Drive P2P performance: 6 procure-to-pay KPIs you need to know

You know the procure-to-pay (P2P) process is vital to your organization’s financial health. However, with so many P2P metrics to track, how do procurement leaders identify the key performance indicators (KPIs) that truly matter? How do you separate the signal from the noise to gain actionable insights to optimize P2P performance, especially when, according to the Amazon Business 2024 State of Procurement Data Report, 44% of procurement professionals identify efficiency and complexity as their top challenge?

P2P is no longer just a back-office function. It’s a complex financial system that directly impacts your organization’s bottom line. Optimizing your procurement process lets you maximize operational efficiency, improve financial performance, and unlock cost savings, a goal 95% of procurement departments share. (Amazon Business, 2024)

It starts with choosing the right tools — the 6 KPIs that give you complete visibility and control over P2P performance. This article serves as your guide, helping you:

• Identify the right KPIs: Learn about the top six P2P KPIs that provide the most valuable insights for driving efficiency and savings.
• Diagnose and address challenges: Analyze key metrics to identify bottlenecks, enhance performance, and improve cash flow forecasting.
• Strategize and implement: Leverage KPI insights to negotiate better payment terms, take advantage of early payment discounts, and inform strategic cash flow management.

We’ll explore each KPI in detail, explaining what it measures, why it’s important, and how to benchmark your performance. We’ll look at:

1. Invoice processing cycle time.
2. Invoice receipt to approval time.
3. Straight-through processing rate.
4. Average cost per invoice.
5. First-time match rate.
6. Number of invoices processed per full-time equivalent (FTE).

After reading this article, you’ll have everything you need to unlock the full potential of your procure-to-pay cycle.

1. Invoice processing cycle time

Invoice processing cycle time measures the overall efficiency of your accounts payable processes. It tracks the time it takes to process an invoice from when it arrives from a vendor to when payment is issued.

How to calculate invoice processing cycle time

Here’s how to calculate the average invoice processing cycle time for a specific period:

1. Define the period

Choose a specific time frame for your calculation (month, quarter, year).

2. Measure individual invoice cycle times

For each invoice processed in the period, calculate the difference between the date it was received and the date it was paid to determine the processing time.

3. Calculate the average cycle time

Add up the processing times of all invoices in the period to obtain the total processing time, then divide the total processing time by the number of invoices processed.

Example

BTB Inc. processed five invoices in a month and calculated the following process times:

• Invoice 1: 5 days
• Invoice 2: 10 days
• Invoice 3: 7 days
• Invoice 4: 6 days
• Invoice 5: 8 days

Calculation:

Total invoice processing time: 5 + 10 + 7 + 6 + 8 = 36 days

Average invoice processing time: 36 days/5 invoices = 7.2 days

Why invoice processing cycle time is important

Invoice processing cycle time is more than just a measure of AP department performance; it’s an indicator of your organization’s financial efficiency. Understanding and optimizing this KPI can improve cash flow management, strengthen vendor relationships, and make informed strategic decisions. Understanding this KPI gives you several advantages:

Strategic cash management

Knowing how fast your business pays suppliers lets you accurately forecast cash flow and make informed spending decisions. You can make short-term investments, pay invoices early to earn discounts or invest in business growth.

Save time and money

Combine invoice processing time with other KPIs to identify and address bottlenecks. For example, a high invoice processing time and receipt to approval time could indicate a need to improve your invoice approval process.

Invoice processing cycle time benchmark

In a 2023 survey of finance leaders by Stampli and Probolski Research, under three-quarters (67.7%) reported that their invoice processing time was under one week.

2. Invoice receipt to approval time

Invoice receipt to approval time is the number of days it takes to approve an invoice after it’s received from the supplier.

How to calculate average invoice receipt to approval time

Here’s how to calculate the average invoice receipt to approval time for a specific period:

1. Define the period

Choose a specific time frame for your calculation (month, quarter, year).

2. Measure individual invoice receipt to approval times

For each invoice processed in the period, calculate the difference between the date it was received and the date it was approved for payment.

3. Calculate the average cycle time

Add up the cycle times of all invoices in the period to obtain the total receipt to approval times, then divide the total receipt to approval time by the number of invoices processed.

Example

BTB Inc. processed 5 invoices in a month and calculated the following receipt to approval times:

• Invoice 1: 2 days
• Invoice 2: 4 days
• Invoice 3: 3 days
• Invoice 4: 3 days
• Invoice 5: 2 days

Calculation:

Total invoice receipt to approval time: 2 + 4 + 3 + 3 + 2 = 14 days

Average invoice receipt to approval time: 14 days/5 invoices = 2.8 days

Why invoice receipt to approval time is important

The invoice receipt to approval time can help pinpoint bottlenecks in your P2P process. For example, a high invoice receipt to approval time combined with a low PO compliance rate (the rate of purchases with an approved PO) could indicate that the accounts payable department is bogged down manually processing non-PO invoices.

A low invoice receipt to approval time indicates your organization is processing invoices efficiently. Reducing the invoice receipt to approval time means your organization can approve and pay purchases faster, letting it take advantage of early payment discounts.

Invoice receipt to approval time benchmark

According to the American Productivity and Quality Center, leading organizations report an invoice receipt to approval time of 2.8 days. The time for the least efficient organizations is 7 or more days.

3. Straight-through processing rate

The straight-through processing (STP) rate measures the percentage of purchases that flow through the P2P process without requiring manual intervention. It’s a strong indicator of your P2P system’s efficiency and level of automation.

How to calculate the average STP rate

To calculate the STP rate for purchases within a specific period:

1. Count the total number of purchases processed from purchase requisition to payment during the period.
2. Count the number of purchases that required manual intervention during the same period.
3. Subtract the number of purchases requiring manual intervention from the total number of invoices to get the total STP purchases.
4. Divide the total STP purchases by the total number of purchases and multiply the result by 100 to get the STP rate for the period.

Example

BTB Inc. processed 1,000 purchases in January. They recorded the following manual interventions for the month:

• Resolving PO matching exceptions: 102 invoices
• Resolving shipping issues: 23 invoices
• Paying vendor by physical check: 4 invoices
• Purchase without PO: 31 invoices

Calculation:

Number of purchases requiring manual interventions in January: 102 + 23 + 4 + 31 = 160

Number of STP purchases: 1000 – 160 = 840

STP rate for January: 840/1000 X 100% = 84%

Why the STP rate is important

A high STP rate indicates an efficient, fully automated P2P process where complex, error-prone tasks are minimized or eliminated. This translates to several benefits:

Cost savings

Automation reduces the need for manual data entry, PO-to-invoice matching, and approval routing, saving time and resources.

Improved accuracy

Minimizing manual intervention reduces the risk of human error, leading to more accurate processing and payments.

Faster processing

Automated workflows accelerate the entire P2P cycle, reducing PO and invoice processing cycle times.

Better visibility

A high STP rate indicates a well-integrated P2P system with better data visibility, enabling improved tracking and analysis.

A low STP rate can indicate bottlenecks or inefficiencies in your end-to-end process. These bottlenecks can lead to slower processing times and higher error rates. Some possible bottlenecks the STP rate can reveal include:

• Manual tasks: Your procurement team may still use manual processes for PO creation or document management.
• Matching exceptions: Inaccurate POs and invoices or inefficient automated 3-way solutions can result in high matching exception rates, requiring manual intervention.
• Poor system integration: If procurement, accounting, ERP, and AP systems aren’t well integrated, it can create manual workarounds and data silos, slowing straight-through P2P processing.

You can increase your straight-through processing rate by identifying and addressing these bottlenecks.

Benchmarking the STP rate

Finding precise benchmarks for STP rates can be challenging, as this data is often proprietary. However, a good starting point for a target STP rate is 70%, with a stretch goal of 80% or higher. You can also consult with P2P automation software providers or other industries in your sector to learn what other companies are achieving.

4. Average cost per invoice

The average cost per invoice measures the direct and indirect invoice processing costs at your organization. It includes labor, file storage, and IT costs, along with indirect costs like late payment fees, errors, and missed discounts.

How to calculate the average cost per invoice

Here’s a simple calculation of the average cost per invoice for a specific period, focusing primarily on the labor costs of processing invoices.

1. Define the time period

Select the period for your calculation (year, quarter).

2. Calculate the total number of invoices

Add up the total number of invoices processed by your organization in the period.

Example:

The AP department at BTB Inc. processes 12,000 invoices per year.

3. Calculate the total labor cost of processing invoices

To get the per-employee labor cost of processing invoices for the period, identify employees directly involved in invoice processing (e.g., AP clerks, approvers). Estimate the percentage of time they spend on invoice-related tasks. Then, calculate the annual labor cost for each employee by multiplying their annual salary (including the costs of benefits like health insurance and overtime) by the percentage of time spent on invoices. Add up the labor costs for all employees to get the total labor cost of processing invoices.

Example:

BTB’s 2 AP clerks each earn $50,000/year (including benefits), and their AP manager earns $70,000/year (including benefits). The AP clerks spend 75% of their time processing invoices, while the AP manager spends 25% handling escalations and approvals.

Labor cost for each clerk: $50,000 X 0.75 = $37,500

Labor cost for AP manager: $70,000 X 0.25 = $17,500

Total labor cost of processing invoices: $37,500 + $37,500 + $17,500 = $92,500

4. Calculate the average cost per invoice

Divide the total labor cost of processing invoices by the number of invoices processed in the period to calculate the average cost per invoice.

Example:

Average cost per invoice: $92,500 / 12,000 invoices = $7.71/invoice

Note: This calculation focuses on labor costs. Other costs, such as software, supplies, and late payment fees, can also contribute to the overall cost per invoice.

Why the average cost per invoice is important

Understanding the average cost to process an invoice provides valuable insights into the efficiency of your P2P workflow and helps you identify opportunities to reduce costs and improve profitability.

Calculate the benefits of efficiency gains

You can accurately measure the costs and benefits initiatives to increase processing efficiency, such as automation or redesigning processes.

Identify cost drivers

Accurately pinpoint activities or bottlenecks that are driving up processing costs, allowing you to target areas for improvement.

Support strategic decision-making

Make informed decisions about outsourcing processes, purchasing software solutions, and continuous improvement projects.

Improve financial control

Get better control over procurement and AP expenses, enabling better budgeting, forecasting, and financial management.

Benchmark for average cost per invoice

According to Stampli’s analysis of AP labor costs, manual invoice processing costs an average of $7.75 per invoice. The average cost per invoice for automated invoice processing is $2.02.

5. Number of invoices processed per FTE

The number of invoices processed per full-time equivalent (FTE) measures the productivity of your AP team. It measures how many invoices each team member handles on average during a specific period.

How to calculate the number of invoices processed per FTE

To calculate the number of invoices per FTE for a specific period, divide the total number of invoices processed in the period by the total number of employees directly involved in invoice processing.

Example

BTB Inc. processes 12,000 invoices per year and has 2 AP employees.

Number of invoices processed per FTE: 12,000 invoices / 2 employees = 6,000

Why the number of invoices processed per FTE is important

The number of invoices processed per FTE gives an accurate indication of the efficiency of your invoice processing by measuring labor productivity. Understanding this KPI brings significant benefits:

Measuring AP team capacity

Estimate the total capacity of your AP team to handle increasing invoice volumes. For example, an AP team of 4 FTEs processing 500 invoices each per month can process approximately 24,000 invoices per year.

Estimating the impact of efficiency gains on productivity

Combine this KPI with the average cost per invoice to get a useful metric for calculating the costs and benefits of efficiency gains. For example, automating manual invoice data entry or 3-way matching can significantly raise labor productivity and increase the average number of invoices per FTE.

Calculating cost savings and headcount requirements

By providing an accurate indication of the productivity gains from process improvements and automation, the number of invoices processed per FTE helps you calculate the cost savings of reducing headcount or avoiding the need to hire additional staff. It also helps you plan for future growth by indicating how many FTEs you may need to add in the future to handle growing invoice volumes.

Benchmarking the number of invoices processed per FTE

According to the American Productivity and Quality Center, organizations with fully automated AP processes (invoice capture, PO matching, approval routing) process 23,333 invoices per FTE per year. In comparison, organizations using a combination of manual and automated methods process 10,853 invoices per FTE per year. Firms relying solely on manual invoice processes process significantly fewer invoices — just 6,082 per FTE per year.

6. First-time match rate

The first-time match rate is the percentage of invoices that match to a PO and can be processed without intervention. It’s used to determine the accuracy of the two and three-way matching process.

How to calculate the first-time match rate

To calculate the first-time match rate, count the total number of invoices processed during a specific period. Then count the number of invoices that were automatically matched to their associated PO without manual intervention. Divide the number of first-time matched invoices by the total number of invoices processed and multiply by 100.

Example

BTB Inc. processed 12,000 invoices in a year. According to their AP records, 4,291 invoices matched the PO the first time.

Calculation:

First-time match rate: 4291/12,000 X 100 = 35.8%.

Why first-time match rate is important

If the first-time match rate is high it means POs, invoices, and shipping receipts consistently match. This indicates that:

POs are being created correctly

POs are being created with complete and accurate information that provides vendors with what they need to complete your order.

Vendors are reliable

Vendors are delivering and invoicing the correct goods and services as ordered.

Your receiving process is efficient

Your receiving department is receiving and verifying shipments accurately and sharing that information with your AP team.

Invoice processes are streamlined and accurate

Invoice capture and coding are accurate, ensuring details align with POs and shipping receipts. If the first-time match rate is low, it indicates frequent discrepancies between the three documents during the matching process. Some common causes of discrepancies include:

Purchase order and invoice errors

Missing or incorrect information on POs and invoices, like wrong prices or quantities, can cause mismatches. Typos are also common culprits.

Receiving issues

The goods received might not match the PO due to incorrect quantities, wrong items, or quality issues.

System limitations

Poorly integrated procurement, accounting, and receiving systems can create errors that cause mismatches. Systems with poor PO matching capabilities can also have low matching rates.

Benchmarking the first-time match rate

Leading companies typically aim for a first-time match rate of 70-90%, highlighting the need for a highly accurate PO matching process. However, research from Stampli reveals that most automated matching systems fall far short of these goals, only achieving rates between 20-40%. This gap underscores the limitations of traditional solutions in meeting the needs of modern P2P processes.

Stampli’s Cognitive AI™ PO Matching solution stands out by exceeding industry averages, reaching match rates of 97-100%. This demonstrates the potential for significant improvement through advanced automation and AI-powered solutions, empowering businesses to achieve exceptionally high PO matching rates.

Other important procurement KPIs

We’ve explored 6 core P2P KPIs that provide insight into procure-to-pay efficiency. Beyond these KPIs, other metrics provide valuable insights into your P2P process. Let’s look at additional KPIs that provide a holistic view of efficiency, cost-effectiveness, and supplier relationships.

Days payable outstanding

Days payable outstanding (DPO) is the average number of days your organization takes to pay its suppliers. A high DPO means you’re holding cash longer, which can be beneficial for cash flow. However, it’s important to balance a high DPO with maintaining positive relationships with suppliers, who may prefer more timely payments.

Negotiated discounts captured

The negotiated discounts captured metric measures the percentage of vendor discounts your organization captures by taking advantage of early payment discounts. It reflects the effectiveness of your procure-to-pay process and ability to optimize cash flow. Increasing the negotiated discounts captured helps maximize cost savings and strengthens supplier relationships.

Number of suppliers per 1000 invoices

This KPI tracks how many suppliers your organization purchases from relative to your invoice volume. A high number of suppliers per 1000 invoices may indicate a need to consolidate your supplier base — leading to easier management and potentially better pricing. However, it’s important to weigh this benefit against the advantages of supplier diversity.

Spend under management

Spend under management reflects the percentage of your organization’s total spending that is actively managed and controlled by your P2P processes. A high percentage indicates better visibility and control over spending, leading to reduced risks and lower costs.

Next steps to improve procure-to-pay KPIs

Now that you have a better understanding of the core procure-to-pay KPIs, let’s put that knowledge into action. Here are some next steps you can take to optimize your P2P processes.

Prioritize relevant P2P KPIs

Focus on the KPIs that are most relevant to your organization’s goals and challenges. For example, if your goal is to improve invoice accuracy, you should focus on your first-time match rate to assess your PO-to-invoice matching.

Assess current P2P performance

Within the next quarter, evaluate your current P2P performance against the KPIs and benchmarks provided in this article. This will help you identify your organization’s strengths and weaknesses and prioritize KPIs for improvement.

Improve P2P processes

Implement process improvements to address any bottlenecks or areas of improvement you identify in your assessment. For example, if your invoice receipt to approval time is longer than the industry average, clearly define approval hierarchies and ensure invoices are routed to the correct approver to streamline workflows.

Leverage procure to pay software

Explore how PO and invoice processing automation platforms can streamline your P2P processes and improve these KPIs. For example, if your first-time match rates are low, implementing an AI-powered PO-to-invoice matching solution can significantly improve matching accuracy and increase first-time matches.

Start implementing these steps today to unlock the full potential of your P2P process and drive results for your organization.

Elevate procure to pay performance with Stampli

Improving your procure-to-pay KPIs requires a strategic approach: addressing bottlenecks, improving processes, and automating complex manual tasks. Stampli’s advanced solutions can help you strategically automate to improve your P2P performance.

Superior Masonry achieved a 100% PO match rate and 93% faster invoice processing with Stampli’s Cognitive AI. With solutions like these, you can achieve similar successes like:

Cognitive AI for PO Matching

Increase your first-time match rate. Stampli’s AI understands the context to match invoices to POs better than any other solution.

AP automation

Eliminate manual data entry, reduce errors, and accelerate invoice processing.

Pre-built ERP integrations

Stampli supports full native functionality for over 70 ERPs and business systems, ensuring connectivity to enhance your P2P performance across your entire technology ecosystem.

Contact Stampli today to learn how.