Accounts Payable (A/P or AP for short) is often an extremely painful accounting and finance area for small businesses and startups. Balancing the need to maintain good relationships with key vendors with cash flow constraints and budgeting is difficult at best and stressful at worst.
Additionally, the costs (both hard costs and soft costs) related to invoice errors in Accounts Payable are often shocking. A recent study by APQC summarized in CFO Magazine reveals a large variance on the time needed to resolve an invoice error:
Often, an AP problem is a symptom of an underlying problem in the overall purchasing process. These greater problems can include a poor Purchase Order (PO) process or subpar workflow processes related to vendor invoices.
Additionally, even in this era of increasing accounting automation, manual data entry is still prevalent and rift with potential errors. According to the APQC report, 58% of invoices are still manually entered into the financial systems.
Like for other key business processes, it’s important for a CFO to establish Key Performance Indicators (KPIs) in order to drive improvements in process efficiency, cycle time, staff productive, and, ultimately, reduce costs.
Some of the KPIs suggest by APQC include:
Total cost to perform the AP process, per invoice processed.
Cycle time, in hours, to enter invoice data into the system.
Cycle time, in days, to resolve an invoice error.
Number of FTEs that perform the AP process, per $1 billion in revenue.
Percentage of invoices that are manually keyed into the financial system.
Number of invoice line items processed per AP process FTE.
Personnel cost to perform the AP process, as a percentage of total process cost.