Ever wonder whether your payables department is spending too much to process supplier invoices?
Benchmarking data from the Institute of Finance and Management (IOFM) can give you a clue.
Here are the average costs to process a single supplier invoice, according to IOFM:
- $7.90: What accounts payable departments with little or no automation (mostly or completely manual processes) spend on average to process a single invoice.
- $4.31: What accounts payable departments with a moderate level of automation (lots of manual processes) spend on average to process a single invoice.
- $3.40: What accounts payable departments with a high level of automation (few manual processes) spend on average to process a single invoice.
Of course, many accounts payable departments with little or no automation spend considerably more than $7.90 to process a single supplier invoice. And best-in-class accounts payable departments – which typically have the highest levels of automation – may spend much less than $3.40 per invoice.
It’s also important to note that IOFM’s average invoice processing costs are based on compensation and benefits for full-time equivalents, but don’t consider allocations such as office space and utilities.
Six reasons your invoice processing costs are so high!
IOFM’s research finds there are six big contributors to the high cost of invoice processing:
1. Lots of paper invoices from suppliers.
- The more paper invoices that an accounts payable department receives from its suppliers, the lower the percentage of invoices that are posted to an ERP application straight-through, without human operator intervention, studies show.
2. Keying or OCR errors.
- Manually keying or using OCR to extract invoice data and inputting information on approved invoices into an ERP application is a costly, error-prone process that opens the door to duplicate or incorrect supplier payment. Detecting keying and OCR errors late in the approval process increases the chances of late-payment penalties and missed early-payment discount opportunities.
3. Poor cash flow visibility.
- Manual or offline invoice processes provide limited visibility into the metrics businesses rely on to manage their cash: Days Payable Outstanding (DPO), on-time payment percentage, accounts payable value and payment and discount capture metrics. What’s more, payables staff can never be sure when an invoice is approaching its early payment discount deadline, the best time to release payments or when to take advantage of discount offers.
4. Poor control over spending.
- Paper-based and offline processes make it difficult for businesses to access what they need to control corporate spending, including enterprise spend and trends, category spend and volume, spend-to-supplier ratio, supplier performance and budget variances.
5. A high percentage of supplier invoices that result in exceptions.
- Seventeen percent of all supplier invoices result in an exception, Ardent Partners reports. There are lots of causes of exceptions, including: wrong price, wrong quantity, missing tax amount, missing tax ID number, no requester name, no contact information, no contract and/or purchase order, missing purchase order number, no shipping notice and incorrect net amount. Resolving exceptions using email or manually typically involves multiple handoffs, emails and manual processes to identify and resolve the cause of the exception, which significantly adds to the costs and delays approval. Making matters worse, exceptions can languish on desks or in e-mail boxes awaiting resolution.
6. Greater risk of compliance violations.
- It is difficult to meet compliance requirements in a manual or offline invoice processing environment. Manual or offline invoice approval processes do not provide tracking of invoice history and approvals, enforcement of approval policies or separation of duties guidelines, chain of custody assurances, readily available audit information, controls for Sarbanes-Oxley and Payment Card Industry Data Security Standard (PCI DSS), or ways to prevent documents from being discarded or destroyed ahead of pre-set deadlines. This lack of control also makes accounts payable departments more vulnerable to fraud.
Manual invoice or offline approval processes exacerbate, if not cause, all the contributors to high costs.
It is no surprise that accounts payable controllers surveyed by IOFM identify accounts payable as the most time-consuming, laborious, and paper-intensive finance and administration function, ahead of burdensome activities such as accounts receivable, payroll, tax, and audit and reporting.
In fact, accounts payable received nearly twice as many votes from controllers as the most time- and labor-intensive finance and administration function than the next highest-ranked function.
Don’t settle for sky-high invoice processing costs.
Technologies such as intelligent data capture, workflow automation, robotic process automation (RPA), artificial intelligence (AI), machine learning (ML), mobile and analytics enable accounts payable departments to transform their operations to reduce the costs of processing supplier invoices.
- Invoices in any format, from any channel are received and aggregated onto a single platform
- Header and line-item data is extracted from invoices with 99.95 percent accuracy
- Extracted data is validated against information residing a system of record.
- Invoices are matched against purchase orders and shipping receipts
- Invoices requiring approval are digitally routed based on pre-set rules
- Accounts payables staff, stakeholders and suppliers collaborate online to resolve exceptions
- Approved invoices are seamlessly posted to an ERP application
- Invoice images and data are securely archived and available for instant retrieval
Want to reduce your cost to process an invoice?
If so, IPS can help with Productivity Wrx℠, an advanced accounts payable automation solution, delivered as a service.
Contact IPS today to arrange a no-obligation consultation with one our transformation experts.