“I thought I was good at my job!” mentioned a distressed AP professional. “But the CFO is telling me that we pay too many bills late, our cost per invoice is too high, and we have the wrong mix of team members.”
She is likely not alone, either in her own concerns about how effectively she is doing her job, but also in having a finance leader that is questioning the same for all the accounting and finance functions.
So how does either of them know? How do you?
The Institute of Finance and Management (IOFM) has conducted research for its three-year benchmarking series, with its most recent being the 2019 Measuring Your AP Performance: Efficiency Benchmarks that addresses these exact concerns. In this week’s blog series, we’ll review the four key metrics to help finance leaders manage AP goals.
Metric 1: Paid On-Time Rates
If your AP department pays invoices on time greater than 90% of the time, you are an AP top performer. This will be typical of departments that have automated. If you are still struggling along with manual invoice and payment processing your paid on-time rates are likely only around 75% of the time.
Not only could late payments result in penalties, but you are also leaving money on the table by never having the opportunity to take advantage of early pay discounts.
Stop paying late and start contributing to the bottom line!
Metric 2: Cost Per Invoice
There has been much research about how money can be saved by automating the AP process based on the cost to process a single invoice manually versus the cost to process a single invoice digitally. The research in the IOFM Efficiency Benchmarks report that we are referencing in this blog is in line with other industry benchmarks. “While the full cost per invoice includes employee benefits, one-time and ongoing automation costs, and other corporate overhead; it should also be an all-in number that includes procurement costs.
If your processing costs are between $8–$15/invoice, you are still manually processing paper documents and it is time consuming, tedious, and error-prone. If it’s only costing you between $3–$4/invoice, you are in the digital age and have at least partially automated.
That potential savings of $11 times the number of invoices you process per year translates directly to the bottom line. And could go towards more exciting things like research and new product development.
Metric 3: Number of Invoices Processed Per FTE
The least efficient AP teams—those with little to no automation—process only 10,700 invoices per FTE per year on average as compared to the most efficient teams—those that have automated the invoice and payment processing workflow—that process twice that amount per FTE.
Imagine if the same number of FTEs could process twice the volume. That means as your company grows, and the number of documents increases, you could do more with the same headcount.
Even better, reallocate staff to more value-added activities like improving supplier relationships and searching for opportunities to capture early payment discounts.
Metric 4: Mix of Specialists vs. Managers
Current benchmarks for low automation companies suggest a greater ratio of lower level AP specialists to managers. And as the level of automation increases, the ratio is reversed, with more higher-level managers to specialists.
According to IOFM’s benchmarking study, “this measure is not intended to be used as a tool for firing or demoting anyone to reset your staffing mix.” Rather, as you lose specialist-level staff to attrition, you might replace them with a higher level manager position.
With automation, you need fewer FTEs to manually enter data and track down approvals and more thought leaders to analyze the data and provide leaders throughout the organization with insight needed to make smarter, more strategic decisions.
For a complete account of the Efficiency Benchmarks report, watch our webinar featuring IOFM Executive Editor, Jess Scheer on demand.
Over the last two decades, IOFM has connected tens of thousands of members, certified more than 20,000 professionals, conducted twice-annual conferences—the world’s largest gatherings of AP professionals. The Institute also collects and manages the most actionable database of operational benchmarks for AP/P2P teams. For information about membership and to download the benchmarking reports, visit www.iofm.com.