Why "AP Cost Per Invoice" is ...
NOT a Good Metric
Posted by Steve Wilcox on Fri, Nov 14, 2008 @ 02:59 PM
This past Wednesday, we had an excellent webcast with Nat Goodman, a well-known AP industry expert, titled "AP Benchmarking: 12 Critical Issues."
It was a very good webcast with some very positive feedback. Here are the 12 Critical Issues that Nat discusses:
- Use Benchmarking to Commit to Continuous Improvement
- Balance Your Scorecard
- Broaden But Don't Overdo Metrics
- Participate in Benchmarking Studies
- Build Professionals Relationships
- Recognize Accounting and Organizational Disparties
- Focus on the Technology Drivers for Success
- Examine Performance Gaps
- Determine Costs vs. Benefits
- Apply Internally as well as Externally
- Motivate Associates with Compelling Data
- Track and Continously Improve with Dashboards
As I wrote in my last blog entry, when the topic of AP Benchmarking comes up, there is usually a lot of discussion about "cost per invoice." And yet this metric is just not a very good metric.
Why?
Here's what Nat had to say:
"There are a lot of accounting differences and cost differences. One example - when I worked at Sears, we didn't have a large AP operation, and I was processing about 1,000 FedEx invoices per month. They were very simple, and the cost to process each invoice was smaller than average. To simplify this process, I converted those 1,000 invoices to one summary invoice and reduced my total number of invoices by 999. But what did that do to my metrics and cost per invoice analysis? It actually increased it. While my overall AP costs went down, my cost per invoice went up. Even if your cost per invoice is low, you might still be processing too many invoices."
Rakesh Shukla
@rakesh170
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