How to benchmark your company's AP performance

Sep 3, 2019 6:00:00 AM

As a company, tracking performance is crucial, especially when it comes to accounts payable and your finances.


According to a study of 400 financial decision-makers in more than 12 industries, more than one-quarter of companies have already implemented some form of accounts payable automation in order to improve their AP performance. Nearly three-quarters of those that haven’t, plan to do so within three years.1

74%of companies that haven’t adopted AP automation yet, but plan to do so within 3 years1

And no wonder. Manual processes have proven to be quite expensive. They don’t do anything for your AP performance -- they’re inefficient, error-filled and thanks to un-captured early payment discounts, costly. If you’re contemplating the move to AP automation, consider taking this step first: benchmark your current AP process performance.

 

Benchmarking Your AP Performance

Benchmarking answers the most fundamental of questions: Where is your AP process now? How is your AP performance? For all you know, your invoices per FTE, error rate, and invoice cycle times are well within tolerable ranges. Then again, there may be considerable room for improvement.

Which leads to a second very important question: Where do you want to go?

Knowing where you are allows you to compare with where you’d like to be. Seeing your AP performance in black and white may lead you to set new goals for your department. If so, ask yourself if you can attain them with the processes, systems, and employees, currently in place.

If the answer is yes, then benchmarking your AP performance has validated your current approach. If no, then benchmarking has opened your eyes to a brand new world.

 

How should you measure AP Performance?

Measuring your accounts payable performance starts with benchmarking. According to the Institute of Finance & Management, benchmarking, like all good research, consists of quantitative and qualitative measurements.2

Quantitative focuses on any important aspect you can attach a metric to. Typically, these are your key performance indicators such as days payables outstanding (DPO) that you can use to measure your AP performance. More on this below.

Qualitative benchmarking, on the other hand, focuses on the quality of business processes that drive your indicators. These can include anything from travel and entertainment automation to vendor portals, employee burnout to vendor satisfaction.

 

Become more efficient and effective by Benchmarking AP Performance

One easy way to look at benchmarking AP performance is to ask: Is your AP process as efficient and as effective as it can be? How fast is your AP process and how good is it?

 

What to look for

In terms of speed, look to measure invoices per FTE, invoices paid on time, and the cost to process each invoice. In terms of effectiveness, look at PO first pass match rate, share of PO mismatched invoices, invoices requiring corrections, and duplicate payments.

Effectiveness for benchmarking AP performance can also be measured by early discounts achieved. Look for the number of early discounts available versus the share of discounts captured -- think of this as money left on the payment table or potential savings when it comes to your AP performance.

 

4-phase approach to benchmarking your AP performance

Typically, benchmarking models adopt a four-phase approach. You’ll want to:

Plan: Define the AP process you’ll benchmark. Identify benchmarking best practices in accounts payable to adapt to your requirements. Determine what measurements you’ll compare your process to. Decide how to collect data for evaluation.

Analyze: Create a flowchart of the AP process you’re hoping to improve. Compare your collected data with your ideal benchmark AP performance figures. See where your AP performance exceeds or falls short of the best practices in each area.

Implement: Communicate your benchmark findings to stakeholders and appropriate staff. Establish functional goals for improvement and develop and execute action plans for your AP performance.

Evaluate: Measure and monitor AP performance against the action plan, then update benchmarks when appropriate. Remember, benchmarking is a continuous process.

 

Consider Ascend Software for AP Performance Solutions

Need a solution to improve your AP performance?

Accounts payable automation can greatly benefit your organization. Consider a solution from Ascend Software. Established in 1997, Ascend provides business process automation solutions known for AP performance, functionality, and seamless ERP integration.


1. B2B Payments Automation Innovation Playbook: https://www.pymnts.com/wp-content/uploads/2019/03/2019-05-Playbook-Automation_Playbook.pdf?utm_campaign=pymnts-mail&utm_source=mailbot&utm_medium=email

2. The 4 Most Important Benchmarks for Becoming a Best-in-Class Accounts Payable Organization, Institute of Finance & Management: https://www.iofm.com/ap-benchmarking-best-practices

You May Also Like

These Stories on Accounts Payable

Subscribe by Email

No Comments Yet

Let us know what you think