The What and Why of Accounts Payable Performance Measurement
When designing a performance measurement system for Accounts Payable, it is important to understand the reasons to measure and the outcomes desired as a result of completing the measurement process. While it’s true that change begins with measurement, it is equally true that understanding the “what and why” for measurement is an important first step to collecting the right information to guide your change initiatives.
A recent PeercastTM in Peeriosity’s Accounts Payable (P2P) research area featured a $6B manufacturing and chemicals company with sales spread across more than 100 countries. They shared their journey to create a global payables solution and the importance of selecting the right measures for the right reasons. Starting with a list of 30 common Accounts Payable measures, they eliminated half of them, to focus on the ones that best met the needs of their internal customers and key stakeholders, including the following:
- Individuals, work teams, and management within Accounts Payable – with measures that target workload balancing, productivity, and improvement opportunities.
- Procurement leadership – with measures that target vendor performance and management, discounts performance, invoice processing, and invoice aging.
- Financial leadership – working capital, DPO, discounts are taken, and cost per invoice.
Selected measures needed to be meaningful and relevant, highlighting both good and poor performance, with a collection process that was simple and straightforward to administer.
Examples of the analysis for measures that were eliminated:
A supporting iPollingTM question examined the scope of the Accounts Payable performance measurement program at the companies participating in the research. The results show that 50% of companies include cost, productivity, and quality measures, and 31% also includes measures of customer satisfaction. An additional 13% focus on cost and productivity only, and 6% include only productivity and quality measures. All companies who responded have a performance measurement program in place. Here are the details:
The second iPollingTM question asked about the effectiveness of the performance measurement program for Accounts Payable. Interestingly, 13% of the companies indicated that their programs were highly effective, and the same percentage, 13%, responded that their programs had limited effectiveness. The overwhelming majority of companies (74%) indicated that their programs, while effective, could be better.
An insight shared by many of the participants on the Peercast is that carefully considering the audience and reasons for each measure can positively impact the overall effectiveness of the performance measurement program. Then, using a collaborative approach to discussing measures with each customer group, improvements to the program can be implemented that meet the needs of all parties.
What aspects of Accounts Payable performance do you measure at your company? How effective is your company’s current performance measurement program?
Who are your peers and how are you collaborating with them?
“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion. Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content. Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member. Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers. Membership is for practitioners only, with no consultants or vendors permitted. To learn more about Peeriosity, click here.