Three KPIs Your Finance Department Needs in 2022
January 24, 2022
Estimated Reading Time: 4 minutes
As a controller or finance leader, you can use various KPIs to track the performance of your accounts payable (AP) processes. Here are three that will put you face-to-face with the strengths and weaknesses of your AP performance.
Invoice processing time
This KPI gives quantitative insights into how efficiently your AP is functioning. The time it takes to process an invoice can help identify inefficiencies such as complex routing, approval bottlenecks and stretched AP resources. Why is this KPI important? A slow processing time translates to delayed payments, late fees, missed early discounts and strained relationships with vendors.
The less time your team spends on approval follow-ups, the more time they have for other operations such as closing the books. A survey with 600 finance professionals found that their AP team has been spending up to 11 hours per month on approvals during the past two years.
How to calculate invoice processing time: Record the date and time each invoice is received. When the approval cycle is complete, document the date and time the invoice was input into the financial system. Subtract the two dates to find the number of days. Take the average across all invoices over a period e.g., monthly, or quarterly.
Automation benefits: With Beanworks AP automation, you can use the dashboard functionality to learn how much time your team is spending on approvals and coding within a specific time period, e.g., a week, month, etc.
Invoice Processing Cost
Another KPI to measure could be the cost of processing paper-based invoices. Coupled with the invoice processing time, this could help you save both dollars and time while accelerating the flow of invoices through the system. Cost to process per invoice is an efficiency metric and includes labor, storage costs, office supplies, overhead and mailing costs.
A lower cost indicates a more efficient AP process. According to research, the average cost to process one invoice manually can be as high as US$15. The average cost can go even higher with extra time spent chasing approvals or fixing errors.
How to calculate the cost to process per invoice: Take your total accounts payable costs and divide by the number of invoices processed or take the online quiz below.
Automation benefits: By removing paper, other hard costs like postage and time wasted on approval delays, you can bring your average invoice processing cost down to US $3 or less. For companies processing 500 invoices per month, that is an annual savings of at least US $60,000. Beanworks saves time using AI to capture invoice details, such as line items, header information, amount, due date, unit costs, quantities, etc.
Calculate your potential savings
Days payable outstanding (DPO)
Last but not least, this metric takes into account the average number of days it takes your company to pay its accounts payable. The figure must maintain a balance between paying vendors in time and ensuring there’s enough cash in the business. If the DPO is too high, it indicates that your business is paying vendors late; if it’s too low, you may not be taking sufficient advantage of the credit terms.
Calculate DPO: To calculate days of payable outstanding (DPO), the following formula is applied, DPO = Accounts Payable X Number of Days / Cost of Goods Sold (COGS). Here, COGS refers to beginning inventory plus purchases subtracting the ending inventory. Accounts payable, on the other hand, refers to company purchases that were made on credit and due to their suppliers.
Automation benefits: Beanworks’ financial dashboard offers insights into critical AP numbers including the pending invoices and payments, the sum of all new invoices and payments, as well as total monthly and daily expenses. The software compares data to the last 30 days and computes the difference, giving businesses a comprehensive view of their financial health.
All information is automatically updated as the platform processes transactions and other financial data. It breaks down the total volume of invoices, purchase orders, payments and expenses processed each day.
One dashboard to rule them all
Manually charting and analyzing financial KPIs can be time-consuming unless you have an automated system to do the calculations. Beanworks AP automation offers real-time dashboard reporting, supporting CFOs to design and track KPIs that are tailored to all AP workflows — from purchase orders (POs) and invoices, payments and expenses. Users can easily customize metrics to support specific requirements or goals. Since data is automatically extracted and stored in one place, it is conveniently accessible by everyone.
All information is automatically updated as the platform processes transactions and other financial data. It breaks down the total volume of invoices, purchase orders, payments and expenses processed each day, giving a preview of:
- The number of invoices, payments, expenses processed within a specific time frame
- The value of transactions
- The dollar amount of pending invoices, payments, and expenses
Organizations looking to improve the state of their current metrics should start by asking the following questions:
- What goals matter most for the organization’s financial performance?
- Have these goals fully leveraged existing data?
- Could the organization benefit from the deeper financial insights that advanced analytics tools offer?
- Are there any weaknesses in your existing KPIs?
- Do your industry peers and competitors measure their metrics? How do yours compare with them?
- What insights can you deduce from comparing your metrics with your competitors’?
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