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Are hidden expenses in your invoice processing activities increasing your costs?
The cost of processing an invoice is one of the most efficient ways to identify the efficiency of your accounts payable team. Reducing this number is a critical step in improving the health of your overall invoice processing workflow.
According to the American Productivity and Quality Center (APQC):
The cost of processing an invoice now ranges from $1.77 for the best performers (companies in the 25th percentile) up to a maximum of $10.89 for the worst performing companies (companies in the 75th percentile) in 2023
This wide gap emphasizes the impact of automation and streamlined processes in reducing invoice processing costs.
In contrast, just a few years ago, this range was $2.00 to $9.00 per invoice. This improvement most likely points to the growing adoption of automation and smart technologies in business processes.
So what exactly contributes to the cost of processing invoices and how can businesses reduce these expenses further?
What factors affect the cost of processing an invoice?
Calculating the cost of invoice processing requires analyzing everything involved in the activity. This includes everything from the number of hours the accounts payable team spends processing invoices to writing down all the resources needed to complete the process.
Here are some of the main factors that affect invoice processing costs:
Employee resource costs
The most obvious data in the calculation is how many people in your company work processing invoices and how many hours they dedicate to it.
First, take note of all the employees who work on invoice processing. This would include accounts payable clerks, accounting managers, controllers, and perhaps even the chief financial officer.
Calculate your hourly rates and time spent processing invoices to understand total labor costs incurred.
supply cost
This mainly applies to companies that still process paper invoices. Supplies used in invoice processing activities include paper, printers, envelopes, stamps, ink, etc.
For businesses working digitally, the cost of supplies could include hardware such as scanners, computers, laptops, etc., and any expenses that may go towards maintaining this equipment.
Infrastructure costs
Companies working with digital invoices can invest in software such as enterprise resource planning (ERP) platforms, accounts payable software, payment processors, and even fraud detection software.
Often these software products operate on a subscription basis, so these costs would be recurring in nature and must be accounted for.
Hidden costs
Hidden costs include costs that may not seem as significant. This includes the cost of mailing checks, printing copies, and even transaction fees for various payments such as checks, credit cards, and wire transfers.
Hidden costs may also include those incurred due to errors in invoice capture during processing that would result in additional labor and time spent on activities.
For example, if there is an error processing an invoice, the entire process will need to be repeated and could also result in late payment charges from the supplier.
These delays and inaccuracies often lead to additional work to rectify errors, additional labor, and late payment charges, which can increase the cost by up to 20%.
How to reduce the cost of processing an invoice?
Reducing invoice processing costs would require a comprehensive optimization of all the contributing factors mentioned above.
However, here are some foolproof ways that will help reduce your company's invoice processing costs:
Electronic invoice
Migrating your company's billing activities to digital solutions will help you save on the costs of using physical copies. It can reduce the need for printing and mailing, and could speed up processing times.
Additionally, electronic invoicing makes it easier to track and manage invoices.
Automated invoice processing
Automating invoice processing has many benefits for businesses, including reduced labor and time costs, faster payments, reduced manual intervention, and more control over invoice processing.
AP automation and invoice processing software like Nanonets can help streamline your invoice processing workflows. Such software can also integrate with your organization's existing ERP and accounting systems, allowing for seamless data sharing and synchronization.
Companies that fully automate their accounts payable process can reduce costs by 81% compared to those that rely on manual billing.
Streamline the approval process
Reducing invoice processing costs would require streamlining every part of the operation, focusing specifically on the approval process.
Mapping the entire AP approval process would highlight potential bottlenecks, redundant workflows, and other opportunities for improvement. Refining the approval process would eliminate such inefficiencies and streamline/reorganize the overall approval workflow, ultimately reducing invoice processing costs.
Track and Benchmark Invoice Processing Costs
Once you've implemented these cost-saving measures, tracking and comparing your performance is crucial for continuous improvement. Key performance indicators (KPIs) you should monitor include:
- Cost per invoice: Compare your cost per invoice to industry standards.
- Approval cycle: Track the time from receipt of an invoice to payment.
- Error rate: Calculate the accuracy of your data and monitor the percentage of invoices that require rework due to errors.
Periodically evaluate these metrics and compare them to industry benchmarks. Further refining your processes will ensure continued savings.
ROI Calculator for Invoice Automation
Annual number of invoices processed:
Current cost per invoice ($):
Number of AP employees after deployment (optional):
Notes and assumptions (click to enlarge)
- Manual processing cost per invoice ranges from $15 to $40.
- According to salary data, the average annual salary of an AP employee ranges between $40,766 and $50,080.
- Nanonets PRO plan is offered at a flat rate of $999 per month for each model, which includes processing up to 10,000 pages.
- There is an additional charge of $0.10 for each page processed beyond the initial 10,000 pages included in the PRO Plan.
- Based on customer feedback, the solution can reduce response time for manual invoice processing by up to 90%. This significant reduction in processing time is not included in the cost savings calculation to keep the calculation simple.
- Employing a dedicated AP employee to manage the Nanonets system is optional, depending on company size, policies, and invoice volume.
- The cost savings we have calculated are based solely on the differences in processing costs between the manual method and Nanonets AP automation. And it does not consider any potential reduction in response time or administrative work hours.
- Nanonets also offers a pay-as-you-go model where the first 500 pages are free and then $0.3 per page. This model may be more cost-effective for smaller companies or those with lower document processing volumes.
You've seen the cost savings, now see the solution in action!
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You've seen the cost savings, now see the solution in action!
Ready to turn your potential savings into reality? Join us for a live demo and discover how Nanonets can help you achieve them with accurate data extraction, faster approval cycles, and seamless data flow between your business systems.
Lessons learned
Businesses cannot ignore the impact of hidden expenses that increase the cost of processing invoices. Companies must implement strategic measures to address these costs head-on and free up valuable resources. Even small process improvements will add up significantly over time.
Integrating AP automation software into your existing AP workflow is often a good starting point. Eliminating manual processes often results in a marked reduction in errors, better approval workflows, and huge time savings.
