How to Determine Your Cost to Process a Single Invoice
Does your organization know how much it costs to process a single invoice? At first glance, this figure might seem too granular and specific to be of any value. After all, your organization probably understands the difference between its revenue and expenditures. But upon closer inspection, determining your cost to process a single invoice can provide your organization with a concrete figure to compare its invoice processing capabilities against. If you can decrease this figure, you can increase your bottom line — which means better cash flow management and increased liquidity to grow your business.
Ready to determine your cost to process a single invoice? Follow these steps:
- Set your cost per invoice benchmark
- Estimate your average cost per invoice
- Calculate your average cost to process a single invoice
- Compare your total against your estimate and benchmark
- Consider solutions for decreasing your average cost per invoice
1. Set Your Cost Per Invoice Benchmark
In Top 5 Reasons to Automate Invoice Processing, we discuss the significant cost differential for companies that process invoices manually and those that automate invoice processing. Companies with no automation spent, on average, $15.96 per invoice whereas companies with automation only spent $2.94 per invoice.
When setting your cost per invoice benchmark, you want to set a realistic goal that falls between these two averages. If your organization hasn’t automated Accounts Payable, $2.94 can be an unrealistic benchmark. However, you don’t want your cost per invoice to exceed $15.96 as this indicates that your process is inherently flawed and may require you to rework your process from the ground up.
For our example, let’s set your cost per invoice benchmark squarely in the middle of these two values: $9.45. Of course, you can adjust your benchmark as needed to better suit your business. The goal here is to set a concrete goal that we can compare against your current cost per invoice.
2. Estimate Your Average Cost Per Invoice
Now that you’ve established your benchmark, it’s time to estimate what your average cost per invoice really is. Is it greater than, less than, or equal to $9.45? In the next section, we’ll give you all of the information you need to calculate your actual cost per invoice, but before we get to that step, take a minute to consider where you think you currently fall.
If your estimate is higher than the benchmark we set in the last section, that’s okay! If it’s lower, that’s also okay! Although you are free to adjust your benchmark, keep in mind that we set it at $9.45 because this falls in the middle of the range we’ve observed while servicing our customers. Estimating your average cost per invoice gives you an opportunity to think about where your AP department currently stands. It also makes the discovery of your actual cost per invoice that much more enlightening.
3. Calculate Your Average to Process a Single Invoice
Are you ready to see where your organization stands in relation to your benchmark and estimate? Take some time to record your answers to the checklist below. You may need to reach out to other leaders in your organization for information related to these questions. Keep in mind the individuals you speak with as they may play an important role in forming your committee for the enterprise software selection process. Enterprise software, such as Accounts Payable Automation, will help you bring down your actual cost per invoice and get it more aligned with the top benchmark of $2.94 per invoice.
Here’s what you’ll need:
- # of supplier invoices you process per year
- Avg. length of each invoice?
- % of PO-based invoices
- % of invoices that require exception handling
- % of invoices received via mail and email?
- # of POs and check pages filed per year
- # of invoice processors in your AP department
- Avg. annual salary, avg. fully burdened salary, and avg. fully burdened hourly rate for AP department
- # of early payment discounts that are available to you each year
- # of early payment discounts that you miss each year
- Total cost of late payment fees incurred per year
- Total cost (if applicable) of sending invoices from remote offices or plants to HQ for processing
- Total cost of collecting, printing, and storing POs, receiving documents, payment documents, and other transactional information, including the cost of outsourcing document processing and data entry
- Total time spent on recurring tasks, including invoice prep, document routing, mathematical conversions, duplicate payment resolution, and reporting (per month/year)
- Total time spent on occasional administrative tasks, including audit preparation and file destruction (per year)
- Total time spent by non-AP employees performing tasks such as sending procurement requests throughout our internal approval routes or entering receiving data into your ERP (per month/year)
Once you have your totals, submit them to firstname.lastname@example.org. One of our experts will calculate your average cost per invoice using our AP Automation ROI Calculator. If you would like more information about the ROI Calculator before submitting your information, please send a request to email@example.com. In the meantime, bookmark this page so you can complete Steps 4 and 5.
4. Compare Your Total Against Your Estimate and Benchmark
Once you know your cost to process a single invoice, it’s time to compare it against your estimate and your benchmark. Based on your findings, following Step 5 could be either critical or unnecessary.
If you need to lower your cost to process a single invoice, considering a solution that can help your organization do just that is the next natural step. On the other hand, if your cost is already lower than the top benchmark and your estimate, your organization might want to seek a different avenue for cost savings.
Here’s what your findings suggest about your current processes:
- If your cost is higher than the manual processing benchmark (>$15.96), it means your organization is wasting thousands, potentially millions, on time-consuming and tedious manual invoice processing. It’s time to overhaul your AP process.
- If your cost is higher than the median benchmark (>$9.45), it means your organization is outperforming laggards but failing to streamline and optimize its invoicing processes to compete with the top-performing half of all companies.
- If your cost is less than the median benchmark (<$9.45), it means your manual invoice processing methodology has been refined but lacks the speed and accuracy of an automated invoice management system. In other words, your organization is a top performer amongst technology-deficient businesses. Conversely, it could indicate that your organization has an invoice automation solution that isn’t performing at the level it should be.
- If your cost is less than the automation benchmark (<$2.94), it means your organization has likely deployed some form of invoice automation to reduce its invoice processing costs. You don’t need to do anything — unless you want to expand your solution to other departments or find a solution that offers more features.
5. Consider Solutions for Decreasing Your Average Cost Per Invoice
With your cost to process a single invoice verified, it’s now time to consider your next steps and start asking questions, including:
- Is my organization satisfied with the cost to process a single invoice?
- How can I reduce the cost of invoice processing?
- Which vendors should I consider to help my organization achieve its goal?
- What is the initial cost of implementing an AP Automation solution for invoices?
- Do we need separate strategies for tackling PO-based and non-PO-based invoices?
- What other cost-saving strategies should my organization consider to further reduce the cost to process a single invoice?
For many businesses, AP Automation is the ideal solution for reducing invoice processing costs. With a robust, scalable solution, organizations can reduce invoice processing times by 70 percent or more while improving accuracy, eliminating duplicate payments, and seizing more early payment discounts. Together, these functionalities yield significant time and cost savings that are impossible to replicate without an enterprise software solution like IntelliChief.
Are You Ready to Reduce Your Cost to Process a Single Invoice?
Reducing your invoice processing costs is one of the best ways to enhance your bottom line. The majority of companies have not invested in AP Automation because they haven’t identified the need. Working under the assumption that “if it ain’t broke don’t fix it,” these companies continue to squander profits on processes that are ineffective and costly. Now that you understand how much each invoice is costing your business, it’s time to do something about it!
To learn more about our solutions for automating invoice processing, contact IntelliChief today. Our industry-leading AP Automation solution integrates with your core technologies to support a seamless automated experience from start to finish.