Last editedMar 20232 min read
To succeed in business, you should be consistently tracking performance across all departments. Accounts payable is no exception, and in fact is crucial as it directly relates to your company finances. Without accounts payable benchmarking, how will you know where you stand in terms of efficiency? Could your company be doing better when it comes to invoice cycle times and error rates? In this guide, we’ll give you a few examples of accounts payable benchmarks to follow – and how to improve your performance.
What does accounts payable benchmarking mean?
Accounts payable benchmarking describes the process of measuring business metrics against industry standards and competitors. By comparing your business’s performance, you’ll see whether you’re meeting the same standards as your peers.
The benchmarking process includes a blend of quantitative and qualitative metrics.
Quantitative benchmarks in accounts payable include things you can clearly measure such as days payables outstanding (DPO) and others.
Qualitative benchmarks in accounts payable look at the quality of your processes and aren’t as clearly defined with numerical figures. These include things like vendor satisfaction that measure attitudes rather than numbers.
Both are important when looking at overall performance, helping you understand whether your accounts payable department is operating at its optimal level.
What are accounts payable benchmarks to follow?
Accounts payable benchmarks are designed to measure speed, efficiency, and cost-effectiveness. In other words, how effective is your AP department when it comes to paying the bills in a timely manner? Here are a few typical accounts payable benchmarks that you can use:
1. Average operation cost per invoice processed
How cost-effective is your AP department? This benchmark looks at company spend for each invoice. To calculate it, you can take your total operating costs and divide it by the number of invoices processed during the period in question. For example, if your total AP operating cost is $10,000 and you process 1,000 invoices each month, this means you’re spending $10 on each invoice. Compare this to industry standards to find out if you’re spending too much on invoice processing.
2. Invoices processed per employee
This second accounts payable benchmark measures the efficiency of your team. To calculate invoices processed per employee, divide the total number of invoices processed by the total number of full time AP department employees. For example, if you process 1,000 invoices a month and have a team of 10, this means that each employee is processing 100 invoices per month.
3. Number of supplier disputes
You manage to process 1,000 invoices per month, but how many are returned with errors or disputes? If this number is high compared to industry figures, it means you’re spending way too much time on human error. Responding to supplier disputes can take a significant portion of the workday away from your staff, who then have less time to process invoices. This leads to delayed payments and other issues.
Additional examples of AP benchmarks include things like vendor payment errors, invoice-to-payment processing time, and days payable outstanding. You can pick and choose the benchmarks that best apply to your department.
What is the benefit of accounts payable benchmarking?
Why should you take the time to use these accounts payable benchmarks? It’s always a good idea to take stock and see where you stand amongst your peers. A slow, inefficient AP team can lead to issues elsewhere in the business. It can damage your supplier relationships while impacting your credit rating and reputation.
By comparing your performance with peers through benchmarking, you’re better able to pinpoint areas for improvement. This in turn improves accuracy, speed, efficiency, and relationships.
How to improve accounts payable efficiency
The best way to improve accounts payable efficiency is through automation. Today’s AP processing software automates many of the tedious manual processes involved with purchase orders and invoicing. It reduces operating costs and the risk of fraud by flagging any discrepancies. Tools like three-way matching reduce the risk of delay-causing errors at the same time.
GoCardless integrates seamlessly into your automated AP processes, working with over 300 partners including top accounting and invoicing software. We also help automate payment collection, for streamlined processing of receivables at the same time.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.