Are you letting your business processes go? Sometimes, some incremental costs are considered part of business operations, such as invoice Processing and accounts payable (AP).
Suboptimal invoice processing can lead to a loss of value. With the right approach, processes, and technology, you can eliminate the obsolescence caused by manual Processing. This will allow you to shift your invoices and your entire AP/procurement functions toward building value and not just cutting costs.
What Is The Importance of Invoice Processing Costs?
Invoices can cause additional expenses beyond the cost of the goods or services they are issued. You're not the only one who's still using manual invoice processing. An estimated 90% of invoices are still manually processed worldwide. Last-gen tech and paperwork piles on overworked staff, making invoicing slow and laborious. This is especially true if an invoice exception occurs or delays are encountered.
Even worse? These risks are not the end. After the payment has been approved, the data must still be entered into the Enterprise Resource Planning software (ERP).
No matter how big your company is or how many invoices you handle, manual invoice processing can cost you more in lost productivity, time, and wages.
Manual Invoicing: The Hidden Costs
There is no magic number for invoice processing costs. It all depends on the person doing the tabulation. Sterling Commerce, a research firm, estimates that the average cost to process an invoice is between $12 and $30. Others narrow the gap to $12.90 and $15. Some firms place it as high as $40
Unsurprisingly, the cost appears to be closely related to both the complexity of your AP function and its relative efficiency—particularly if you use automated invoice processing in addition to, or instead of, manual invoicing.
No matter how big your company is or how many invoices you handle, manual invoice processing can cost you more in lost productivity, time, and wages. Your bottom line is being affected by manual processing costs.
Direct Expenses
Physical invoices can generate small expenses, such as paper, pens, postage, and printer toner. Storage costs will also be required as paper invoices for accounts receivable (AR) and AP must be stored securely for reporting and audit purposes. Using a remote location, you may pay more to create an invoice and ship it.
Indirect Expenses
These are intangible expenses of invoicing in the AR or AP process. You need to pay someone for data entry and envelope stuffing and to follow up on approvals. Each hour spent on invoices can be used for more productive and higher-level tasks.
Hidden Costs
Intangible expenses, such as indirect costs, are invisible. Even though they have a significant impact. Snail mail, as its name suggests, is slow. This is especially true if you are sending/receiving bills, waiting for payment confirmation, or sending/receiving payments.
You could end up in a negative cash flow and have to pay fees if you cannot pay your bills. Errors can only worsen the situation, increasing not only the penalties and late fees but also staff hours.
Calculating Your Costs
To get a more accurate estimate of the manual invoicing cost, you can refer to the following:
- The total time to process an invoice (including time spent in the post).
- Time spent reviewing invoices
- Time spent correcting errors in data entry, duplicate payments, etc.
- Shipping and storage costs for physical invoices
- Late payments, errors, and other factors can result in lost discounts or penalties.
- Staff performing invoicing tasks is more time-consuming than the assigned duties.
This information can be used to calculate your estimated cost of processing invoices. Add together staff costs and discounts, storage and late fees, and postal and shipping costs. Divide that number by the total invoices processed to determine the average invoice processing cost.
Automated Rescue
You might give up on manual invoice processing because of all the hassles. You can reduce your frustration and costs without getting out your merchant's scales or stray animals.
Modern purchasing software uses AP automation and artificial Intelligence to prevent invoices from consuming your time and money. Through their investments in automation, the top performers in APQC's database help to keep invoicing costs low.
AP automation reduces costs and simplifies the management of invoices through the following:
- No Paper, No Postage Fees: No more paper piles. No more shipping and storage fees for boxes after boxes of documents.
- Lower Labor Costs: You don't have to hire new staff to handle paper invoices. Both internal and external audits are more efficient and accurate.
- Increased Accuracy: Invoices can be cross-matched with shipping documents and POs. Vendors have been pre-vetted. Information is automatically updated and added. Human error can be greatly reduced by not having to enter data across multiple systems.
- Approvals Are Quicker: Clear roles, central communications, and reminders to keep things moving result in fewer late fees.
- You Are Less Likely To Be a Victim of Fraud: No more fraudulent spending thanks to secure, central data, cross-checking, and electronic invoicing. Built-in verification greatly reduces the risk of fraud and checks.
- Increased Productivity: Automation removes Accounting and management from having to micromanage invoice tasks. This allows more time to be used on high-level tasks supporting the enterprise's goals.
These results can be quite impressive. Sterling Commerce claims that fully automated invoice processing can lower per-invoice costs by almost 90% and reduce errors by almost 40%.
What's the Average Cost to Process an Invoice?
The average invoice cost $11.57 and took 8.6 days to process. You might be interested to see how your invoices compare. Divide the total number of invoices processed by key metrics such as their accounts payable department's operating cost. This will give them an overview of all types and amounts of payment. Each invoice comes with a hidden cost.
Let's look at three factors that can raise the average cost of invoice processing in paper-based processes.
Incomplete or Outdated Accounting Technology
There are numerous cloud-based AP automation systems available on the market. Yet, not all businesses have reaped the full benefits. Companies may require assistance with a proprietary system they created 10 to 15 years ago.
Some companies might not have updated because they were afraid to do it again or how expensive it would be.Others might have already updated a part of their AP technology. 68% of companies will likely use payment technology.
Next was invoice process management at 66% and approval workflows at 55%. However, some companies have not made it this far, and instead, their staff processes paper bills as soon as they arrive. This can cause many problems.
The Human Cost
It's easy to calculate the average cost of processing an invoice. This is particularly true for companies that rely heavily on paper-based processes. Paper invoices must be collected on time and double-checked before being matched with purchase orders.
These invoices can then be sent for approval. This can take several weeks. Your AP employees may also need to submit approval requests manually, contact multiple departments, or chase down the requested information.
Human errors can always lead to mistakes in any process. For example, manual data entry could be more efficient. Computers can detect errors such as a vendor account that has been changed. These errors may not be noticed by a human who processes dozens of invoices daily and types them as quickly as possible.
Increased Risk of Compliance Violations
The ROI of AP automation was only 12%. This is despite manual invoice processes being difficult to track, making enforcing internal controls on accounts payable harder.
You may need to keep certain documents safe for some time. Paper files that contain invoices are not protected against destruction after the deadlines. Compliance is an important aspect of accounts payable work.
"Drivers of AP Success: Metrics to Collaboration and Influence" revealed that compliance with AP policies was the most important success metric. 40% of respondents identified this as a success metric. It's helpful to have methods to encourage compliance, such as AP automation.
How Do Accounts Payable Steps Affect The Invoice Processing Cost?
To determine the cost per invoice for a business continuity, it is necessary to conduct a thorough analysis. These are the factors to consider and estimates for each stage.
Data Entry – $1 to $3: Manual data entry can take around 5 minutes per invoice. This service can cost as much as $3 per invoice, depending on the pay rate of AP clerks.
Approvals & Processing- $1 to 3 Per Approval: Factoring requires time-tracking managers and getting their signatures. It will vary depending on which desk is involved. The cost can range from $2 to $3. If a CFO is involved, the approval process cost could be significantly increased.
Materials Prices: This price includes paper, ink, and envelopes. For paper invoices, $0.55 is the cost of U.S. postage stamps.
Storage – $200 Total (Starter Package): Invoices stored in offsite storage facilities are subject to additional fees. Storing them locally may take up valuable space and increase the chance of them being lost. These costs can vary greatly, but a basic monthly plan to store your data offsite starts at $200. This includes all data. It is costly to store paper. Storing invoices at high-rent locations such as Los Angeles or New York can be costly.
Late Payments & Errors $0-$$Hundreds Per Invoice: Handling invoices manually is more vulnerable to fraud, late payments, and penalties for errors. It will depend on your vendor's policies, but it can quickly become expensive.
How Can You Lower The Cost of Processing An Invoice?
Automating Invoice Processing is the most cost-effective and efficient way to reduce costs. Let's look at each step to discover how automation can help you save money on invoice processing.
Data Entry – Less Than $1: Optical character recognition can drastically reduce manual invoice data entry. Integration of your accounting system for software can transform how invoices are processed.
Processing and Approvals - Less Than 20 Cents Per: Approval workflows and easy-to-use portals will save AP clerks time and money. They also reduce the amount of work required to manage the process.
Materials – $0: Get rid of the need for physical materials by using digital invoices
Storage- Data storage is often included in cloud-based AP automation systems. It is often less than one dollar per bill.
Errors and Late Payments - Significant Reduction: While this can be difficult to predict, AP automation has been shown to reduce fraud significantly, late payments, and errors.
Hidden Benefits of Accounting and Finance Automation
Investing money in new solutions like accounts payable automation software may seem unnecessary. It can be a costly expense when you consider all the hidden costs associated with AP automation. The average cost of processing invoices in your company could be calculated in cents.
- Prevent Fraud Risk
- Keep Inter Controls
- Productivity boost
- Keep Your Team Lean
Invoice processing is an expensive part of a business reputation. Learn how to reduce invoice processing costs.
While invoice processing costs can vary depending on the business units, most estimate that they cost between $15 and $40 per invoice. Be aware of the factors that can impact processing costs. Reduce the number of accounts to be paid.
Read More: 4 Advantages of Automation From Payments to Invoice
How do Invoice Processing Costs Influence?
To calculate the total cost, you need to be aware of the factors that impact invoice processing costs in your business Performance. These factors can have a major impact on invoice processing costs.
- Errors
- Labor
- Vendor relationships
- Supply chain management
- Office Supplies
- It is a waste of time
- Software to support accounting systems
- Mail costs
Many things can impact your cost, including writing an invoice or making a payment. If they are not taken care of, they can quickly add up.
How To Reduce Invoice Prices
The best way to reduce invoice processing costs is to streamline your invoice processing. Many businesses use automation software that automates accounts payable (AP). This reduces the error and time involved in manual processes.
Acrobat Signature, an electronic signature program similar to Acrobat, makes approving and processing invoices easier. Instead of dealing with printers and scanners, AP managers can approve or sign invoices using a mouse. By reducing the number and complexity of steps, you will save time, decrease errors, and lower your invoice costs.
How can I Calculate the Invoice Processing Cost?
These can help you get a better idea about the cost of manual billing:
- Processing Real-time Access (pre-and post)
- It took some time to review the invoices.
- The time needed to correct duplicate invoices payments or data entry errors
- For physical invoice payments, shipping and storage charges will apply.
- Penalties or discounts that are incurred because of errors, late payments, or other causes.
- Invoicing tasks consume more labor hours than core functions.
How to Lower The Cost of Invoice Processing
Paperless can reduce duplicate payments and manual data entry. Automation can increase compliance and security while helping you save money. You can maximize spending visibility. It allows you to track how much money is moving through your company.
Automation can lower labor costs. Automate repetitive tasks such as accepting invoices, then paying them off. Outsourcing invoice processing is an option. This reduces hidden costs like employee training and hiring.
The Benefits of Invoices for Your Small Business
Invoice Processing is Excellent
Even though legal issues aren't the most exciting topics, it is important to discuss them. Invoices are used primarily to track and receive payment from customers. They can be used to protect you in case of a dispute.
Although we hope this does not happen, sometimes customers fail to pay their invoices despite repeated reminders. An invoice can be used to support your claim.
Customers are Happy
Invoicing is an important part of customer service. After you have provided a product or service, invoicing allows customers to pay. Both you and your customers will find this convenient. Customers will be delighted to have the option to pay you at a convenient time for them.
Invoice processing goes beyond you. Customers should also keep track of their finances. An invoice can help customers keep track of their finances. It should include details about what was bought, when, and any late fees.
Maintaining Professionalism
A professional invoice can impact customer satisfaction more than your conscious awareness. Invoices are a way to show your customer you have efficient processes. This is a way to build trust.
Professional invoices will make you stand out from competitors by including all information and using a professional template. An invoice directly communicates with customers, which many business owners must remember. It is a chance to offer a better experience. From beginning to end, your customer experience should be seamless.
Display Your Brand
Invoices can display your branding well. The tone and design of your business intelligence should reflect your brand. A template people love to use is the best. The layout should look like this: What typography should you use? There should be your logo.
They Help You Stay Organized
Although it may seem obvious, keeping track of all invoices you send is vital. You can keep track of any payment discounts, pending or not, to help you see your finances.
Get Payment on Time
Businesses can get paid faster with invoices for many reasons. These are the essential elements of a well-written bill.
- An invoice number with the date it was issued
- Name and address of your business
- Contact information for your company
- Product or service information
- The total amount owed
- Information on payment, including how you can pay
- An overdue fee
They will be ready to pay you if they have all of this. If they have all this information, you can pressure them by setting a due date. To help, add an overdue payment to your invoice. Many customers will have questions. You are also helping yourself by giving your customers all of your contact information and an overview of what they will have to pay.
You can send reminder payments by pressing a button if you use an online or automated invoicing system.
Invoice Systems Make It Easier
Automating invoice processing has become a priority for companies. There are now more in-app and online billing options. This means that business owners can invoice customers in seconds.
Invoicing software makes it simple to create accurate, quick invoices. Automating invoices makes it easy to create them quickly. It's easy to do everything from your smartphone or laptop.
It's easier to organize invoices without filing cabinets or stacks. Sum Up Invoices provides a fast, efficient, and free solution for anyone seeking to organize their invoices.
Want More Information About Our Services? Talk to Our Consultants!
Conclusion
Invoice Processing is an integral part of every business's operations. It is crucial to automate it. Automation technology can help firms improve invoice processing. Automating invoice processing is a popular option for batch production. AP software can reduce labor costs, save time, and increase employee productivity and efficiency.
The accounts payable department is responsible for a business function. This involves managing vendor and supplier relationships and invoicing from receipt to payment. All of this information is stored in the general ledger. This is the standard method for Invoice Processing. The flowchart for invoicing Processing is a guideline showing the steps in processing vendor invoices.
