You've finally transformed your finance department's processes through AR and AP automation. So, what's the next step?
With your AP team having more time on their hands, they can focus on high-level tasks. Refining the accounts payable process through analyzing data-rich reports, setting benchmarks, tracking key performance indicators (KPIs), and improving your strategy for AP activities are all high-value responsibilities that help the organization reach its objectives.
But what can AP metrics tell you about the business?
Why should you track accounts payable metrics?
What gets measured gets fixed, as the saying goes.
To get a realistic view of AP efficiency, you must track accounts payable metrics. If you've automated invoice processing and expense reporting through accounts payable automation software, you likely have access to accurate KPIs.
Measuring AP activities can help you identify:
- Duplicate payments
- Suspicious vendors
- Average approval times
- Missing receipts
- Payment errors
- Invoice processing time and cost
6 KPIs to measure accounts payable and expense management
1. Days payable outstanding (DPO)
How long it takes for a company to pay its account payable balance is the days payable outstanding (DPO) metric. If you calculate a high number for this AP KPI, then it's likely that you're waiting too long to pay suppliers. Too low, and you may be missing out on credit term opportunities and cash strategies.
The calculation is as follows:
DPO = Average Accounts Payable/Cost of Goods/Services Sold in a Time Period) x Number of Days in the Time Period
2. Payment errors
Payment errors do more than create accounting issues—they can lead to strained supplier relationships and operational failure. A 2% duplicate payment or error rate or above is considered too high. Ideally, you'll want to keep this percentage under 1%.
3. Invoice cycle time
This KPI highlights how long it takes to fulfill a supplier invoice from when it’s received until payment is sent out. Best-in-class organizations take just over
4. Expense audit rate
How many expense reports does your team need to review manually? The fewer, the better. To measure this, you need to look at the percentage of reports your AP team reviews out of the total amount of reports.
5. Expense compliance rate
How compliant are your expense reports? The higher this percentage, the more efficient your expense reporting process is.
6. Expense age
For this key performance indicator, we look at how long it takes for an employee to submit an expense report. Employees should submit expenses within days or a week after an expense has occurred. Any longer and the process should be reviewed.
How to improve the AP process beyond invoice automation
When we think of accounts payable, we generally focus on invoicing automation. But expense reporting is just as important. Managing internal spending with a transparent, automated solution can increase accounting compliance and improve employee submission times.
Just as invoice automation allows your finance team to ramp up AP efficiency, automated expense reporting makes it easy to get end-to-end visibility of internal spending. Best-in-class expense reporting integrations for your ERP offer several features, including:
- Easy receipt upload and expense report submission via the mobile and web app
- Automatic credit card statement reconciliation
- Mileage tracking
- Cost allocation per project, department, cost center, or another category
- VAT/GST calculations
- Multiple currency support
- Instant report generation
A better way to report expenses
It's essential to use data-rich integrations to track the efficiency of your AP process. While accounts receivable and accounts payable automation take care of supplier relationships and immediate payment, monitoring internal spend metrics alongside traditional AP KPIs is critical for a realistic view of company cash flow.
Gorilla Expense is an easy-to-use