How much does it cost to process an invoice – and where can you save?
In today’s rapidly evolving business environment, organizations need to keep close track of their operating costs to ensure bottom-line results are not dragged down by inefficient and resource-heavy operations.
Asking the question “how much does invoice processing cost" can be compared to "how long is a string”; the natural answer to both will be: it depends. Accounts payable departments should consider available industry benchmarks and best practices for invoice processing costs, as well as a break-down of what the cost per invoice is and where saving opportunities are available.
How Much Does it Cost to Process an Invoice?
Invoice processing costs can vary greatly. It depends on a variety of factors including the invoice volume, the percentage of PO-invoices vs. non-PO invoices, if the AP function is centralized or decentralized, and the level of automation in the accounts payable process.
According to IOFM (Institute of Finance & Management), invoice processing costs vary between $1 and $21. This benchmark is based on the total cost of accounts payable staff split by the total number of invoices processed.
Ardent Partners' 2021 State of ePayables Report estimates that the average cost per invoice in 2021 $10.89, including the cost of labor, overhead, and technology. This benchmark has actually increased slightly in the past year, suggesting that organizations are still struggling to achieve high efficiency and automation levels in AP. According to Ardent Partners’ research, best-in-class companies that leverage modern technology to truly streamline their accounts payable process and operations can achieve 80% lower invoice processing costs than the average.
While there are different ways to calculate invoice processing costs, these industry benchmarks show that numbers around or above $10 are standard. For organizations dealing with thousands of supplier invoices each month, this cost adds up to a significant amount hitting the OPEX budget and ultimately the bottom line.
4 Factors That Drive Higher Invoice Processing Costs
What are the leading factors that drive higher invoice processing costs? Here are the top four to watch for:
- Manual, paper-based tasks in the AP process. Anything that requires a human touch will drive headcount cost as well as slow down the process, which in turn can drive other costs such as late payment fees.
- A high volume of PO-invoices and no (or insufficient) invoice matching technology. With no or limited automatic invoice matching in place, invoice data is manually matched to purchase orders and goods receipts line-by-line. More resources are required in AP, and it also increases the risk for errors, poor visibility into direct spend, and potentially damaging supplier relationships.
- A clunky and/or paper-based approval process. If budget owners and invoice approvers must be in the office to sign a paper copy or approve invoices in a clunky system, it slows down the invoice approval process further. Plus, a clunky process will take out valuable time from managers’ busy day that they should focus on driving the business forward.
- Maintenance of legacy, on-premise software. Many organizations use outdated AP solutions installed on-premise to support their invoice processing. Some may even require purchasing a license for each user accessing the system. This may represent a high cost in terms of hosting, maintaining, and licensing.
6 Ways to Cut Invoice Processing Costs Dramatically
There is good news. Discover six ways to start cutting your invoice processing costs dramatically and generate significant savings for your company.
- Remove paper from the entire process. Leverage the technology available to eliminate the time-consuming, resource-heavy handling of paper invoices. Long gone is the tedious work of keying in information by hand. Now your accounts payable solution can automatically capture and extract invoice data from all invoices, regardless of format.
- Implement an end-to-end AP automation solution. With a specialized AP solution built for the accounts payable process, every task in AP can be automated. This type of solution not only saves time for the AP team but also removes errors, drives compliance, and ensures timely and accurate data for the financial statements.
- Ensure high-quality invoice matching on line-level detail. When you need to match invoices to purchase orders and other supporting documentation, it is crucial to have a matching engine that can automatically match data on line-level detail to support a variety of invoice matching scenarios. Only then can you achieve fully touchless invoice processing, where invoices are automatically matched, approved, and posted for payment without any human interaction whatsoever.
- Continuously improve your AP process. Cost savings do not stop at the implementation of AP automation. You should continuously work on improving the process, removing friction and bottlenecks that are causing manual work and delays costing your business money. Make sure your AP automation solution can help you monitor the most important process efficiency benchmarks to track performance and identify areas of improvement.
- Offer your managers an easy-to-use, always-on tool for invoice approvals. With a modern AP automation solution, you can serve the organization with a user-friendly, mobile tool for your managers and buyers to approve their invoices anywhere, at any time. It will speed up the AP process and, more importantly, ensure that managers can focus on their core tasks.
- Select a future-proof cloud solution. When moving your invoice processing to the cloud, you free your internal IT department from a lot of work and hassle. A cloud-based AP automation solution offers automatic upgrades to ensure you always have access to the latest technology and dramatically reduces maintenance costs.
With the right tools, technology and organization invoice processing costs can be dramatically reduced. Organizations of today need to understand that they need to minimize operating costs and adhere to best practices in order to remain competitive in this fast-moving business environment. Reducing the invoice processing costs can notably impact the bottom line.
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