Benchmarking is most effective when organizations measure and track key performance indicators both internally and externally. This is especially true when it comes to high-volume processes like accounts payable (AP).
Improving your organization’s performance of AP processes year-over-year is all well and good, but is it good enough relative to other organizations? Benchmarking against your peers and competitors using reliable and independent data provides a more holistic picture that can help you take your performance to the next level.
The number of invoices processed for each full-time equivalent employee (FTE) that carries out the AP process is a key measure of an organization’s productivity when it comes to AP.
The chart below shows the top performers for this measure are organizations at the 75th percentile, which process more than three times as many invoices per FTE as organizations at the 25th percentile (20,964 invoices versus 6,488, respectively). While the chart shows cross-industry data, it is important to benchmark against organizations that are similar to yours in terms of size, industry, location, and other relevant factors. This helps ensure you are comparing “apples-to-apples” as much as possible as you track and measure your performance.
Achieving Greater Productivity for Accounts Payable
Reducing your corporate reserves to pay vendors for goods and services is one of the necessary evils of running a business. But like all necessary activities, it is beneficial to your organization if the process is completed in a cost-efficient manner. If your organization can improve its AP performance, you will have opportunities to limit the headcount growth of a non-revenue-generating department while maximizing the capabilities of current staff.
Below are three critical steps your organization can take to improve its performance on this measure.
1. Establish AP Policies and Procedures
There is no better way to slow down AP than submitting invoices that still require approval. For example, if your organization requires CFO approval of all invoices over $25,000, then the submitting employees should ensure that all necessary approvals are obtained before the invoice reaches AP. Otherwise, AP personnel must spend time tracking down the leadership approvals for invoices exceeding a certain dollar amount, which is a guaranteed time-drain on AP’s productivity.
More broadly, set and enforce policies for AP to keep process variations and exceptions to a minimum.
2. Leverage an Online Vendor Portal
For many organizations, the use of a vendor portal (also known as a supplier portal) is imperative for processing high volumes of invoices.
Among their many benefits both for AP teams and vendors or suppliers, vendor portals:
- Provide suppliers with visibility into invoice and payment status;
- Enable suppliers to update payment information securely;
- Facilitate virtual payment methods while reducing the need for paper checks;
- Create a paperwork trail of each transaction for auditing purposes; and
- Automatically flag suspicious transactions or payment requests to reduce fraud.
Giving suppliers access to self-service options and visibility into the status of their invoices will free your AP team from fielding every invoice-related question, which will help drive greater efficiency and free up time for more value-added work.
3. Consider Moving Accounts Payable to Shared Services
Large and globally distributed organizations often achieve greater efficiency by moving high-volume processes like AP to a shared services center. Shared services provide a single team to carry out the process on behalf of the enterprise. This not only helps to reduce cost (since each business unit does not require its own team or employees for the process) but also drives greater speed and accuracy as shared service teams develop expertise in the process.
If a shared service center doesn’t make sense for your organization (for example, because the volume of transactions you process isn’t high enough to make it worth the investment), it’s still important to identify a process owner who will be responsible and accountable for the process. Set up governance structures and a regular review cadence for AP to ensure that the process is standardized to the extent possible and is not being neglected for improvement opportunities.
Robust process governance, cloud-based technology, and the right delivery structures will all help drive greater efficiency for your AP process. To solidify your gains and find additional opportunities for improvement, continue benchmarking on a set schedule (for example, quarterly) and use both internal and external benchmarking for a full picture of where you stand.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.