In the world of finance operations, precision and timing are everything. Among the many performance indicators in the Purchase-to-Pay (P2P) cycle, the “Paid on Time” metric stands out as a vital benchmark for operational efficiency and supplier relationship management. At Right Path Global Services Pvt Ltd, we believe that to improve any metric, you must first understand it deeply. This blog – Part 1 of our P2P Benchmarking Deep Dive – unpacks the multiple layers that influence timely payments and why this single metric can reflect so much about the health of your payables process.
What Does ‘Paid on Time’ Really Mean?
The ‘Paid on Time’ or ‘Payment on Time’ metric measures the percentage of invoices paid within their agreed due dates, compared to the total number of invoices due within a specific reporting period. On the surface, it might seem like a straightforward ratio. But behind this number lies a complex web of dependencies – supplier behaviour, internal process efficiencies, approval chains, and system constraints.
The Role of Invoice Submission Timing
The starting point of this metric begins with the supplier. When an invoice is submitted has a profound effect on whether it can be paid on time. If suppliers submit invoices after the due date, there’s no opportunity to meet the original deadline, and such invoices automatically fall into the “late payment” category. Surprisingly, even invoices submitted on their due date are considered late, as they leave no buffer for processing.
In many cases, suppliers send invoices just a few days before the due date. While this technically leaves time to process the invoice, the reality is that most organizations follow a 3 -5 day standard cycle to validate, approve, and release payments. As a result, even these narrowly submitted invoices often miss the on-time payment window – not because of inefficiency, but because the lead time is simply insufficient.
How Payment Terms Affect Performance
The agreed-upon payment terms with suppliers can either support or hinder this metric. For example, invoices that require immediate payment pose an operational challenge. Even in the best-managed environments, same-day processing and approval are not always feasible unless special workflows are in place. Many companies mitigate this risk by introducing a “rush invoice” queue, ensuring such invoices are prioritized and pushed through at speed. However, without this mechanism, even the most well-intentioned payment commitment may fall short.
When Delays Happen Internally
Even if invoices arrive on time and payment terms are reasonable, internal hurdles can still derail the process. Missing or incorrect information from suppliers, manual data entry errors, or delayed handoffs between departments all contribute to a longer processing timeline. In such cases, finance teams often find themselves spending valuable time resolving exceptions instead of processing payments.
Approval workflows can also become bottlenecks. When an approver is on vacation, has changed roles, or left the organization without a proper substitute being assigned, invoices can sit idle. Moreover, instructions to hold payments due to business decisions – such as cash conservation strategies or disputes – can artificially reduce the on-time payment percentage, even though the delay may be deliberate and justified.
Payment Frequency Matters More Than You Think
An often-overlooked factor is how often an organization processes payments. Many companies operate on a weekly or bi-weekly payment run. If an invoice is approved just after the most recent payment cycle, it may have to wait several days before the next disbursement. Even though it was processed promptly, this timing misalignment can push the actual payment beyond the due date, again impacting the ‘Paid on Time’ metric.
A Balanced Perspective on Timeliness
While it’s important to strive for a high on-time payment rate, it’s equally essential to understand the reasons behind any shortfall. Not all late payments are the result of inefficiency. Some are due to late supplier action, others to valid internal policies, and some to the natural rhythm of payment schedules. The key lies in identifying patterns, implementing smart automation, and ensuring transparency across the P2P value chain.
At Right Path Global Services Pvt Ltd, we help clients interpret these nuances and improve their financial processes holistically – not just to hit metrics, but to build resilient and high-performing finance operations. In the next part of this series, we’ll explore another cornerstone of P2P benchmarking: Purchase Order (PO) Coverage, and why it’s more than just a compliance measure.
Stay tuned as we continue our journey through the metrics that truly matter.
