Ira Brooker 
Written: February 26th, 2019 Updated: March 20th, 2023 Ira Brooker Written: February 26th, 2019 Updated: March 20th, 2023
Not all key performance indicators (KPIs) are equal — just as not all accounts payable (AP) departments identify and measure the right ones. These analytics gaps can make it difficult for accounts payable departments to reach their goals, as they take one step forward followed by two steps back.
Tracking AP KPIs can identify weak process points and operational inefficiencies. Metrics highlight the tasks and technologies inhibiting an optimized department, telling you where you need to move the needle forward. When utilized to their fullest, the right KPIs also point to these pain points’ solutions. AP departments have to determine how to emphasize the actionable, useful KPIs to track their improvement as they implement new solutions. The increased efficiency you gain can also put money back in your company’s pocket.
Which metrics make the cut? We’ve compiled the most important KPIs for accounting departments to secure the most meaning from your data and strengthen your process.
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Costs add up when a company processes invoices slowly. Low-performers in this KPI are significantly more likely to practice process inefficiencies across accounts payable, not limited to the following areas:
Complicated routing workflows: Overly complex workflows involving ad-hoc distribution decisions create headaches for all in the department.
Slow invoice coding: Correcting erroneous reference information, using legacy software or hunting down too many cross-departmental touchpoints to double-check numbers can all lead to lagging invoice coding.
Delayed verification: Lag times creep up as invoices get routed to the appropriate personnel through the proper channels but sit on a desk unapproved for days.
Backlogged invoice closeouts, postings and filings: Siloed from the beginning, the entire end-to-end invoicing process — indeed, the entire AP department — shutters to a halt.
You can calculate your average time per invoice processed using this formula:
Time Per Invoice Processed = Hours spent keying + hours spent re-keying + hours spent reviewing materials + hours spent identifying route checkpoints + hours spent on approvals + hours on remitting + hours on reconciling + hours on communication statuses updates and approvals
This is a base formula per invoice. Averages for other periods can be calculated using the same compiled time variables divided by the number of invoices processed that day, week, month or year.
Processing speeds will vary based on the size of your company as well as the industry it’s in. Few metrics are as intertwined with other AP efficiency goals, including the overall cost per invoice processed. High performers increase their processing speeds, boosting productivity and trimming departmental expenses.
How to Improve Average Time Per Invoice Processed with Automation
AP automation software contains e-repositories that help key in, manage and file invoice data at every stage of the workflow. Software can:
Businesses spend a median amount of $2.80 per invoice processed. Other industry calculations say bottom performers will dole out around $6 for a single end-to-end processed invoice — and perhaps even more if processed manually or using legacy systems.
Tracking cost per invoice processed is your organization’s first glimpse into overall departmental efficiency. Some of AP’s most expensive variables (outlined below) go into calculating cost per invoice processed. In other words, the same expenses it takes to run a functional AP department are the same expenses accounting for cost per invoice. It’s a convenient and cost-illuminating overlap, one likely on your radar already.
To fully understand these metric connections, consider the formula for calculating this KPI:
According to my research, these costs have fallen dramatically since this was first written, probably due to advancements in automation. Still a compelling KPI, of course.
Cost Per Invoice Processed = Total accounts payable costs / total number of invoices processed
What factors go into “total accounts payable costs” — i.e., what are these traditionally high overall departmental expenses? They include:
Labor Costs: Labor costs constitute the most considerable AP budgetary expense and one of the largest organizational expenses regardless of department. You determine your labor costs by the number of employees in your department, the hours they work, their benefits and their wages.
Infrastructure Costs: Infrastructure refers to the physical tools and equipment needed to process an invoice, such as the costs to buy and maintain AP software, hardware and any other accounting tools utilized.
Office Supplies: This includes paper, envelopes, stamps, pens and more make up your office supply expenses.
Parcel Service and Postage Fees: Many organizations are decentralized in terms of invoices receipt. Offices each receive and approve their relevant documents on paper, then ship approved invoices via UPS or FedEx in bulk, expedited packages, saving time and reducing some costs but still resulting in parcel fees.
Before you can know your cost per invoice average, you must first calculate these overall departmental expenses. Conduct a simple workflow test case on one sample or a series of invoices. Note every step in the check-processing workflow — from receipt to verification to approval through payment — alongside the materials, technology, equipment and number of touchpoints. Review these findings alongside office supply order rates and parcel mail versus electronic invoice payments. This provides the foundation to calculate your total accounts payable costs and cost per invoice.
How to Improve Cost Per Invoice Processed with Automation
Automating your accounts payable system brings down costs by reducing the need for manual oversight of data entry, invoice matching, approval routing, and most other day-to-day invoicing processes. Reducing human touchpoints in all of those areas is a reliable way to bring cost-per-invoice processed down from the industry median.
A key KPI for your accounts payable clerks is tracking the number of invoices each one processes daily, providing key insights into where your AP department processes demonstrate strength and where they need to improve.
There are significant downstream effects to low performers in this KPI. Until an invoice is completely approved and filed into an ERP system, other departments cannot assess its developments or know what stage of the process it’s in.
This lack of visibility especially affects non-purchase order invoices, leading to organization-wide problems like mismanaged cash flows, missed supplier discounts, late payment fees and overall poor vendor relationships. Businesses can use this general formula to calculate the number of invoices processed per employee, per day:
Number of Invoices Processed Per Employee, Per Day = Number of invoices processed per month/number of clerks or full-time equivalents (FTEs) processing them
You’ll also want to keep track of what processing task each clerk or FTE is responsible for. The employee taking on the paper trail of a misclassified non-PO invoice is going to spend a lot more time on their work than the downstream employee who simply gives a final invoice review and approval.
While a general sense of invoice numbers is a fundamental KPI for accounts payable departments, deeper FTE-task specific data points can help you identify things such as:
Ask those top employees to share tips to assist the entire team with boosting their performance.
How to Improve Number of Invoice Processed/Employee/Day with Automation
An automated AP software solution provides a clearer measure of how many invoices are processed by each employee each day by giving your team much deeper visibility into invoice processing. An automated dashboard offers at-a-glance information on where each invoice is in the process and how long each team member takes to complete their tasks. That makes it much easier to identify inefficiencies and make adjustments that speed up invoice processing across the board.
Embrace the advantages of AP process automation and stay ahead of the times. Download the MHC AP Automation Buyer’s Guide to find out more!
Invoice exceptions plague even the most high-functioning AP departments. Reflected in KPIs, they drag down both processing efficiency and employee morale, particularly when exceptions have more to do with problematic workflow processing practices than manual entry errors. AP invoice exceptions have a number of culprits:
Worst-case exceptions create disputes between purchasers and vendors. The resulting bottlenecks can bring an entire AP department to a halt.
Tracking invoice exception rates is the first step to reducing the impact of their discrepancies. Organizations can analyze a number of data points to understand their exceptions and tailor solutions, such as:
How to Improve Percent of Invoice Exceptions with Automation
AP automation works like an extra pair of eyes — or an extra hundred — canvasing your invoices, matching them with purchasing orders, comparing line item detail to purchasing and receiving data, all within seconds. Introducing automation software can directly reduce manual-based exception rates, plus other business benefits such as:
Since invoice exceptions remain the dominant reason today’s AP departments still underperform, exception-related KPIs can see dramatic improvements with that extra automated attention.
Days payable outstanding (DPO) is a financial ratio used to determine the average number of days a business takes to pay invoices and bills, usually calculated on either a quarterly or annual basis. DPO can be seen as a snapshot of how well a business handles its cash outflows and other financial considerations. DPO is sometimes referred to as “creditor days” or “accounts payable days” because it helps vendors, suppliers, financiers, and other creditors in evaluating how many days it will take to be paid by a particular organization.
A higher DPO indicates that a business takes a longer time to pay off its creditors. Contrary to what a layperson might assume, a high DPO can actually be a sign of a healthy organization because it indicates that the business is keeping a higher amount of cash on hand. (Of course, it can also indicate a business that simply does not pay its bills on time, so creditors are well-advised to look at factors beyond DPO.)
Days payable outstanding can be calculated using either of two formulae:
(Cost of Goods Sold (COGS) is defined as the Beginning Inventory plus Purchases, minus the Ending Inventory)
(Cost of Sales is defined as the Beginning Inventory plus Purchases, minus the Ending Inventory.)
How to Improve Days Payable Outstanding with Automation
Calculating DPO manually is a repetitive and time-consuming process, and applying your findings to your AP operations can be a complicated process. The data analytics and deep visibility provided by an automated AP software solution make it much easier to not only calculate DPO, but also to identify bottlenecks and inefficiencies in your process that can impact DPO times.
The average speed with which a business processes its invoices can be a strong indicator of its overall efficiency and accuracy. For most organizations, the invoice approval workflow can be broken down into five distinct steps.
How to Improve Average Time to Approve an Invoice with Automation
Speeding up time-consuming processes is one of the key benefits of investing in AP automation. The ideal time for moving an invoice from receipt to approval will vary by industry and business size, but automation is an even bigger factor. Research shows that it can take around 25 days for an average-sized business to process a single invoice using a mostly manual process, while a similarly sized organization using an automated AP system can get an invoice approved in five days or fewer.
