Accounts payable KPIs: Essential AP metrics to track and optimize performance 

Are you still getting to grips with cash flow issues and late payments that cloud your Accounts Payable (AP) process?

Without proper AP tracking, your business could face costly delays, increased errors, and lost opportunities to capitalize on early payment discounts.  

The solution?

A proper understanding of AP Key Performance Indicators (KPIs) and how to track them.

These metrics serve as a roadmap for streamlining your AP operations, improving financial health, and building strong vendor relationships.  

This article will guide you through the essential AP KPIs for improving this aspect of your business.

From automating invoice processing to optimizing payment schedules, we look at specific metrics that can make a difference in the way you manage your finances. 

Here’s what we’ll cover:

What are accounts payable KPIs? 

Accounts payable or AP KPIs are the main metrics that measure the effectiveness and efficiency of your accounts payable processes.

They provide a clear picture of how well your company is managing its financial obligations to suppliers and vendors.  

Why do they matter? Because they offer insights into your operational efficiency, cost control, and overall financial health.

By tracking these KPIs, you can identify bottlenecks, reduce errors, and improve cash flow management.  

Those insights translate into:  

Streamlined operations

KPIs measuring invoice processing efficiency help you pinpoint slowdowns and automate manual tasks, leading to faster, more efficient workflows. 

Reduced costs

By tracking cost per invoice and early payment discounts you capture, you can further optimize processes and negotiate better vendor terms. 

Enhanced vendor relationships

Stats relating to Days Payable Outstanding (DPO) and payment accuracy help you ensure timely payments, building trust with your suppliers. 

Improved financial visibility

These KPIs provide an up to date, data-driven view of your financial obligations, enabling better forecasting and strategic decision-making. 

Essential accounts payable KPI examples 

As implied above, there are multiple facets of accounts payable that can be measured to provide these insights.

Let’s look at the AP KPIs that provide the most valuable information. 

There are four main groups of KPIs to consider—those relating to the invoice processing rate, those describing the cost of processing, those affecting cash flow, and those tracking fraud and compliance.  

1. Invoice processing efficiency KPIs 

A. Invoices processed per FTE 

This KPI measures the number of invoices processed within a specific timeframe (usually a week) by one full-time employee.

The hours worked by an average employee in that period are called the Full-Time Equivalent (FTE). 

• Formula: total invoices processed / number of FTEs.  

A common result here would be 50-100 invoices per FTE per week, depending on industry and automation levels. 

• Why it’s important: it gauges the productivity and efficiency of your AP team. 

• Best practices to improve it: implement automation, streamline workflows, and provide adequate training. 

B. Invoice cycle time 

This is the average time taken to process an invoice from receipt to payment. 

• Formula: for each invoice, note the number of days between receipt of invoice and payment. Add those numbers for all invoices. Divide the total by the number of invoices to get the average. For a medium-sized company a reasonable rate is 3-10 days. 

• Why it’s important: shorter cycle times indicate efficiency and can lead to better vendor relationships. 

• Best practices to improve it: automate data entry, reduce approval bottlenecks (e.g. by identifying and eliminating unnecessary approval steps), and use electronic invoice systems. 

C. Time required to approve payments

The average delay for approving a payment after the expenditure has been authorized (assuming one department approves the invoice as necessary and then submits a payment request to the financial team). 

• Formula: for each invoice, note the number of days between submission of the payment request and actual payment. Add those numbers for all invoices. Divide by the total number of payments made. 

• Why it’s important: long approval times can delay payments, strain vendor relationships, and impact cash flow. 

• Best practices to improve it: establish clear approval workflows, set approval limits based on employee roles, and implement digital approval systems with notifications. 

2. Cost management and accuracy KPIs 

A. Cost per invoice processed 

In other words, the average cost of processing a single invoice, combining items such as AP staff wages, software costs, postage, and storage. 

• Formula: total AP processing costs / total invoices processed.  

For example, a standard monthly result in the US would be between $3 and $15 per invoice. 

• Why it’s important: it highlights areas where cost-saving measures can be implemented. 

• Best practices to improve it: automate manual tasks, negotiate better vendor terms, and reduce paper usage. 

B. Invoice exception rate 

This is the percentage of invoices that require manual intervention due to errors or discrepancies. 

• Formula: (number of exception invoices / total invoices processed) x 100. 

• Why it’s important: a high exception rate, above 5% for example, indicates inefficiencies and potential for errors. 

• Best practices to improve it: implement automated matching, standardize invoice formats, and provide clear vendor guidelines. 

C. Percentage of invoices per supplier 

The distribution of invoices received across your list of suppliers shows you whether you’re exposed to risk by being too dependent on just a few suppliers. 

• Formula: (number of invoices from supplier X / total number of invoices) x 100. 

• Why it’s important: this KPI helps identify key suppliers, assess vendor concentration risks, and potentially negotiate better terms with high-volume vendors. It also helps detect any anomalies that may indicate fraud. 

• Best practices to improve it: regularly analyze supplier spend, consolidate vendors where possible, and maintain strong relationships with critical suppliers. 

3. Payment and cash flow management KPIs 

A. Days Payable Outstanding (DPO) 

This is the average number of days a company typically takes to pay its suppliers, based on the average cost of running its business. It’s basically your track record of keeping up with payments due. 

• Formula: (average balance of accounts payable / cost of goods sold) x period under analysis (number of days). 

• Why it’s important: it reflects the company’s ability to manage cash flow and vendor relationships. 

• Best practices to improve it: negotiate favorable payment terms, optimize payment schedules, and monitor cash flow projections. 

B. Early payment discounts captured 

If your suppliers offer discounts for early payments, then the proportion of payments that qualify shows how well-organized you are. 

• Formula: (number of discounts approved / number of discounts offered) x 100. 

• Why it’s important: it shows how effectively the company is maximizing cost savings. 

• Best practices to improve it: implement a system to track and prioritize discounts and ensure timely payments. 

C. Late payment rate 

An obvious indicator of inefficiency is the percentage of payments you make after the agreed-upon due date, highlighting potential issues with your payment processes. A common benchmark is to keep this figure below 10%. 

• Formula: (number of late payments / total number of payments) x 100. 

• Why it’s important: a high rate of late payments can damage vendor relationships, incur late fees, and indicate cash flow problems. 

• Best practices to improve it: implement timely payment schedules, automate payment reminders, and improve communication with vendors about payment terms. 

D. Percentage of payments made automatically 

A measure of efficiency and modernity would be the proportion of payments processed electronically, typically via Automated Clearing House (ACH) or similar methods, compared to total payments. 

• Formula: (number of automated payments / total number of payments) x 100. 

• Why it’s important: higher automation reduces manual effort, errors, cost, and processing time, improving efficiency and cash flow management. 

• Best practices to improve it: encourage vendors and partners to accept electronic payments, integrate with payment automation platforms, and configure approval workflows for electronic transactions. 

4. Fraud prevention and compliance KPIs 

These KPIs are often more qualitative and therefore take more of a checklist format.

They monitor issues like anomalies, segregation of duties, and frequency of compliance audits.  

Obviously, their importance relates to security, risk and adherence to regulations.

While they don’t require a formula, they can yield numerical statistics like the number of fraud attempts detected, fraud detection rate (number of frauds / total transactions), or compliance audit results.  

Best practices to improve fraud prevention and compliance monitoring include regularly reviewing and updating internal controls, perfecting authorization workflows, and conducting periodic training for your staff on fraud detection and compliance procedures. 

What is the best KPI for accounts payable?

There’s no single “best” KPI for accounts payable; it depends on your business goals.

If you’re cost-focused, then prioritize cost per invoice processed and early payment discounts captured.

If efficiency is your goal, focus on invoice processing efficiency and invoice cycle time.

For cash flow management, DPO is an excellent metric to keep an eye on.  

Either way, it’s always good practice to align KPIs with your strategic objectives.

However, take note that KPIs can become less measurable or actionable over time.

Regularly review them to confirm their ongoing relevance, and if necessary, adapt them to your evolving business needs. 

Your KPIs can become less effective because of changes in business processes, such as:

• switching to a new accounting system,
• new technologies that can add to the number of tasks you have automated,
• new strategic goals, e.g. changing focus to rapid growth and efficiency rather than cost,
• or external factors such as economic downturns or sudden changes in your supply chain dynamics. 

How to build an effective accounts payable KPI dashboard 

An AP KPI dashboard is the ideal tool for highlighting the most relevant metrics, expressing them clearly, and ensuring that they are easily shared with all stakeholders.

It should provide a real-time snapshot of your AP performance and is your first option for orientation to make decisions quickly. 

What is an AP metrics dashboard? 

A dashboard is a visualization tool that displays key performance indicators, in this case, accounts payable performance metrics.

It provides a centralized view of critical data, allowing you to monitor operations, identify trends, and take corrective actions if results are not optimal. 

Key elements of a high-performing dashboard 

For best results, your accounts payable metrics dashboard should include: 

Customizable views

Based on company priorities, allowing users to focus on the metrics most relevant to their roles. 

Real-time tracking

Real-time tracking of invoices, payments, and processing times.

This is the raw data you use to ascertain the KPIs listed above. 

Integration

Integration with accounting software for automated data updates.

This ensures your data is accurate and frees staff to focus on more analytical tasks. 

Using automation to manage AP KPIs 

In our section on KPI examples, you’ve learnt how automation can improve the clarity of your results.

Here’s how modern systems can further streamline the KPI tracking process through a series of features that take the manual data-entry pain away. 

Speeding up invoice processing

Automated AP processing solutions like Sage Intacct, for example, leverage AI-powered data extraction and duplicate flagging features.

This gives you instant and accurate data capture from invoices, removing manual admin and reducing data entry errors or discrepancies. 

Efficient approvals

Automated systems automatically route invoices to the right people for approval, reducing delays and preventing unauthorized purchases.

Added security features like role-based access control ensure only authorized personnel can approve transactions, protecting sensitive financial data.  

Integration with ERP systems

Modern automated AP solutions also allow you to integrate your AP workflow with your ERP systems, enhancing visibility with a single source of truth and boosting operational efficiency. 

Data security

The software embeds proven security protocols to protect your data against breaches and fraud.

Features like automated logging and audit trails give you a detailed record of data access and modifications, ensuring transparency and regulatory compliance.

Final thoughts

Companies that meticulously track and optimize their AP metrics with accounts payable software gain a significant competitive edge.

Close attention to these KPIs can help you focus on efficiency, cost reduction, and building strong supplier relationships.  

To effectively gather the data needed for accounts payable KPIs, consider the following actionable steps:  

• Automation to eliminate manual processes, minimize errors and streamline workflows. 

• Standardize your AP policies and procedures to ensure consistency 

• Optimize payment schedules to capture early payment discounts.  

Furthermore, adopting a comprehensive KPI dashboard positions you for conducting regular audits of your AP performance.

This is a solid basis for continuous improvement of your AP processes, helping you maintain healthy cash flow and bolster your bottom line.