For businesses engaging in global trade, optimizing accounts payable (AP) operations is critical. Managing supplier relationships, ensuring timely payments, and maintaining cash flow are just a few of the functions AP teams handle. For businesses today, automation and data-driven strategies are becoming essential for staying ahead.
By tracking key performance indicators (KPIs), businesses can measure and optimize their AP processes. These metrics provide insights into inefficiencies and highlight areas for improvement.
This blog post explores the top 10 AP KPIs that will shape accounts payable management in 2024 and how Yala’s global invoicing services can help you streamline your operations.
What Are Accounts Payable KPIs?
Accounts payable KPIs are measurable metrics that gauge the efficiency, accuracy, and financial health of your AP processes. These KPIs help your team monitor progress, identify bottlenecks, and set benchmarks for improvement. KPIs also help in maintaining strong vendor relationships and enhancing cash flow management.
When a business consistently tracks AP KPIs, it gains valuable insights to make informed decisions. Whether it’s tracking how long it takes to approve an invoice or monitoring late payment rates, these KPIs provide a clear picture of your AP operations.
Why Your AP Team Should Track KPIs
Tracking accounts payable KPIs is more than just number crunching. The right metrics allow businesses to:
Optimize efficiency: Identify areas where the AP process can be streamlined.
Improve cash flow: Ensure timely payments and make the best use of cash reserves.
Enhance vendor relationships: Avoid late payments and disputes, fostering long-term supplier partnerships.
Ensure compliance: Track payments to avoid legal and regulatory issues.
With automation tools like Yala’s global invoicing services, businesses can reduce manual workloads, increase accuracy, and better monitor their KPIs.
10 Accounts Payable KPIs to Measure in 2024
1. Days Payable Outstanding (DPO)
Days Payable Outstanding (DPO) is a critical metric that measures the average time a business takes to pay its suppliers. A high DPO indicates that the company is keeping cash longer, but it may also strain vendor relationships. Conversely, a low DPO suggests timely payments but might hurt cash flow.
Formula:
DPO = (Average Accounts Payable ÷ Cost of Goods Sold) × Number of Days in the Period
Tracking DPO can help your AP team find a balance between optimizing cash flow and maintaining strong supplier relationships.
2. Invoice Processing Time
This KPI measures how long it takes for an invoice to be processed from receipt to payment. Lengthy invoice processing times may result in delayed payments and strained supplier relationships.
Formula:
Invoice Processing Time = Total Time to Process Invoices ÷ Number of Invoices Processed
With Yala’s invoicing services, businesses can automate the invoicing process, drastically reducing processing time and improving operational efficiency.
3. Cost per Invoice
Cost per invoice tracks the total cost incurred to process a single invoice, including labor, software, and overhead costs. A high cost per invoice can signal inefficiencies in your AP process.
Formula:
Cost per Invoice = Total AP Costs ÷ Number of Invoices Processed
Automating your AP process through Yala’s global invoicing services can significantly reduce the cost per invoice by cutting down on manual labor and errors.
Read: 10 types of invoices every business should have
4. Early Payment Discounts Captured
This KPI measures how effectively your company is taking advantage of early payment discounts offered by suppliers. Capturing these discounts can save your company money.
Formula:
Early Payment Discounts Captured = Discounts Used ÷ Discounts Offered
An effective AP process that tracks this metric ensures businesses are benefiting from early payment opportunities.
5. Payment Error Rate
Payment errors can lead to late payments, vendor disputes, and financial penalties. This KPI measures the percentage of payments that contain errors, such as incorrect amounts or duplicate payments.
Formula:
Payment Error Rate = Errors in Payments ÷ Total Payments Processed
By automating your AP processes, you can reduce human error, ensure accurate payments, and improve this KPI.
6. Invoices Processed per Employee
This metric evaluates the efficiency of your AP team by tracking how many invoices are processed per employee. A low ratio may indicate bottlenecks or inefficiencies in your invoicing process.
Formula:
Invoices Processed per Employee = Total Invoices Processed ÷ Number of AP Employees
AP automation tools, such as those provided by Yala, can help businesses boost the number of invoices processed per employee, improving productivity and efficiency.
7. Late Payment Rate
This KPI tracks the percentage of payments that are made after their due date. Late payments can hurt supplier relationships and result in penalties or late fees.
Formula:
Late Payment Rate = Late Payments ÷ Total Payments Made
A low late payment rate reflects good cash flow management and effective AP processes. Yala’s invoicing services can help ensure timely payments, reducing the late payment rate.
8. Approval Cycle Time
Approval cycle time tracks how long it takes for an invoice to be approved internally. Lengthy approval times often lead to delays in payments, affecting vendor relationships.
Formula:
Approval Cycle Time = Total Time for Approvals ÷ Number of Invoices Approved
Automating the approval process using Yala’s invoicing services can significantly reduce approval times, making your AP process more efficient.
9. Percentage of Electronic Invoices
This KPI measures the ratio of electronic invoices to total invoices received. Businesses that rely heavily on paper invoices may experience higher processing costs and longer cycle times.
Formula:
Percentage of Electronic Invoices = Electronic Invoices ÷ Total Invoices
Adopting electronic invoicing through Yala’s global invoicing system can reduce processing times and enhance accuracy.
10. Supplier Payment Accuracy
Supplier payment accuracy tracks how often payments are made correctly, without errors or discrepancies. High payment accuracy is essential to maintain trust with suppliers and avoid disputes.
Formula:
Payment Accuracy = Accurate Payments ÷ Total Payments
Automating your accounts payable process with Yala can help ensure payments are accurate, reducing disputes and fostering better supplier relationships.
How Automation Enhances Accounts Payable KPIs
Automation is the key to optimizing accounts payable KPIs. Here’s how it helps:
Efficiency: Automation speeds up processes like invoice approvals, reducing cycle times.
Cost Savings: Automating invoice processing reduces the cost per invoice by eliminating manual labor and errors.
Accuracy: Automated AP systems minimize payment errors, ensuring payments are made correctly and on time.
Scalability: As your business grows, AP automation tools like Yala’s invoicing services can scale with you, handling increased invoice volumes effortlessly.
Better Cash Flow Management: Automation provides real-time insights into cash flow and ensures payments are made when it’s most beneficial for your business.
Yala’s invoicing services are designed to streamline your AP process, offering businesses the tools they need to monitor and improve their accounts payable KPIs.
Accounts Payable KPIs FAQ
1. How often should we track accounts payable KPIs?
Regular tracking, ideally monthly or quarterly, allows you to identify trends, spot inefficiencies, and make necessary adjustments in real time.
2. What is the most important accounts payable KPI?
There is no single “most important” KPI; it depends on your business’s priorities. However, DPO and cost per invoice are often key focus areas for improving cash flow and reducing costs.
3. Can automation improve all AP KPIs?
Yes, automation significantly enhances the tracking and management of all AP KPIs. From reducing processing time to improving payment accuracy, automation transforms how businesses handle their AP operations.
In 2024, optimizing your accounts payable department will be crucial for business success. By tracking these 10 KPIs and using Yala’s global invoicing services, you can ensure efficiency, maintain healthy cash flow, and strengthen vendor relationships.
