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Average Invoice Processing Cost? (Shhhhh, it's more than you think!)

    June 28, 2016 Leave a comment AP Automation, invoice approval, invoice processing, invoice processing cost, invoice software, Payment Processing, accounts payable automation ICM Admin

    08_ap-ninja-color-with-textThe AP Ninja vs. Average Invoice Processing Cost

    Recently, I attended a conference largely dedicated to Accounts Payable and Procure-To-Pay processes and had the opportunity to share a lunch table with a small group of AP Managers.

    During the course of our discussion, I asked everyone what their average cost was to process a Non-PO Invoice. Two of the Managers had a quick, confident response while the other two weren't quite sure. They were all using a different ERP system, but all agreed that the systems themselves didn't provide that information.

    Sizing Up His Surroundings

    As the discussion continued, one Manager took out her notebook and started jotting down some numbers in an attempt to answer the question. As she started writing down the steps her Invoices went through and how much time each step took, the whole group started to chime in with their thoughts and experiences.

    As it turned out, even though each was using a different ERP, the basic process was similar for all of them. The steps included:

    • Initial Receipt
    • Departmental Routing
    • Approval Processing
    • Finance Review
    • Data Entry into ERP
    • Correcting Validation Errors in ERP
    • Payment Run

    There was some good natured banter about the time each step took within each organization but in the end, the group as a whole agreed that the average cost of processing an Invoice was probably in the $7.00 to $9.00 range when the fully loaded labor costs were factored in.

    Everyone thought that was a solid number.

    For the sake of the conversation, we agreed to use the average of $8.00 as the typical cost.

     

    The AP Ninja Strikes

    That's when I took the opportunity to ask some questions.

    Do delays in Invoice Processing ever cause you to miss prompt payment discounts? YES! Was the group response.

    Does your ERP compare the Terms offered on the Invoice with your Vendor Master record Terms to determine the Best Term to apply to the Invoice and Payment?

    No, none of the AP Managers had a way for their systems to do that.

    Are you sure you are catching all Duplicate Invoices?

    There were varied responses to that question, but all the Managers agreed that their ERP systems were very rigid in only checking for an exact match, on three or four fields like Vendor Number, Invoice Number, and Invoice Amount.

    I recalled an experience I had working with one client where our research found that on multiple occasions, several Vendors had accidentally double entered Invoice information resulting in the same product being invoiced twice under different Invoice Numbers.

    “Would your ERP have caught those duplicates?” I asked. The answer was no, not if the duplicate had a different Invoice Number.

    Finally, I asked about delays in processing Invoices and the reasons for those delays. That question alone sparked a vigorous 15 minute discussion about all the dark holes Invoices could be found hiding in once they began their journey through the routing and approval processes. For each organization, there was little transparency or control once the Invoices were shuffling between departments and people.

    Do you have people that spend time taking calls from Vendors who are inquiring about late payments?

    Yes, of course they all did and sometimes those late payments resulted in late payment penalties.

    And do you find that it's more difficult to renegotiate your pricing from Vendors that must make frequent inquiries regarding outstanding/late payments.

    Again, the answer was yes.

    As we were going through these questions, the Manager with the notepad had been making a few more bullet points on her list and then informed the group that in addition to the time needed to process a typical Invoice, we would need to factor in the "hidden costs" related to:

    • Missed Discounts
    • Missed Best Terms
    • Missed Duplicate Invoices
    • Late Payment Penalties
    • Costly Vendor Relations

    The AP Ninja Slashes Through to the Truth

    For the sake of finalizing our "napkin analysis" the group agreed to use a 15% to 25% multiplier on the original cost estimate which increased the per Invoice processing cost to between $9.20 and $10.00.

    The Manager with the notepad was with an organization that processed about 1500 Non-PO Invoices per month. Based on that, the "hidden costs" alone of her yearly Invoice processing was as much as an additional $36,000.

    In the end, the Managers all agreed on one thing. They wished they had more transparency in knowing where their Invoices were during approval processing and they wished they had better controls to ensure prompt payments that maximized discounts and reduced validation errors and duplicates.

    The AP Ninja's Tools

    AP Center is an automated workflow system designed to improve your accounts payable processing, from invoice receipt through approvals and payment. It integrates with virtually every ERP/Accounting system to help improve efficiency and productivity while reducing costs. By incorporating best practices and a flexible rules engine, AP Center provides enterprise-level features at an affordable price point.

    There are literally hundreds of AP automation solutions so why AP Center? Dollar-for-dollar, AP Center is the best accounts payable automation solution out there. It is just that simple.

    AP Automation, invoice approval, invoice processing, invoice processing cost, invoice software, Payment Processing, accounts payable automation

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