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accounts payable benchmarks

How to Create Accounts Payable Benchmarks

When looking for areas of improvement for accounts payable department, it’s important to consider benchmarks comparing industry averages against world-class departments. Your analysis should cover key metrics such as invoice turnaround, cost per invoice, the number of invoices per full-time employee, and several other key performance indicators. 

Not sure where to start? Here are a few KPIs to help you understand the gap between average and world-class accounts payable departments.

Invoice Turn-Around Time

The average small-to-mid-sized wholesale distributor is typically five days behind their payment schedule using manual processing. For companies processing between 3,000 and 5,000 invoices per month, this cycle time can create a significant strain on the accounts payable department.

However, AP departments that implement an automated invoice processing solution can reduce their processing time by as much as 80 percent, eliminating back-log from their department. 

Companies that process at the higher end not only ensure on-time payments, but are often eligible for early payment discounts. These discounts often save distributors as much as two percent off their order per month. 

Tower fasteners case study

Cost Per Invoice

When considering the costs of manual invoice processing, postage, and storage, the average distributor spends as much as $30 to process a single invoice. This, in addition to many of the other hidden costs associated with invoice processing, such as late fees, accounting errors and missed early payment discounts.

As organizations scale, invoice processing can become a growing hit to the bottom line. Instead of streamlining a company’s costs, the accounts payable department adds to them.

World-class companies have dramatically lowered the cost of processing invoices to as little as $5. Through technologies like artificial intelligence and robotic process automation, clerks are able to perform more strategically beneficial tasks to their company’s bottom line.

Invoices Per Full-Time Employee

According to the Institute of Finance & Management’s key metrics report on accounts payable, the average employee processes just over 8,000 invoices per year. This means that distributors must hire at least four accounts payable clerks just to handle manual invoice processing

The average salary for this type of position can range from $35,000-45,000 before considering benefits and technology costs related to each hire. As part of the job description, AP clerks are required to verify that the amount stated on the invoice matches the amount on the purchase order. This important task often is rife with errors due to its repetitive and tiresome nature.

Today, world-class distributors are finding that by investing in an automation solution, they can process the same number of invoices with just two clerks. Through data recognition and extraction, accounts payable departments can perform two-way matching, which allows a clerk the ability to process as many as 20,000 invoices per year.

Establishing yourself as a world-class accounts payable department isn’t easy, especially for wholesale distributors. But with these benchmarks, you can better understand a baseline of where most of the industry stands and how early adopters of technology are becoming more efficient.

Would you like to learn how invoice processing technology can help you stand above the competition? Fill out this form for a free consultation.

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