Top Organizations Record Accounts Payable Cycle Time in 2.8 Days: Metric of the Month

Collaboration across silos helps AP go from "invoice received" to "scheduled for payment" faster.
Perry D. WigginsAugust 3, 2022
Top Organizations Record Accounts Payable Cycle Time in 2.8 Days: Metric of the Month
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An optimized accounts payable (AP) process not only helps organizations take advantage of early pay discounts and favorable payment terms but is vital for cash flow management more broadly. But AP teams do not work in a vacuum — process excellence is partly a product of collaboration with other areas across the business.

  Perry D. Wiggins

The cycle time to approve and schedule a payment for AP provides a good example of how effective AP teams depend on inputs from across the enterprise. This cycle time measures the length of time (in calendar days) it takes an organization to receive, enter, approve, and otherwise process a vendor invoice for payment, regardless of when the organization actually transmits payment to the vendor. 

Through responses to its Accounts Payable and Expense Reimbursement survey, APQC finds that top-performing organizations (those in the 25th percentile) are able to receive an invoice and schedule payment in 2.8 days or faster. Bottom-performing organizations (in the 75th percentile) take a week or longer to perform the same tasks.  

Beyond productivity for productivity’s sake, why should organizations take the necessary steps to improve their cycle time in this area? Normally, when organizations find they have idle cash available for a short period, they must decide how best to use it. For example, they can put it to work by investing in the short‐term money market, paying bills, or applying it to a bank balance requirement. The decision typically rests on which option provides the best yield. When wholesale money market yields are relatively low, treasurers may be able to capture better returns on idle cash by ensuring that prenegotiated discounts are taken on payments to vendors. 

However, bottom-performing organizations may be unable to take advantage of such a strategy. With common payment terms offering a 2% discount if the vendor receives payment within 10 days of the invoice date, these organizations will likely miss out.

An inefficient and disconnected AP process also creates risk for the year-end financial close. As finance attempts to account for all outstanding liabilities during the period-end, not having an efficient AP process may result in period-end accruals that are materially misstated.

Collaborate Across Silos

To improve cycle times for this and other AP processes, an AP department should: 

  • Standardize and centralize AP processes

  • Assign an accountable process owner for each AP process

  • Continually look for opportunities to improve the process by removing waste and inefficiencies.

Standardization, governance, and continuous improvement are all foundational for improving the performance of any process. At the same time, an AP department’s productivity also depends on how quickly others in the organization get information to it. Below are three ways that the rest of the organization can help AP do its job more efficiently.

1. Timely Submission of Invoices

Do everything possible to ensure AP personnel receive vendor invoices in a timely manner. Doing so helps to maintain the routine process flows of the AP department without interruptions to perform special requests or urgent vendor payments that are a consequence of late notification. 

Along with timely submission, help take the guesswork out of the process by providing as much information with each invoice as possible. Sending the appropriate expense codes as well any other relevant details related to expense categories, department, and location (especially for larger organizations) is key for faster processing times.

2. Obtaining Approvals Before Submission

There is no better way to slow down the invoice process than submitting invoices that still require approval. For instance, if an 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 track down the leadership approvals for invoices exceeding a certain dollar amount, which is a guaranteed time drain.

3. Batching and Processing Payment

The end goal for any invoice submitted to the AP department is to have the invoice entered into the payables system and processed for payment. If the organization is using older financial ERP systems, it should consider a new system that helps to automate some accounting and AP activities. If the company is unable to upgrade its systems infrastructure at this time, look for other ways to speed up payment processing — like the utilization of payment batching, ACH/electronic payment options, or more frequent payment schedules.

AP should work to continually improve its processes through practices like standardization and governance. However, AP’s performance also depends on collaboration and cooperation from the rest of the organization. Work to ensure that each part of the business knows the role they play and the steps they need to take to help carry out this key financial process.

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.