What is Average Invoice Processing Time?
Average Invoice Processing Time (AIPT) refers to the average time taken to process an invoice from the moment it’s received until it’s paid or settled.
This metric is crucial in the realm of finance and accounting, especially within the context of Professional Service Automation (PSA).
Importance of Average Invoice Processing Time
Understanding and optimizing AIPT is vital for several reasons:
1. Cash Flow Management: A shorter AIPT can improve cash flow, ensuring that businesses have the necessary funds for operations. For more insights on cash flow management in PSA, check out this article.
2. Operational Efficiency: Efficient invoice processing can lead to smoother operations and reduced administrative overhead. Learn more about streamlining business processes for operational efficiency.
3. Vendor Relationships: Prompt payment can foster better relationships with vendors, leading to potential discounts or favorable terms.
4. Financial Analytics: AIPT is a key metric in financial analytics, helping businesses make informed decisions.
Why Average Invoice Processing Time is so important?
How to Calculate Average Invoice Processing Time?
AIPT=Total time taken to process all invoices/Total number of invoices processed
Let’s say a business processed 100 invoices in a month. The total time taken for all these invoices was 500 hours. Using the formula:
=5 hours per invoice
This means, on average, it took 5 hours to process each invoice.
Difference Between Average Invoice Processing Time and Other Metrics
AIPT is often confused with other financial metrics. Let’s clarify:
1. AIPT vs Invoice Approval Time: While AIPT covers the entire processing duration, Invoice Approval Time only considers the time taken for an invoice to get approved after submission.
2. AIPT vs Payment Cycle Time: Payment Cycle Time refers to the duration between receiving an invoice and the actual payment date. It’s broader than AIPT and includes potential delays in payment after invoice approval.
For a deeper dive into financial metrics and their optimization, explore this whitepaper.
|Average Invoice Processing Time
|The time it takes to process and approve invoices from the time they are received. It measures the efficiency of invoicing procedures.
|Helps evaluate the speed and efficiency of financial operations within a professional service organization.
|Billable Utilization Rate
|The ratio of billable hours worked by employees to their total available working hours.
|Indicates how effectively employees are contributing to revenue generation and project delivery.
|Measures the profit generated from individual projects, considering all associated costs and billable hours.
|Assesses the financial success of specific projects, aiding in decision-making regarding resource allocation.
|Evaluates how effectively resources (employees, equipment) are assigned to projects and tasks.
|Helps optimize resource allocation to maximize efficiency and profitability.
How Average Invoice Processing Time is Used?
AIPT serves multiple purposes:
1. Performance Benchmarking: Companies can benchmark their AIPT against industry standards or competitors to gauge their efficiency.
2. Identifying Bottlenecks: A higher AIPT might indicate bottlenecks in the invoice processing workflow. Tools like KEBS ticket management software can help address these issues.
3. Strategic Decision Making: AIPT insights can guide decisions, such as whether to invest in automation or hire additional staff for the finance department. For more on financial strategies in PSA, read here.
Ready to Optimize Your Invoice Processing Time?
KEBS, a leading PSA software, offers tools to streamline and optimize AIPT. With KEBS, reduce manual errors and speed up the invoicing process. Gain insights into your AIPT and other crucial metrics with real-time reporting.
KEBS allows for automated revenue recognition in accounting tools, ensuring seamless financial operations. Facilitate better communication between departments, leading to quicker invoice approvals.
Ready to optimize your Average Invoice Processing Time? Contact KEBS or request a demo today!