How Long Does It Take to Process an Invoice?

Posted by Greg Bartels on Aug 4, 2021 10:45:13 AM
Greg Bartels

One of the most common questions I'm asked by accounts payable professionals is:

"How long should it take my department to process an invoice?"

Time to Process an InvoiceI could take the easy way out and cite the latest research from an industry research firm.

I could say: “Studies show that it takes businesses with little or no AP automation an average of 16 days to approve an invoice, from the time the invoice is received to the time it is posted to an ERP. Businesses with a high level of AP automation post invoices in less than one-fourth the time.”

And that’s true.

But those stats don’t tell the whole story when it comes to invoice approval cycle times.

There are lots of factors that can influence how long it takes the typical AP department to process an invoice. How the invoice is received. The complexity of the invoice. The number of approvers. Whether the invoice is tied to a purchase order. Whether the invoice results in an exception.

What’s more, paying an invoice as fast as possible doesn’t always make sense. Paying suppliers too fast is tantamount to providing them with a free line of credit.

Clearly, how long it takes the typical AP department to process an invoice can vary.

A better question to ask is, “What percentage of the invoices we receive should be paid on time?”


Paying invoices on time is the single most important invoice processing metric in the eyes of senior finance execs. It’s also the top metric that senior execs use to measure the job performance of AP department managers, according to research from the Institute of Finance and Management (IOFM).

Businesses that pay supplier invoices on time:

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  • Avoid costly late payment penalties
  • Have more opportunities to capture early payment discounts
  • Receive fewer phone calls and e-mails from suppliers about the status of payments
  • Have more leverage when renegotiating contracts with suppliers
  • Reduce the chance of supply chain disruption

Curious how your on-time payment rate stacks up?

How to pay more invoices on time

Top performing AP departments pay at least 90 percent of the supplier invoices they receive on time, according to the new IOFM World Class AP Performance: Efficiency Benchmarking Metrics report.

A more careful look at the IOFM data reveals something that might surprise many accounts payable leaders but is something that IPS has known for years (and is what we built our company on).

Automating your invoice processing and having a high percentage of PO-based invoices aren’t enough to achieve a high percentage of invoices paid on time. The maturity of your invoice approval process is the single biggest factor in the percentage of invoices a business pays on time, IOFM finds.

Businesses with standardized, consistent processes for approving invoices pay more of their invoices on time than their peers that rely on frontline staff to set their own priorities and methods. Moreover, businesses that achieve top results for paying invoices on time are more likely than their peers to operate in a continuous improvement loop, where processes are regularly reviewed and refined.

Fifty-two percent of businesses with standardized and consistent invoice approval decision-making processes pay at least 90 percent of their supplier invoices on time. Conversely, only one-third of AP departments that rely on frontline staff to make approval decisions can reach those heights.

This means that businesses that want to improve the percentage of invoices paid on time should find a partner that combines intelligent workflow automation with a proven track record in improving accounts payable business processes. AP automation solutions providers offer intelligent workflows purpose-built and purpose-driven for invoice approvals and exceptions resolution. Standard workflow automation tools don’t always understand the nuances of AP workflows. How invoices are queued for decision-making have a big impact on approval times, for instance. Some technology providers will also guarantee invoice processing times.

Want to improve the percentage of invoices your business pays on time?

Contact IPS to speak with one of our automation experts about your needs today!

 

FAQ

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Tags: AP Workflow, Invoice Processing, AP Automation, Accounts Payable Workflow, AP Automation Solutions, Accounts Payable Automation