In This Article

Remember the words of Peter Drucker regarding measurement and management? It goes like “If you can measure it then you can manage it”. The quote stands true when it comes to measuring accounts payable through Key Performance Indicators (KPIs). The quote also has an inverse version that says if you can’t measure a task you cannot manage that task.

The quote as a philosophy has been taken into operation by every modern business and organization across the globe. They measure each step of their operation using the KPI standards. KPI or Key Result Areas (KRAs) is a goal or expectation that each task has to achieve after a point in time. KPIs are available for everything, from managing account to managing employee performance, everywhere.

Messing the performance of payables helps to identify the key area of financial waste and look for optimization. Monitoring financial statements closely and checking the indicators keep the accounting system free from errors. It will also reduce the inefficiency of the costing process and optimize the cash flow operation.

This blog aims to decode the KPIs of Accounts Payable by detailing the suggested measures. You will get an idea about managing the accounting system with the help of KPIs through this piece.

Here we start!

A. KPIs to Manage Accounts Payable

Handling the paying functions of the business is the most crucial where businesses pay out money to suppliers. There is a high chance of mismatches if you have not tracked down the payable section properly. Businesses interact with external parties in the payable section and the chance of supply-side issues will be higher if the performance of this section is measured cautiously.

Introducing the accounts payable KPI has one mission: to check whether the company’s money is spent judiciously or not. To check the money is getting paid only for the specific purpose as per the goals and mission of the company. The payable section is maintained via the invoices therefore invoice maintenance becomes a crucial factor here.

Companies have to maintain a high accuracy level in maintaining the financial documents to inculcate KPI measures accurately. Creating KPI for invoicing team measures helps companies reflect on their responsibilities and keep on checking where it is going. KPIs in accounts payable become a tick-box exercise where companies keep on checking each measure so it does not suffer any shortcomings.

In today’s time, automation in maintaining payables is not a new thing where AI (Artificial intelligence) is dominating. By measuring accounts payable KPI, you can bring automation to your accounting system and prepare automated financial statements. This would effectively eliminate errors from the invoice processing system and make your financial data entry tasks smooth.

B. Suggested KPIs for Accounts Payable

Many large and successful organizations have invented and inculcated KPIs in their payable section before. By repeating their KPI pattern you can successfully develop customized indicators to manage the payable section. Based on the recommendations and suggestions, here are 5 key indicators that every organization should possess.

I. Invoice Processing Cost

Tell me what is the important aspect that needs the most response through KPI in the payable section? Guess it! Well, it is to develop a KPI for invoicing team in cost processing. Managing the cost is the most desirable goal of every company, which is measured through the invoice processing costs. Messing the cost at the team level is okay but the performance can be better tracked if it is measured by cost-based inits.

Companies at present track their cost details by invoices as it is the best method to track costs. They take the cost per invoice method to grab the details of issuing invoices at every level in managing account. This measure also facilitates benchmarking costs not only for the company and the competitors but also for the entire industry.

II. Processing Time

Like the cost-tracking process, measuring time becomes crucial when it comes to measuring costs. Time can be taken as a benchmarking option and it is considered as the best practice in maintaining accounts payable. The time that is taken here is the elapsed time, not like the overall time that is measured in various points. The elapsed time is measured when a process gets initiated and ends.

Only the specific time it has taken is measured through this time-tracking method. Tracking time for the cost assessment is the best practice like the cost per invoice method. In this process, the total time consumed in a project including the approval time is also considered and taken for the calculation. This measure considers this time because accounts payable KPI assumes that the time for releasing the payment will be there in the system forever.

Measuring time is crucial to identify the error in the processing cycle. An error in the cycle reduces the generation of invoices and causes delays in the system. A little delay in the system will cause severe issues in the financial system as it can reduce the chances of getting payment early, not getting discounts, etc.

III. Employee Head Count

Earlier, the tasks of managing account and invoicing processes in most of the companies were handled manually. Organizations used to spend a huge sum of money in managing the human resources for these tasks. Nowadays, the use of technology in the invoicing process has become very common, and all tasks like preparing financial statements, managing payable accounts, etc are done by dedicated software.

However, manual labor is still needed at the initial stage, especially in the data entry process. Manual intervention is needed in accounts payable KPI maintenance for the task of invoice amendments. Incorporating human resources into the invoice process must be tracked with proper measures. As a KPI, the number of invoices processed divided by the number of employees is the ideal one for this.

IV. Outstanding Due

Sometimes invoices are generated earlier before receiving the payments, which is a part of the outstanding payment process. The KPI for invoicing team is different for these types of payments. The process is referred to as Days Payable Outstanding (DPO) where payment is made after a few days of invoice generation.

Some companies negotiate the credit terms with their suppliers and mutually agree on the maximum DPO period. The KPI for accounts payable here is to check the DPO period if it is increasing then proper action must be taken to reduce it down. You can calculate the DPO period by dividing the average amount of invoices payable outstanding by the cost of goods sold for the period and multiplying it by the number of days included in the period.

V. Rate of Exception

The rate of exception reveals the error percentage of the invoice processing and managing account tasks. The rate also reveals the number of times you need to do a rework in your files. A higher percentage of exception rate means a high chance of error therefore measuring this metric is necessary.

You can arrive at this metric by dividing the expected number of processed invoices by the actual number of processed invoices. Focusing on maintaining the result of this metric zero should be your goal. Errors are part of the accounting tasks but their appearance in preparing the financial statements can be minimized.

Hiring data entry experts through outsourcing for maintaining accounts payable is the best method to avoid errors. These experts are specially trained in maintaining the KPIs and hence can support your invoicing system for the better. They will help in bringing automation to the accounts maintenance and invoicing process.

Tell us your Requirements & Speak to our Experts

We are always ready to help you!

ASK Data Entry has over a decade of outsourcing experience providing a range of data entry solutions to clients worldwide. Our team brings the highest quality and accuracy to every project, while ensuring confidentiality and compliance with global outsourcing best practices.

Start With Our FREE TRIAL

Add notice about your Privacy Policy here.