7 Ways to Calculate Your Total Costs of Invoice Processing

All companies have to process invoices. It’s just a part of doing business. However, once multiple locations come into play, the mountains of invoices can become a real headache – and a substantial drain on profits. To understand exactly how much invoice processing is costing your business, you must look at the entire invoice processing cycle.

Here are 7 things to review when trying to come up with that elusive number:

  1. How much time does it take to process and mail the invoices from each location to the main office? At a typical store, the employees must sort, categorize and manually enter each invoice’s data into a local system. They must then pack and ship those invoices to the corporate office. The time spent on these tasks can really add up.
  2. How many hours are spent at the corporate office reviewing each invoice? Once the invoices reach the corporate office, the Accounts Payable department must spend time reviewing the invoices and prepping them for outsourced scanning.
  3. How many hours are spent trying to find, and then fix, data entry errors? When they find discrepancies between the values coming from the locations and their calculations, they must manually track down and correct the issues.
  4. How much does it cost to ship the invoices from each store to corporate, then from corporate to an outsourced invoice scanning company? This one is pretty straight-forward. All of the postage fees must be included in this lump sum.
  5. How many hours of productivity are lost while your business waits for the scanned images? Once the invoices have been mailed, it can take 7-10 days for the outsourced scanning company to receive and scan them. Are you paying people to wait?
  6. While waiting for the invoices to be processed manually, did you miss out on any early-pay discounts, or did you get charged a late fee? If it takes 1-2 weeks to get an invoice prepped and in the system, you could miss out on important discounts or be charged costly late fees. The Aberdeen Group found that, “Annualized savings when capturing an early payment discount is 11.7%.”*
  7. How much are you spending on paper invoice storage? This cost would include the room, the cabinets, the folders, and other furniture or supplies used to store the paper invoices.

To estimate your cost per invoice, use the following basic formula with values for one month:

Personnel costs + late fees + lost discounts + postage costs + storage costs / # of invoices processed = cost per invoice

Here are some statistics from the Aberdeen Group, when comparing AP Leaders and Followers (in automation):

Invoice Processing Statistics

 

How does your cost per invoice compare with that range?

If it is close to $4.34 per invoice, then you are ahead of the pack. If it’s not even close, you have some work to do.

Has your business considered moving from manual invoice processing to an automated solution? Are you skeptical about how much the move could save you?

When comparing the two options, it’s important to make sure you have determined the REAL cost of manually processing invoices. You might be surprised at how much the seemingly minor inefficiencies are costing your business.

To learn more about how you can reduce operating expenses by streamlining invoice processing, download our FREE whitepaper.

 

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*Ball, Bryan. “Leaders’ Winning Strategies for Common Issues in AP and AR.” Aberdeen Group, October 2014.

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