Transcript Slide 1

© 2011 Financial Operations Networks LLC
Accounts Payable Metrics
Dashboard to Track Productivity
Chris Doxey
Business Strategy, Inc.
Tuesday, April 12, 2011
Agenda
• Identifying accounts payable objectives
• Dividing the accounts payable department
into functions
• Defining metrics
― Cost saving and value
― Transactional quality
― Customer service
― Controllership
• Using metrics as a benchmarking tool
• Establishing service level agreements
• Recap
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Page 2
Identifying Accounts
Payable Objectives
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Page 3
Defining Objectives
• An objective is a specific step, a milestone, which
enables you to accomplish a goal. Setting objectives
involves a continuous process of research and
decision-making.
• Setting correct objectives is critical for effective
performance management. Such objectives as
higher profits, shareholder value, and customer
satisfaction may be admirable, but they don't tell
managers what to do.
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Defining Objectives (Cont’d.)
The objectives must:
•
•
•
•
•
•
be focused on a result, not an activity
be consistent
be specific
be measurable
be related to time
be attainable
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Performance Management
• Performance management is the integrated process
of objective setting, appraisal and pay determination
which supports the achievement of the company's
business strategies.
• At an individual level it will result in action plans
related to performance improvement, career
development and training.
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Performance
Management (Cont’d.)
• When a performance management system is
operated effectively, there are great benefits for
both individuals and organizations.
• It creates organizational focus and alignment and a
shared mental model for leading and managing the
business in a way that converts strategic objectives
into effective business practices.
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Benefits of Performance
Management (Cont’d.)
1. Clarity on strategic direction
2. The alignment of your firm's resources
3. Increased discipline in daily operations
4. Provides the basis for managing the business of today and for
developing it into the future—through the performance of people
5. Gives the means for evaluating and improving both individual
and company performance against pre-defined business strategies
and objectives
6. Develops employee understanding of what needs to be achieved
7. Helps all employees to improve corporate performance
8. Helps all employees to be rewarded on the basis of their contribution
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Accounts
Payable Objectives
• The mission of the accounts payable department is
to serve as a financial support function to meet the
company’s goals and objectives.
• The primary goal of accounts payable is to provide
for timely and accurate recording of the company’s
expenditures and to ensure that suppliers are paid in
a timely, accurate and efficient manner consistent
with the overall delegation of authority and
segregation of duties guidelines and regulations.
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Page 9
Objectives of an Accounts
Payable Associate
An accounts payable associate plays an important
role in a company's record-keeping process. The
objectives of an accounts payable associate are:
• Entering and verifying financial information with
their company's ledger or database that reflects
what the company owes to valid suppliers.
• Verifying invoices and disbursing payments with
accuracy and timeliness.
• Adhering to the company’s internal controls
and guidelines.
• Ensuring customer satisfaction.
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Page 10
Summary of
Effective Objectives
Effective objectives must be:
• focused on a result, not an activity
• consistent
• specific
• measurable
• related to time
• attainable
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Page 11
Dividing the Accounts Payable
Department into Functions
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Accounts Payable
Responsibilities
• Supplier file maintained, which includes minority supplier information
• Open invoices and amount paid to each supplier year-to-date
• Online verification of data entry including account number verification
against general ledger
• Multiple general ledger account distribution for each invoice so that
distributions balance with total invoice amount
• Master, detail, and summary records can be displayed online for
open invoices
• Ability to put a supplier on hold to suppress payments for any reason
• Partial payments supported for situations such as back-orders and nonfulfillment of requirements
• Duplicate invoice warning to eliminate duplicate payments
• Accounts payable register with detail manual and computer checks
generated with grand totals by type of check
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Accounts Payable
Responsibilities (Cont’d.)
• Voided checks will back out all associated accounting entries
• Electronic bank interface available to read bank reconciliation tape (for
additional charge)
• Fast payment processing enables you to take advantage of supplier prompt
payment discounts
• Supplier search by name or partial name
• Supplier master shared with Purchasing module
• Ability to display purchase orders online, including current status
• 1099s and magnetic media reporting fully supported
• Recurring payments handled automatically
• Ability to assign general ledger account numbers to a supplier
• Check register can be printed on-demand
• Separate "Remit To" address supported
• Void check option adjusts supplier history and reverses all related entries
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Page 14
Dividing the AP
Department into Functions
Supplier
Master
Research
and Reporting
Invoice
Processing
Account
Reconciliation
Disbursements
Internal
Controls
Customer
Service
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Page 15
Defining Metrics
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Getting Started
1. Identify the Process
2. Gather Data
3. Analyze Outcomes
4. Report Results
5. Improve the Process
1.
Identify
5.
Improve
4.
Report
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2.
Gather
3.
Analyze
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1. Identify The Process
• Define the components of the accounts
payable process
— Supplier master
— Invoice processing
— Disbursements
— Research and reporting
— Account reconciliation
— Internal controls
— Customer service
1.
Identify
• Review the process
• Determine what should be measured
— Start simple!
• Ensure that the data is easy to collect
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2. Gather
• Don’t start from scratch
• Use a template to gather the data
• Include your team in the process
2.
Gather
• Define the time period for measurement
• Determine when to start
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3. Analyze
• Do the outcomes make sense?
• Are there areas of concern?
3.
Analyze
• How do results “stack up?”
• Set a target for comparison
— Internal processes
— Other companies
— Like industries
• Establish goals
• Review
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4. Report
• Publish and communicate metrics
• Compare results and trends
4.
Report
• Use metrics to communicate the value
of accounts payable
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5. Improve
• Identify areas of improvement
• Implement action plans
5.
Improve
• Assign responsibilities
• Review best practices
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Page 22
Using Metrics as a
Benchmarking Tool
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Page 23
Definition of Benchmarking
• Benchmarking is defined as a process of comparing
your organization’s practices to the best practices or
standards of other similar organizations.
• The benchmarking process can become ambiguous
if the purpose is unclear.
• Key questions to ask are:
― Is the purpose of the survey for information purposes
only or to compare like processes?
― Should the survey be structured to define best-inclass processes?
― Is the survey in place to compare within an industry
or segment?
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Traditional
Benchmarking Approach
The following steps are used in a traditional benchmarking
process as defined by Robert C. Camp in the book
Benchmarking – The Search for Industry Best Practices that
Lead to Superior Performance (1989):
• Identify what is to be benchmarked
• Identify comparative companies
• Determine data collection method and collect data
• Determine current performance gap
• Project future performance levels
• Communicate benchmark findings
• Establish functional goals
• Develop action plans
• Implement specific actions and monitor process
• Recalibrate benchmarks
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Types of Benchmarking
Types of benchmarking used in the AP process are:
1. Internal
2. Industry/volume
3. World-class
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1. Internal Benchmarking
• Benchmarking works best within an organization
because the accounting and other measurement
principles are similar.
• The measurement criteria are standardized and
well understood. These benefits are magnified if
the units being measured are homogeneous.
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2. Industry/Volume
• Staying within your industry increases the likelihood
of finding similar processes, thus providing more
relevant and compelling comparisons.
• The smaller AP units cannot replicate the
economies of scale but can consider the technology
as a possibility, as automation continues to become
more affordable. More technology suppliers are
targeting medium and small AP units with
reasonable solutions.
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3. World Class
• In world-class benchmarking, a company compares
its AP process to the best-in-class. This may mean
crossing industry lines in order to obtain new ideas.
• For example, Motorola wanted to improve its order
entry/fulfillment and sought out Lands’ End, a bestin-class company, whose core business relied upon
that process.
• Many companies have studied process leaders
like Walmart for supply chain and FedEx for
tracking excellence, in spite of differences in industry
and scale.
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Page 29
Measuring Cost
Cost can mean different things to different companies.
However, the most inclusive AP cost (not necessarily
the most correctly presented), may include the following
elements—which are further complicated by
organizational differences:
• Salaries – differences based upon scale, experience,
and skill mix required
― Indirect salaries: remote processors (not in the AP center)
and related costs
― Managerial salaries: this may or may not include all or part of
an AP department overseer such as an assistant controller
― Benefit costs: social security taxes, unemployment taxes,
pension, medical and other perks differing based upon
benefit plans
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Measuring Cost (Cont’d.)
• IT Software & Hardware – AP is sometimes considered the client for
disbursement systems and charged accordingly
• Equipment – depreciation and interest on the un-depreciated portion within
the department, including furniture and fixtures
• Occupancy – geographical differences influence real estate, property
taxes, construction, and utilities, while company standards influence the
work environment
• Travel
• Training
• Telecommunications – inbound and outbound
• Delivery – postage, express mail
• Due to the variability of the use and nature of the above elements, a simple
salary and benefit cost is most often preferred. In an effort to level the
playing field on varying costs and systems, many companies use cost per
full-time employee (FTE) equivalent.
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Page 31
Comparability Issues
With AP Costs
T&E processing?
Do you use p-card?
When computing cost per invoice or line,
do you include costs for the following:
ERP implementation?
ERP maintenance?
P-card invoice volumes, administrative costs?
P-card invoice volumes, rebates?
Outsource freight & courier processing and payment?
Freight processor invoice volumes?
Postage (sometimes charged to mailroom)?
0%
10%
20%
30%
40%
Yes
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50%
60%
70%
80%
90%
100%
No
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Measuring
Invoice Processing
• The principal difference between companies may not be the cost
or the accounting, but how much they process. The following
methods are shown in the order of labor intensiveness, from least to
most costly:
― Interfaced: transactions that are processed by operating/accounting departments
other than AP that are merely uploaded into the accounts payable system; they
involve hardly any AP effort/value-added
― P-cards: may require minimal involvement for verification and reclassification
― Electronic invoices: represent significantly reduced AP work except for
establishing new suppliers and resolving exceptions
― Evaluated Receipts Settlement (ERS): entails minimal front-end AP work, but
more resolution effort on the back-end
― Optical Character Recognition (OCR): contains differing levels of computer
acceptance and establishment of templates
― Paper Images: includes digitizing documents for expeditious workflow
― Data Entry (via paper): involves considerable key strokes
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Measuring
Invoice Processing (Cont’d.)
• If paper images or data entry lack an electronic match, the
process is even more laborious. Purchase order matches are
sometimes more expensive than non-POs due to increased
criteria; other times the lack of a PO requires additional AP
research to determine the cost center and account number.
• However, the process does not stop with matching.
Organizations differ on the percentage of exceptions a process
generates. Frequently, exceptions vary by industry. The
receipt of materials generally results in more quantity
exceptions than the approval of service invoices. On the other
hand, service invoices involve more routing and deliberation.
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Page 34
Additional Considerations
• Invoice processing:
―
―
―
―
Invoices: paper, EDI, other electronic, service, materials
POs: transactions with POs/without POs
Electronic POs/non-electronic POs
PO matched invoice vs. non-PO matched invoice
• Line items verified
• Non-PO invoices – material, service, assets
• Electronic interface transactions
• P-cards
• ERS
• Remittance advice requests
• OCR
― Freight invoices
• Keyed invoices
• Exceptions – price, quantity, quality
• Types of exception resolution: accepted price, denied price, located missing
quantity, charged back differences
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Page 35
Measuring Suppliers
and Payments
• The number of suppliers from which a company buys
is essentially driven by:
― Industry
― The purchasing process (centralized or decentralized)
― P-card use
― Need for competitive sources
• While it may be difficult to limit the number of
suppliers a company may use, substantial savings
can be attained via the migration from paper checks
to electronic payments and p-cards.
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Page 36
Measuring Disbursements
• Number of suppliers
• Recipients
• Paper checks
• Wires
• ACH transactions
― Debit blocks
• Positive pay/payee flags
• Frequency of payments
• Emergency/manual payments
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Measuring the
Supplier Master
• Number of active suppliers
― Inquiries: voice, email, web, internal/external
• Number of new suppliers
• Reactivated suppliers
• Deactivated suppliers
― Purged suppliers
• Merged suppliers
• Electronic invoice trading partners
• Is the supplier master reviewed quarterly, annually?
• Is the supplier master compared with the employee
file quarterly, annually?
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Page 38
Measuring
Customer Service
• Match exceptions
• Payment days
• Days sales outstanding
• Incorrect payments
• Duplicate payments
• Stop payments
• Late payments
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• Response time
• Invoice backlog
• Check voids by reason
• Post-audit
recovery dollars
• Discounts
earned/unearned
• Unknown addresses
• Debit balances
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Measuring
Internal Controls
• Number of controls reviewed quarterly
• Percentage of control deficiencies per quarter
• Account reconciliation issues identified per quarter
― Outstanding variances
― Clearing account issues (GRIR)
• Disclosure items identified per quarter
• System access issues/segregation of duties
exceptions identified
• Delegation of authority overrides identified
• Outstanding debit balances
• Duplicate/erroneous payments processed
• Accounting and tax accrual errors
• Supplier risk management impact items
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Page 40
Dividing the AP
Department into Functions
1. Cost Saving and Value
2. Transactional
Quality
Supplier
Master
Invoice
Processing
Disbursements
Research
and Reporting
Account
Reconciliation
Internal
Controls
4. Controllership
3. Customer Service
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Customer
Service
Page 41
Sample AP Scorecard
1. Cost Saving and Value
Cost Per Line Trend
Cost Per Invoice Trend
$1.40
$3.00
$1.27
$1.20
$2.39
$2.50
$1.95
$1.91
$2.00
$0.95
$1.00
$1.80
$1.50
$0.80
$1.50
$0.60
$1.00
$0.40
$0.50
$0.20
$0.76
$0.72
FY09
FY10
$0.25
$0.00
$0.00
Benchmark
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FY07
FY08
FY09
FY10
Benchmark
FY07
FY08
Page 42
Sample AP Scorecard (Cont’d.)
2. Transactional Quality
Paid Within Terms
943,792
120%
781,778
95%
100%
623,426
299,380
$461.4
$623.4
$781.8
$943.8
60%
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
40%
31%
20%
4%
Fiscal Month
$ Over 90 days (in thousands)
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97%
68%
80%
461,394
$299.4
$1,000,000
$900,000
$800,000
$700,000 600,011
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Sep-09
$600.0
Dollars (in thousands)
GR/IR Dollars
Total Dollars (in thousands)
2%
1%
1%
1%
0%
Paid Early
Paid in Terms
Fiscal Month
Dec-09
Paid Late
Jan-10
Feb-10
Page 43
Sample AP Scorecard (Cont’d.)
3. Customer Service
Customer Service Inquiry Resolution
Supplier Self Service Vs. Calls Tracked by Symposium
100%
2,500
Over 5 Days
40%
2,000
1,500
1,000
500
13%
16%
13%
16%
13%
17%
1,700
2-5 Days
2,200
1,600
60%
2,100
1,500
0-1 Days
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
0
0%
Dec-09
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Jan-10
Fiscal Month
2,600
1,400
70%
2,500
1,300
70%
2,400
1,200
71%
Volume
80%
20%
2,300
3,000
Fiscal Month
Feb-10
VSS Sessions
Calls Tracked by Symposium
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Sample AP Scorecard (Cont’d.)
4. Controllership
PO/Non-PO Distribution
One Time Supplier
Electronic and Manual
6,000
5,110
5,120
5,150
5,140
5,130
5,160
5,000
4,000
3,000
2,000
$0
1,000
$0
$0
$0
$0
$0
0
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Fiscal Month
Amount (in Thousands)
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Feb-10
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
99%
99%
99%
1%
1%
1%
Dec-09
Jan-10
Feb-10
Fiscal Month
Volume
Non-PO Invoices
PO Invoices
Page 45
Establishing Service
Level Agreements
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Page 46
Service Level Agreement
(SLA) Checklist
1.
2.
3.
4.
5.
6.
7.
8.
9.
Assess whether a SLA is appropriate
Get management commitment
Designate SLA managers
Educate the parties involved about SLAs
Assess current services
Gather feedback
Ensure agreement about the agreement; create a draft
Solicit feedback
Complete pre-implementation activities, such as
establishing tracking mechanisms and conducting pilots
10. Implement and manage the agreement
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Page 47
Example Accounts
Payable SLAs
Invoice Processing:
• At least 95% of invoices & requisitions processed within
5 working days of receipt
• At least 95% of invoices & requisitions processed
correctly—approved/supplier/account coding/tax coding
• SLA Measurement based upon:
― Number and percentage of invoices & requisitions returned
or held that can’t be processed due to insufficient approval,
incorrect coding and/or information.
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Page 48
Example Accounts
Payable SLAs
Payment Cycle
• At least 90% of invoices paid in accordance with payment
terms and in accordance with current payment cycles
• SLA measurement based upon:
— Number and percentage of invoices & requisitions returned
or held that can’t be processed due to insufficient approval,
incorrect coding and/or information.
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Page 49
Recap
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Page 50
Recap
• Identifying accounts payable objectives
• Dividing the accounts payable department
into functions
• Defining metrics
― Cost saving and value
― Transactional quality
― Customer service
― Controllership
• Using metrics as a benchmarking tool
• Establishing service level agreements
www.TheAPNetwork.com
Page 51
© 2011 Financial Operations Networks LLC
Thank You!