As a startup founder, you're likely juggling a million priorities—developing your product, acquiring customers, securing funding, and more. With so many things up in the air, it's easy for something like accounts payable (AP) management to fall through the cracks.
An inefficient or mismanaged AP process can seriously undermine your financial operations and cash flow position. From late payment penalties and interest charges to missed supplier discounts to escalating invoice processing costs—there are numerous areas where AP inefficiencies can start eating away at your bottom line. Allowing these issues to persist unchecked puts your startup at risk of falling behind on payables, damaging vendor relationships, and limiting working capital reinvestment.
Implementing robust AP dashboards that provide complete visibility into core accounts payable KPIs and benchmarks is the key to avoiding these pitfalls. With the right metrics, you can quickly identify process bottlenecks, cost drivers, compliance risks, and opportunities to optimise AP workflows.
However, not all AP metrics are equally valuable for every startup.
Focusing your dashboards on the wrong KPIs can lead to wasted effort or inadequate visibility into areas ripe for optimisation. In this guide, we'll cover the 10 essential accounts payable KPIs that startup founders should prioritise based on common challenges and goals.
Understanding Accounts Payable (AP) KPIs In the engine room of your business operations, the accounts payable department is where financial obligations are managed—keeping this engine well-tuned is essential. That’s where AP KPIs come in, acting as the gauges on your dashboard, providing critical information to help you make strategic decisions and keep your financial operations running smoothly.
Read our recent article on Accounts Payable Best Practices in 2024
Why Does Your AP Department Need KPIs/Goals? At a high level, accounts payable KPIs quantify your AP processes’ efficiency, accuracy, and cost-effectiveness. They provide data-driven visibility into areas historically operated as financial black boxes for many companies.
By measuring targeted AP metrics over time, you can diagnose the root causes of current challenges, set concrete goals for improvement, implement changes, and validate whether those initiatives are making a difference.
For example, suppose you notice an uptick in late payments to suppliers. In that case, AP KPIs can help you analyse whether that issue stems from bottlenecks in invoice approvals, low staff productivity, lack of visibility into payment deadlines, or other factors. You can take targeted action to remediate the root cause with that insight.
Consistent AP KPI tracking and trend analysis enables you to:
Understand Cash Flow : KPIs give you a detailed view of when and how cash leaves your business, which is crucial for maintaining a healthy cash flow.Optimise Payment Strategies : KPIs can help you determine the most cost-effective ways to manage payables and even take advantage of early payment discounts.Improve Supplier Relationships : By consistently meeting payment obligations, you foster trust and reliability with suppliers, leading to better terms and pricing.Increase Efficiency : KPIs highlight areas in your AP process that can be optimised for better speed and lower costs.Enhance Forecasting : Accurate KPIs inform better forecasting and budgeting by providing reliable data on your payment obligations.Without KPIs, your AP department is flying blind, potentially leading to cash flow hiccups, strained supplier relations, and inefficiencies that can cost your startup precious capital.
How to Select Relevant KPI ? Not all AP KPIs are created equal—at least not for your specific organisation's processes and priorities. Trying to monitor every possible metric is a surefire way to get bogged down and lose focus.
To choose the most relevant KPIs:
Align with Business Objectives : Your chosen KPIs should directly support your broader business goals, whether improving cash flow, scaling operations or maximising profitability.Assess AP Processes : Understand the AP process from purchase order to payment completion to identify which stages are crucial for your business's financial operations.Consider Industry Standards : Look at the common KPIs used in your industry to benchmark your performance against peers.Involve Stakeholders : Get input from those who handle or are affected by AP processes to ensure you cover all bases.Keep It Manageable : Start with a few critical KPIs rather than a large set that can be overwhelming and less actionable.The most critical step is aligning your KPI selection to achievable business goals and objectives related to accounts payable. If your top priority is reducing AP costs, you'll want to concentrate on metrics like:
Conversely, if accelerating cash conversion cycles is most critical, you may care more about KPIs such as:
Days payable outstanding Invoice approval times Payment timing and error rates From there, select the 5-10 AP metrics that best quantify performance in areas tied directly to those high-impact goals. Look for KPIs that provide a clear line-of-sight into core payables processes and their bottom-line financial impacts.
Top 10 Accounts Payable (AP) KPIs to Measure Here are the must have account payable KPIs in your dashboards,
Days Payable Outstanding (DPO) Average Invoice Processing Time Average Invoice Accuracy Rate Cost per invoice processed Top Payment Method Percentage of Supplier Discounts Captured Percentage Of Late Payments Payment errors Total Invoice Cycle Time AP Expense as a Percentage of Revenue 1. Days Payable Outstanding (DPO) The days payable outstanding (DPO) KPI measures the average time a company pays its invoices from vendors and suppliers. A higher DPO indicates that a company is taking longer to pay its bills, which can signal cash flow optimisation but could also strain supplier relationships if extended too far. Conversely, a lower DPO suggests quicker payment to suppliers, which may indicate good supplier relations. However, it could also mean that the company is not utilising the full payment terms to its advantage, potentially impacting cash flow.
DPO=(Average Accounts Payable/Cost of Goods Sold)×Number of Days
For example, if your startup has an average accounts payable amount of ₹40,00,000, a cost of goods sold (COGS) of ₹2,40,00,000, and you’re examining a quarter of 90 days:
DPO=(40,00,0002,40,00,000)×90=15
This means that, on average, your company takes 15 days to pay its suppliers. A DPO in line with or slightly above industry norms can benefit cash flow management. At the same time, one that's significantly higher may signal to suppliers that they may face delays in receiving payments.
2. Average Invoice Processing Time The average invoice processing time KPI measures the time it takes, on average, for your company to process an invoice from receipt until it's ready for payment.
Why does invoice processing time matter?
Any delays or inefficiencies baked into this cycle can seriously disrupt your cash conversion cycles and vendor relationships. A lengthy invoice-to-payment lifecycle unnecessarily eats away at working capital while potentially straining supplier relationships over late payments.
To calculate this KPI, you'll simply need to measure the number of days elapsed for each invoice moving through your AP workflow - from initial receipt to final payment. Then, average those figures over a specific period.
For example, let's say over a month, your NAC processed 225 invoices. If the total cumulative processing time were 1,800 days, you'd calculate the average as:
1,800 days/225 invoices = 8 days average invoice processing time
This insight leads you to investigate further, revealing that manual data entry slows the process. By switching to an automated invoice processing system , you reduce the average processing time to just three days, improving operational efficiency and enhancing supplier satisfaction.
3. Average Invoice Accuracy Rate Inaccurate invoices introduce a host of cash leakages and productivity drains into your AP process. Overpayments, duplicate payments, and missed accruals erode working capital and distort your books. That's why monitoring your invoice accuracy rate is so critical.
The average invoice accuracy rate KPI reflects the percentage of invoices processed without errors. For the purposes of this metric, any invoice requiring revisions, corrections, or recipient queries counts as inaccurate.
To illustrate the calculation:
If your AP team processed 250 total invoices last month, but 18 of those invoices had errors requiring revisions, you'd determine the accuracy rate as follows: (250 - 18) / 250 = 92.8% invoice accuracy rate
4. Cost per invoice processed This metric cuts right to the heart of AP process economics—quantifying precisely how much your startup spends to process each supplier invoice.
This includes all associated costs—labour, technology, and overheads—divided by the total number of invoices processed. Understanding this metric is pivotal for identifying opportunities to enhance efficiency and reduce operational costs within your accounts payable department. Lowering this cost can directly impact your bottom line, making your AP processes leaner and more cost-effective.
Formula :
Cost per Invoice Processed=Total AP Process Costs/Total Number of Invoices Processed
Let’s understand this with an example.
Let's say your startup's finance department spent ₹1,00,000 last month on processing invoices. This total includes employee salaries, software subscriptions, and other related overheads. In that same period, your company processed 500 invoices.
Cost per Invoice Processed=1,00,000/500=₹200
Calculating a cost of ₹200 per invoice processed gives you a clear benchmark. This allows you to gauge whether your AP operation is running lean or haemorrhaging unnecessary overhead. High costs may signal the need for automation, outsourcing, or other process optimisations.
5. Top Payment Method While often overlooked as just an operational statistic, keeping tabs on your most utilised payment method for supplier invoices can yield strategic cash management insights.
Top payment methods range from traditional bank transfers to electronic payments like NEFT, RTGS, or digital wallets. Monitoring this KPI helps NACs understand their payment habits, streamline transaction processes, and potentially uncover cost-saving opportunities by shifting to more efficient payment methods.
Simply tracking your payment method mix on an AP dashboard can illuminate these blind spots. Let's say your dashboard reveals:
45% of payments are still issued via check 35% processed via ACH bank transfer 20% using an AP credit card With this view, prioritising vendor recruitment onto digital payment rails could accelerate cash conversion cycles and reduce outdated manual processes. You'd also catch red flags like excessive credit card use fees.
6. Percentage of Supplier Discounts Captured By definition, the percentage of supplier discounts captured tracks the proportion of available early-payment discounts your startup actually takes advantage of, out of all the discounts offered by suppliers. Capturing a high percentage of these discounts represents a straightforward way for startups to drive working capital gains.
Suppose your office supplier offers 2% off on invoices paid within ten days. If you successfully make that early payment window on a ₹50,000 invoice, you'd pocket a cool ₹1,000 discount. Over time, as discounts accumulate, those savings can substantially offset your AP operational costs.
To track performance, this KPI measures the percentage of total available discounts your team successfully captures each period. The higher the percentage, the more working capital you're preserving.
Percentage of Supplier Discounts Captured=(Total Discounts Offered/Number of Discounts Captured)×100
If, during the next quarter, your finance team focuses on optimising payment schedules and further automating the AP process, you might find that you've captured 90% of available discounts. Industry leaders target this 90% or higher discount capture rates by optimising invoice processing cycles and payment timing. Monitoring this metric keeps you accountable to those working capital improvement opportunities.
7. Percentage Of Late Payments On the flip side, let's look at a KPI oriented around the potent cash flow risks of late payments - which can incur penalties and interest charges and sour relationships with vendors.
The percentage of late payments measures the proportion of your payments made to suppliers that are completed after the due date. This metric is a critical indicator of the efficiency and reliability of your accounts payable process.
High percentages may signal potential cash flow issues, damage supplier relationships, and even result in late fees or higher prices in future contracts. Conversely, a low percentage indicates a healthy, functioning AP process that maintains good standing with suppliers.
Let’s assume that your NAC issues 200 payments in a given month, and 30 of those are made after the agreed-upon due dates. To calculate the percentage of late payments:
Percentage of Late Payments=(30/200)×100=15%
A 15% late payment rate suggests significant room for improvement in your payment processes or cash flow management. Beyond potential fees, consistent late payments severely diminish your ability to negotiate favourable terms or discounts with suppliers in the future. You're effectively branded as a credit risk to vendors.
8. Payment errors While similar to the invoice accuracy metric, your payment error rate focuses specifically on the final disbursement stage of the AP process. It tracks the frequency and severity of mistakes made during the payment process to suppliers. This could include overpayments, underpayments, duplications, or payments made to the wrong vendor.
Payment errors can stem from issues such as incorrect amounts, duplicates, wrong supplier accounts, etc. Regardless of the root cause, they introduce unnecessary cost leakages, reconciliation headaches, and strained supplier relationships into your AP workflow.
Consider a situation where, over a month, your NAC processes 500 payments. Of these, ten were identified as errors, including overpayments and payments sent to incorrect suppliers. To calculate the rate of payment errors:
Payment Errors Rate=(10/500)×100=2%
While that may seem insignificant on the surface, a 2% error rate likely signals larger process deficiencies around quality assurance, auditing procedures or system integrations that require remediation. If you are running short on cash, those small percentages can quickly add up to significant cash leakages.
9. Total Invoice Cycle Time While average invoice processing time looks specifically at the elapsed period between invoice receipt and payment, the total invoice cycle time KPI takes an even broader view - measuring the complete end-to-end lifecycle from purchase initiation to final supplier payment.
It captures the efficiency of your entire accounts payable process, highlighting how quickly and effectively your startup manages its financial obligations. A shorter cycle time indicates a streamlined, efficient process, which can lead to improved supplier relationships and potentially better payment terms. Conversely, a longer cycle time might suggest bottlenecks in the AP process that could delay payments and strain supplier relations.
To calculate the total cycle time for each invoice, you'd measure the number of days elapsed from:
Purchase order issuance > Receipt of goods/services > Invoice capture and approval > Payment Settlement
Suppose you processed 300 invoices last month with a cumulative total cycle time of 4,500 days across all invoices. The metric would calculate to 4,500 days / 300 invoices = 15 days average total invoice cycle time
10. AP Expense as a Percentage of Revenue At the highest level, this KPI evaluates AP operational costs against your startup's total revenues—measuring payables process efficiencies on a productivity basis.
Essentially, it measures the cost associated with processing accounts payable in relation to the company’s total revenue. This metric offers insight into the efficiency and scalability of your accounts payable process, indicating how much of your revenue is consumed by the costs of managing payables.
You can use this formula to generate this metric:
AP Expense as a Percentage of Revenue = (Total AP Processing Costs/Total Revenue)×100
For example, if your NAC generates ₹50,00,000 in revenue over a quarter and incurs ₹2,50,000 in costs related to processing accounts payable (including labour, software, and overheads), the AP Expense as a Percentage of Revenue would be:
AP Expense as a Percentage of Revenue=2,50,000/50,00,000)×100=5%
Most mature organisations aim to keep this percentage between 0.5% and 1.5% of revenues for established, well-oiled AP processes. For early-stage NACs still scaling operations, targets around 5% are more typical.
How Mysa Can Help with Account Payables ? Mysa is shaping up to be the superhero in the financial toolkit for startups, especially when it comes to streamlining accounts payable processes. It offers a slew of features designed to automate account payables and simplify invoice handling, cash flow management, and payment procedures.
Efficiency and Time Savings: Mysa is all about making life easier. It steps in to handle the heavy lifting involved in processing invoices, using the power of AI and robotic process automation (RPA) to make operations quicker, smoother, and more error-free than ever.Enhancing Visibility and Control: With Mysa, you're not just pushing papers but gaining valuable insights. It offers real-time tracking of invoices in various processing stages, ensuring that everything from approval to payment is transparent and under control.Weekly Account Updates: Mysa seamlessly integrates your account payables into Zoho Books, which is updated weekly to reflect the latest changes. Any discrepancies will be highlighted so that you can address them immediately. Moreover, you get weekly and monthly financial summaries with actionable insights in your email inbox.Streamlined Invoice Processing: Mysa's approach to invoice approval is a game-changer. It centralises invoice capture, enabling a seamless flow from receipt to payment, and automates the 3-way matching process, ensuring that what you pay is what you've agreed upon. The platform also tackles manual data entry challenges, chasing invoice approvals, and managing payment delays, which are common pain points for many NACs.Efficient Slack communication: A Slack channel will become the single point of communication between you and your Mysa CA. All employee-side accounts, such as reimbursements, tax calculations, etc., are handled through Slack. You can also upload your invoices to our Slack bot–invoices are automatically processed and queued at your bank for easy and timely approval.Security and Compliance: Mysa doesn't take security lightly. It leverages advanced technologies to bolster the security of your financial transactions, making your accounts payable process efficient and secure.Predictive Analytics for Strategic Decision Making: The cherry on top is Mysa's use of predictive analytics, which allows for better cash flow management, identification of potential risks, and optimisation of financial resources.By incorporating Mysa into your financial operations, you're not just automating tasks but setting the stage for a more strategic, insightful, and secure financial management system. Get in touch with us and try Mysa today.
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