7 Accounts Payable KPIs CFOs Must Track to Optimise Its Efficiency

“Progress is made where progress is measured.”

With growing demands on finance teams, CFOs are constantly looking for ways to make every process as efficient as possible—and accounts payable (AP) is no exception. While traditionally seen as a back-office function, AP holds untapped potential to drive savings, optimise cash flow, and support strategic goals—if managed with the right metrics.

The key to transforming AP from a cost center into a value-driving powerhouse lies in tracking critical accounts payable KPIs. But with numerous metrics available, which ones truly make a difference?

Here, we will dive into the 7 key accounts payable KPIs that will help CFOs boost efficiency, optimise cash flow, and turn the accounts payable department into a real asset for the company.

Accounts Payable KPI #1: AVERAGE PROCESSING COST PER INVOICE

Although this is an obvious and number one AP metric when it comes to invoice processing, it isn’t an easy one, considering the number of steps involved. This key productivity metric includes all costs to AP of processing payments, including operational expenses and supplier charges. In addition to the costs associated with goods & services for which they are issued, invoices can generate additional expenses via delay or error. An estimated 90% of all invoices globally are still processed manually. While processing one manually costs between $12 and $30, automation has significantly cut down costs to $5 or less, per invoice.

Why track this metric? This metric is a strong motivator for change. Knowing the true cost of invoicing emphasises the power of automation. Finance leaders should use this AP metric carefully, preferably to focus on monitoring their performance over time rather than comparing their benchmark with peers.

Accounts Payable KPI #2: DAYS PAYABLE OUTSTANDING (DPO)

This metric indicates that the average duration it takes for your company to pay back your suppliers is used in cash cycle analysis. A high or low DPO compared to the industry average can affect your business. Although a high DPO can be advantageous for your company as the excess cash on hand can be used for short-term investments, payment delays can affect supplier relationships. On the other hand, a low DPO suggests that the company isn’t wholly utilising its credit period and could also indicate that it is operating inefficiently.

Why track this metric? DPO is an important concept in a company’s financial modelling and measures how well a company is managing its accounts payable. It is one of the most valuable metrics for evaluating overall efficiency and productivity in AP. It ensures that the business achieves the right balance between cash flow and vendor satisfaction. It can also assist you in expanding, maintaining a healthy financial statement and competing effectively.

Accounts Payable KPI #3: INVOICE PROCESSING CYCLE

Evaluating this metric can help you understand where your AP staff is spending the most time. Besides identifying time-consuming tasks, monitoring this KPI also helps avoid late payment penalties. Businesses that process invoices manually take up to two weeks or more to process, and with automation, you can drop that to hardly a day or two. The longer an invoice is out, the greater is the risk it poses to your business. The processing costs will rise, but you will miss early payment discounts.

Why track this metric? Understanding your invoice processing time can help reveal gaps in efficiency. The longer the cycle, the more costly the process gets due to associated labor charges. CFOs analyse this KPI alongside the average cost per invoice to determine where improvements can be made.

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Accounts Payable KPI #4: PAYMENT ERRORS AND PENALTIES

Although it is widespread, payment errors are major financial drains facing organisations today, can affect credit terms and take a toll on vendor relationships. The most common payment errors include data entry errors, payments made to the wrong vendor, and processing an invoice multiple times. The higher the rate of late payments, the more money your business will lose via statutory interests and fees. Also, tracking errors like duplicate payments can help identify fraud. Identifying which AP team member has committed which error allows for identifying additional training needs and process breakdowns.

Why track this metric? This can be a critical metric because erroneous payments, duplicate payments, or overpayments can drain your business’ finances and estrange vendor relationships. Finance leaders track the error type and reason for the error and address them regularly to reduce future losses and save the company’s reputation.

Accounts Payable KPI #5: DISCOUNTS OFFERED Vs CAPTURED

Businesses constantly aim to get as many discounts as possible to save costs and improve their company’s bottom line. This metric refers to the number of early payment discounts your business secured in relation to how many were offered to you. Not only does it help track missed opportunities and the amount of money you could have saved during an early payment, but it also indicates whether your company is meeting supplier obligations. Finance leaders make it a goal also to track the reasons the discounts weren’t captured – such as payment delays, vendor terms not set up correctly in the system, or invoice holds that prolong payment processing.

Why track this metric? It helps gain insight into the performance of your AP process and highlights the areas for improvement. Tracking the rate of discounts captured as a percentage of total discounts offered by suppliers can help you realise missed opportunities and present you with strategic imperatives.

Accounts Payable KPI #6: STRAIGHT THROUGH INVOICE PROCESSING RATES

Straight through or touchless invoice processing eliminates paper invoices and the hassles of manually matching POs with invoices. The higher your touchless invoice processing rate, the lower your overall costs. Having a strong straight-through processing rate influences most of the above-mentioned AP KPIs. Removing manual steps can help cut costs and shorten the lead time to process an invoice. The best-in-class AP departments hit about 71% touchless invoice processing rate.

Why track this metric? It is considered the king of AP KPIs, considering its massive impact on processing costs and processing times and how it can save valuable man-hours. Tracking touchless invoice processing rates can help position accounts payable as an efficient function within the organisation, fine-tune processes and manage by exceptions.

Accounts Payable KPI #7: ROI ON INVOICE AUTOMATION

Even though automation is the best practice for increasing AP efficiency, it is still important to evaluate your ROI. Estimating how much invoice automation will benefit your business can be complex. It requires considering factors including the average salary of AP staff and the amount of time and resources your business spends processing each invoice. When this AP metric isn’t tracked, you might not know what’s helping and what needs to be changed.

Why track this metric? You can compare this data with your pre-automation data in real-time to learn the impact automation has brought on your AP efficiency. It helps you understand your AP automated solutions’ financial impact on your business. Finance leaders continuously monitor, analyse and make improvements to ensure a solid ROI whenever there is any change or AP automation workflow update.

Is Automating AP An Advantage for Accounts Payable KPIs?

Automating your accounts payables operations can help you unlock the ability to track your accounts payable KPIs more closely. AP automation and actively reviewing the metrics mentioned above can help limit errors and decrease supplier inquiries. Moreover, automation allows for the centralised data collection of your payment data. Advanced and predictive analytics can give you a complete picture of your AP operations. A successful accounts payable process is just around the corner with proper metrics.

See how QX transformed AP operations for one of the world’s top beverage producers, freeing their finance team to focus on strategic growth. Read the full case study!

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Interested in exploring everything AP automation can do for your business? Schedule a consultation call with one of our experts today to find out how you can streamline and digitise your accounts payable process.

FAQs

How do accounts payable KPIs impact overall financial health?

Accounts payable KPIs provide insights into cash flow, payment accuracy, and processing speed, helping businesses manage costs, avoid late fees, and improve liquidity, all of which strengthen financial health.

What are the most important accounts payable KPIs for CFOs for measuring efficiency?

KPIs for accounts payable include Days Payable Outstanding (DPO), invoice processing time, payment accuracy rate, cost per invoice, and early payment discounts captured, as these metrics directly reflect AP efficiency and cost-effectiveness.

How can tracking accounts payable performance metrics improve the efficiency of the AP process?

Tracking AP metrics helps identify bottlenecks, optimise workflows, reduce errors, and improve cash flow timing, allowing the AP team to make informed decisions and streamline operations for better overall efficiency.

Originally published May 16, 2022 05:05:43, updated Dec 06 2024

Topics: Accounts Payable Optimisation, Accounts Payable Process