.02 cost per unit. The median cost per unit for invoice processing is $5.71, according to APQC data.But keep this in mind: costs per unit can appear deceptively low if you fail to consider hidden expenses that impact your profit margins. That may include the cost of systems, mailing, printing, overpayments, late payments, and other errors.

2. Staff productivity (invoices processed per FTE)

Measuring the output of each employee is a good gauge of an AP team’s overall efficiency and performance. High levels indicate more productive staff, most often assisted by process improvements like standardized and automated processes.

The simplest way to determine staff productivity is to divide your annual invoice volume by the number of full-time employees in your AP Department. But companies may also measure invoice volume daily, weekly, or monthly as well – making benchmarking more complicated.APQC shows a significant difference between top and bottom performers, at 23,333 and 6,082 invoices per FTE respectively. The median number of invoices processed per FTE is 10,853.

3. Process efficiency (number of FTEs relative to revenue)

This metric is key to grasping how well AP procedures and systems support operations. Results can play a critical role in right-sizing workforces and evaluating options for role restructuring and automation. APQC recommends tracking the number of AP FTEs (full-time equivalents) per $1 billion in revenue. By its calculations, bottom performers need more than three times as many resources to perform the AP process – requiring 12.5 FTEs per $1 billion in revenue. Top performers showed 3.7 FTEs and the median number was 6.9.

4. Cycle time (time in calendar days from the moment an invoice is received until payment is transmitted)

This metric reveals whether your AP processes are accelerated or dragging. High cycle times generally indicate processes that nee