Best Practice Things to Measure - Accounts Payable

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Nature: Measurement

Practice Description

Measurement and what to measure is a cornerstone of best practices and process improvement. Consider measuring the following items and tracking statistics over time.

• Input quality - The percentage of invoices received by AP that require exception processing. Exception processing can take up to 10 times the effort to process an invoice. Identify and classify the source and cause of the exception. An exception is any transaction that cannot be processed as a single event according the the organization's Standard Operating Practice (SOP). Record each time someone in AP cannot process a transaction without requiring contact with a supervisor, submitter, approver, vendor, or support person. Log the date, time, vendor, submitter/approver, and problem cause into a spreadsheet. Show results as a trend graph as the percentage of exceptions to total invoices processed in the same time period (weekly). If a particular vendor, approver, employee has a problem, determine how training and process changes might help.
• Input timeliness - Measure the invoices received by AP too late to take a discount. Missed discounts are real money. Use the Discounts Taken and Lost Report. Or, if discounts aren't common in your business, measure the days between the invoice date and the first entry date. Determine where time is being lost (i.e. slow mail, weekly/monthly processing cycle, departmental work load, etc.)
• Process quality - Measure canceled or held transactions and AP errors. Determine if the errors are caught by AP or by others external to AP. Identify the source and cause of the error.
• Process timeliness - Measure the average cycle time from the receipt of an AP transaction (invoice or expense report) to posting. Slow processing can increase the likelihood of duplicate payments, vendor inquiries, misplaced transactions, and transaction investigations. Log the number of items received, number of items posted, number of items rejected, number of items placed on hold, and number of items take off hold each day. Find out which type of transactions take long times to process.
• Output quality - Track voids, stop payments, reissues, returned checks, and uncashed checks. If there is a problem with these kinds of transactions, there may be problems with internal controls or the quality of the master file data (vendors and system configuration). Identify the source and cause.
• Payments in error - record the number and who reported (vendors, approvers, third party auditors, etc.) Log when the system rejects or catches an attempt to post a duplicate invoice. Log when the AP department cancels an erroneous transaction before a payment goes out. Log when a vendor returns an erroneous payment. Log when AP catches an erroneous payment after the payment has gone out. Log when an internal customer notifies AP of an error in payment. Log when a third party auditor finds an error in payment.
• Electronic invoices - what is the percentage of electronic vs manual processing document flows? Report percentages as a historical trend. Consider reporting by vendor to identify vendors with high enough transaction volume to be candidates for automated e-invoicing.
• Electronic payments - what is the percentage of electronic payments, ACH, and wire transfers vs check. Report the percentages by historical trend. The cost of ACH transactions is significantly lower than by check or wire transfer. ACH transactions can reduce the costs associated with producing and mailing checks. Fraud is lessened with ACH transactions. The number of voided and returned items is less with ACH transactions.
• Customer and vendor satisfaction - periodic review of observations of what's working well and what is not. Search for examples and sources of dissatisfaction. Consider taking a survey of employees and vendors once or twice a year.
• Employee satisfaction and development - look at drivers of AP staff satisfaction, expectations, and professional development. Maintain a professional development checklist for each employee and quantify elements of the performance review.

Practice Benefits

You can't improve what you are not measuring.

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Links

• Related: AccountsPayables, ImageLinks

This Topic Is Referenced By These Topics:
Related Links: APBestPractices

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Collaborating Authors and Reviewers: JimCrum