Key Performance Indicators for Accounts Payable

Are you struggling with the following Accounts Payable chronicle issues?

  1. Calls from suppliers for making urgent payments
  2. Constant dissatisfaction from user departments within the organization about delayed payments
  3. Several queries from Internal Audit Department on duplicate payments or inaccurate accounting
  4. Inaccurate accruals at month end resulting in wrong Management Information

You can improve image of your Accounts Payable department by implementing few of the KPI’s and becoming more user/supplier centric department

  1. Turnaround Time: The best way to calculate efficiency of your team is by calculating Turnaround Time of the Invoice. This is calculated as difference in number of days from when the invoice was received by Accounts Payable to the date when the invoice was processed.
    IN Arithmetical Term,
    Date when Processed – Date when Received = Turnaround time.
  2. Percentage On Time Payment: To reduce number of queries from suppliers and also to ensure you maintain healthy relationship with your suppliers, you need to make payments on time. On Time Payment Percentage can be calculated by number of payments made within due dates divide by number of payments made.
    ‘The better the on time payment percentage rate, lesser the chaos in the organization’.
  3. Accuracy Rate: One of the biggest challenges Accounts Payable team faces is processing invoices where either of the details is wrong. The same needs to be measured and provided to Accounts Payable staff. Errors can be identified while making payments, internal audit, supplier reconciliation, etc.
    The way to calculate accuracy rate:
    Number of errors identified divide (divided by) number of invoices processed = Accuracy rate
  4. Percentage of Electronic Payments: If you are not struggling with cash flow, best way to make payments is through NEFT/ RTGS. The more the better.
    This can be calculated as
    Number of payments made electronically (divide by) number of payments made = Percentage of Electronic Payments
  5. Suspected Duplicates: To ensure duplicate payments are reduced, best way is to monitor suspected duplicates on various parameters and ensure the number of suspected duplicate invoices is reduced.

If you need any help or free consultation on implementing the above KPIs, please contact us as below

Happy Paying

Author: Sachin Lohade is a Chartered Accountant and works with Accounting Firms to improve practice and reduce costs. He can be reached out at sachin@corientbs.com or you can visit www.corientbs.com