* Is High or Low Best: Lower is Better
Vendor Payment Error Rate measures the diligence of the Accounts Payable Department in issuing and paying vendor invoices (i.e., money owed by the company to creditors/vendors). Errors may include overpayments, underpayments, payments made to the wrong entity, etc. Excessive invoicing errors may be indicative of a lack of controls within the Procurement and/or AP functions (e.g., lack of invoicing standards, lack of accompanying purchase orders, vendor data quality not enforced, outdated vendor data, etc.), and lead to potential vendor disputes and/or impact the organization's ability to meet its short-term financial obligations. Highly manual or paper-based invoicing processes may also adversely impact the amount of errors produced by AP staff.
The number of outgoing payments processed by the Accounts Payable Department that contained an error (e.g., wrong address, incorrect amount, duplicate payment, etc.) divided by the total number of transactions initiated over a certain period of time, as a percentage.
Two numbers are used to calculate this KPI: (1) the number of payments made by the Accounts Payable Department to vendors, or suppliers, that contained one or more errors, and (2) the total number of payments made by the Accounts Payable Department to vendors during the measurement period. Common invoice errors include incorrect payment amounts, incorrect vendor numbers, duplicate payments, incorrect routing or account numbers, etc. Count duplicate payments (i.e., two identical payments made to the same vendor in error) as a single error for this calculation. Include both electronic and manual (check) vendor payments in this calculation.
(Number of Payments to Vendors Containing Errors / Total Number of Payments to Vendors) *100
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