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4 Important Accounts Payable (AP) Metrics & How to Improve Them

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The accounts payable department plays a significant role in allowing CFOs to maximize the amount of working capital. A well-optimized and efficient AP process is core to this and will ultimately allow for maximum financial flexibility.  A finely tuned AP process can have a dramatic impact on the value of financial reporting information.

Chief Financial Officers, controllers and accountants  use that data for supply chain planning, budgeting, cash flow analysis and other mission-critical financial areas. However, getting an AP department to the point of being a well-oiled machine requires looking at various internal metrics and determining how to improve them.

Read on to learn more about optimizing and improving your AP metrics.

1. Processing Cost Per Invoice

This is the most important AP metric to measure and track. By doing so, you’ll be able to pinpoint inefficiencies or impacts of improvement on your budget. To determine your processing cost per invoice, divide the total number of invoices by the complete cost of moving an invoice from capture to payment.

There are several cost factors that you can include in this calculation:

  • Cost of software
  • Transaction fees
  • Labor costs (wages, insurance, 401k match, and other perks)
  • Cost of goods (office supplies, computers, etc.)
  • Recruiting and hiring
  • Training

A more difficult cost to establish is opportunity cost for other revenue producing tasks a valuable employee could be doing instead of processing AP invoices.

The average internal cost ranges from $8 to $11 per invoice. By outsourcing your AP to ILM Corporation, you can significantly reduce that number to $2 or $3 per invoice.

2. Invoice Processing Time 

Determining the average processing time for an invoice will allow you to understand where your internal staff is spending their time. For example, are they mostly performing data entry, or do they have time to work on strategic activities that further the organization’s goals?

The average invoice processing time is around 8.3 days—how does your company compare? Hiring and retaining great employees is a challenge and ensuring they are productive is critical.  Why pay  them to perform mundane data entry tasks and clerical tasks when they could be working on your core, revenue generating services?

Outsourcing AP data entry to a professional and reputable third-party partner will free up employees to focus on mission-critical tasks commensurate with their skill sets. An outsourcing partner will often have resources that would not be cost justified for an individual company.  These tools help to ensure a high degree of accuracy and reduce turnaround time.

ILM Corporation recently helped a client remarkably reduce their cost per invoice as well as their invoice processing time. The client saw a 59% reduction in cost per invoice (from $9.38 to $3.87) and decreased turnaround time (from 8 to 2 days).

3. Discrepancies and Disputes 

Errors may happen when your internal AP department processes invoices,  or the vendor submits an incorrect invoice. This requires l hours or even days to resolve.  Recapturing this precious time not only speeds up payment but reduces friction in your vendor relationships.

Purchase Order and Vendor matching are a couple of ways that ILM Corporation helps to reduce inaccurate invoices and catches issues at the beginning so time is not lost.

You can identify opportunities for verifying the accuracy of invoices by taking a look at monthly discrepancies and dispute averages. Your suppliers and vendors dislike spending time reconciling issues just as much as you do.

If a pattern of errors starts to emerge, it can negatively affect not only relationships, but even the supply chain as well. Outsourcing AP will help eliminate the risk of human error and potential disgruntled vendors and suppliers.

4. Discounts Captured 

If your vendors offer early payment discounts, it’s important to capture and claim as many as possible. Not only will late payments damage goodwill and credit ratings, but you’ll also lose out on a significant amount of money owing to your inability to claim discounts for early payments.

Benefits of Outsourcing Your AP Processes

It’s far easier and more cost-effective to outsource your accounts payable processes to a trusted third-party partner like ILM Corporation because you’ll be able to expedite turnaround times, reduce exceptions, and eliminate the human error factor.

Outsourcing puts the burden on the vendor to ensure there is enough trained staff to handle the valleys and peaks in invoice volumes. You no longer have to worry about vetting, recruiting, hiring, training, insurance, discipline, computers, office space, and supervision.

When you outsource AP processes, you may take advantage of the following benefits:

  • Reduce the cost to process an invoice by up to 83%
  • Approve invoices 9x faster
  • Eliminate manual data entry
  • Virtual and remote access from any internet-enabled device

Outsourcing will also significantly reduce the chances of employee data theft. At ILM, we take security extremely seriously. We have a wide range of security clearances and certifications, such as:

  • Annual SOC I Type II Audit
  • Compliant Secure Facility
  • Compliant PCI DSS
  •  HIPAA Compliant

Outsource Your AP to the Experts at ILM 

Let the experts at ILM manage your AP processing! You’ll be able to reduce the turnaround time and exception handling while gaining complete peace of mind knowing that the foremost AP experts are handling your accounts payable processes.

Contact us below to learn more about our AP outsourcing services and the value they will add to your business or organization.

Accounts Payable Outsourcing

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