The Importance of AP Statistics
by Jamie Radford
There is no doubt in any business industry how important statistics and reports are, but in Accounts Payable, they are especially crucial to the success of the department and therefore to the business as a whole. Without statistics, it is impossible for AP managers to truly understand their department and ensure every minute detail is taken into account – this is central to AP success because, as you’ll already know, it’s all about the numbers and the details!
AP staff will usually be focused on those statistics that track the business’s total expenditure and various specific payments, however, staff and their AP manager can also use other reports to gain a clearer picture and help to pinpoint areas that need closer attention, and in this way can be a major asset to the owner and directors of the business.
Implementing elements of automation into the AP processes will help to save time but will also make it easier to track key metrics. In making certain processes within accounts payable more efficient, the benefit to the business is huge. Tracking defined metrics can help to improve the AP invoice processing system – saving time for AP staff and managers… workflows are optimised, costs are improved and staffing requirements are streamlined!
The aim in tracking statistics and metrics is for improvement within the department and for the business overall. If you’re not paying attention to the reports, it is going to be difficult to identify any areas with the AP department that require improvement or change. If you’re not tracking the statistics, how do you know where improvement is needed? How do you know if the team is achieving their targets or meeting departmental objectives? Indeed, how do you know what targets to set if you have not looked at the statistics to provide a baseline?
- Provide clear visibility into processes within the department
- Allow you to see what’s working efficiently within your department and where improvements could be made
- Allow you to amend the departmental strategy to be as productive and efficient as possible with help of the statistical results
MINIMUM STATISTICS TO TRACK:
This is probably an obvious one, but it’s the one you can’t fail to track. Without setting KPIs and checking that those are being achieved, you’ll be unable to track the other statistics providing the finer detail.
Total number of invoices processed compared to the total number of invoices received
Choose a timeframe and track the number of invoices received over that period of time in relation to the number of invoices that are processed during that time. This will provide a clear indication in order to set a starting point. Keeping this percentage as high as possible should be the aim.
Invoice processing time
Are you tracking the average time between receipt of an invoice through to payment? Knowing this time period can help you to see which of your department’s tasks take the most time to complete – and plan accordingly. Keeping this time as short as possible is the goal. Also bear in mind that generally, the sooner invoices are paid, the more discounts can be capitalised upon and overall savings for the business made.
Cost per invoice (average)
Of course, it goes without saying that cost is one of the most important factors you’ll be trying to reduce by analysing the AP reports. Bear in mind the exceptions though, as these can be more expensive to process than the average invoice.
Discounts captured compared to discounts offered
The ratio should be as close to 1:1 as possible and the AP department should be aiming to take advantage of as many discounts as possible. Checking the statistics on this will enable you to plan and identify those suppliers who routinely offer discounts for example, for payments made early, and ensure this discount is always achieved.
Rate of incorrect payments
To ensure AP staff are precise, focused and efficient, this percentage should be as low as possible. Any incorrect payments, whether overpaid or underpaid can affect a business’s cashflow.
Rate of exceptions
As an AP employee, you’ll already know that any invoices that are exceptions will require manual input and the more there are of these types of invoices, the more manual labour and therefore staff time is required. By tracking this statistic, you can identify the most common reasons for these and define actions to efficiently resolve them.
If you are not tracking the statistics, it’s impossible to know where the department stands, and therefore impossible to know how productive the team may be able to become. As AP managers, we all want our departments to run like clockwork, but this can only be achieved when thoroughly examining the statistics.