How much does it really cost to process an invoice?

Shaun Jex | Thursday, Jun 22nd 2023
How Much Does It Really Cost to Process an Invoice?

A recent PYMNTS study found that 73% of CFOs think economic uncertainty is a significant challenge for their organization. Companies are always looking at ways to reduce costs while increasing profitability. And while some expenses like staffing or travel costs are more obvious, others — such as the cost of manually processing an invoice — can be harder to calculate and easier to ignore. 

In this blog, we’ll discuss how much it really costs to process an invoice manually. We’ll explore how Accounts Payable automation software solutions can help you significantly reduce that cost while empowering your accounting teams with even more workflow efficiencies and cost savings.

How to calculate your manual invoice processing cost

Incredibly, only 22% of companies have fully-automated AP solutions. Levvel Research estimates that manually processing a single invoice can cost up to $15. This explains the commonly-overheard AP department joke: “it costs more than $12 to process an invoice worth $12.”

Do you know how much your manual invoice process is costing you? Here’s how you can figure it out.

A generic estimation

generic estimation

Some organizations use a commonly-accepted estimate that the cost of processing a single invoice is equivalent to 30 minutes of employee labor. This provides a range of US$12 to US$35 per invoice, depending on your location and what you pay for labor. Unfortunately, that’s a pretty generic estimate, not to mention a broad range. If you want to really know how much you’re spending on manual invoice processing, you’ll need to dig a bit deeper.

A detailed calculation

In order to accurately calculate your manual invoice processing costs, you’ll want to include:

  • Tactical costs
  • Abstract costs
  • Hidden costs
Tactical costs

Calculate how much time and money your team is spending on each of these tasks. For help with this calculation, you can also check out Quadient Accounts Payable Automation by Beanworks ROI calculator:

Purchase orders

  • Creating requisitions
  • Routing POs for approval
  • Submitting to vendors
  • Data entry
  • Matching to invoices

Invoices

  • Receiving invoices
  • Invoice approval routing and follow-up
  • Data entry
  • Filing & storage

Payments

  • Creating aged payables lists
  • Deciding what to pay
  • Matching invoices to checks
  • Submitting to signing authorities
  • Collecting documentation
  • Check stuffing
  • Reconciliation

The total of all of these amounts gives you your total tactical cost. Next up, you need to add in your abstract costs.

Abstract costs

Abstract costs include things like infrastructure, supplies, vendor relationships, and transaction fees. You might be surprised how much they contribute to your grand total. For example:

Infrastructure: Take the annual cost of each tool used for manual invoice processing — such as your ERP — and break it down into a monthly cost.

Supplies: Add up the monthly cost of supplies such as ink, paper, envelopes, and stamps. 

Vendor discounts: The Institute of Finance and Management (IOFM) estimates that 65% of vendors offer early payment discounts to their customers, and the average discount is around 2%. If you’re missing out on these discounts because of manual invoice processing, you should add that cost to your total estimate.

Transaction fees: Include any bank charges from things like ACH and credit card transactions.

Once you have all the information for these abstract costs, add them to the totals you calculated for the tactical costs. Are you surprised by the amount so far? Wait — we’re not done yet. Next up are your hidden costs.

Hidden costs

Although much more difficult to calculate, you should also consider hidden costs when determining your manual invoice processing costs. 

For example: 

Human error: Human errors add to the cost of invoice processing, leading to delays, the loss of early payment discounts, and extra time (labor costs) spent on reconciliation.

Slow communication and delays: Invoices can sit, waiting for approval, on managers’ desks or inside inboxes for days if not weeks. This time could be better spent working on high-value tasks instead of chasing approvals, and these delays also increase stress during audits — potentially leading to employee burnout and high turnover.

Fraud: The higher the reliance on manual processes within your accounting department, the greater the chance of payment fraud going undetected. In 2018, organizations experienced more than $7 billion in losses due to fraud worldwide, and studies show that businesses lose 5% of their revenue to fraud every year.

Adding it up

Once you add your tactical, abstract, and hidden costs together, you’ll have a clear picture of how much you’re spending to manually process your invoices. Don’t worry — you’re not alone if you feel shocked by the total! 

Here’s the good news: now that you’re armed with this information, you’re ready to take the first steps towards reducing this cost with an AP automation solution. 

How automation helps

An AP automation solution like Quadient AP captures, routes, codes, requests approvals, and pays invoices quickly, easily, accurately, and efficiently. The risk of human errors, fraud, and late payments is mitigated, and the cost to process a single invoice is significantly reduced. 

In fact, organizations that use AP automation save 60-80% over manual invoice processing with an average cost per invoice of $5 or less. That’s a savings of $13 per invoice. For companies processing 500 invoices per month, that’s an annual savings of $78,000! 

Here’s how AP automation helps:

  • 83% reduction in data entry: your team can spend time on higher-value tasks instead of manual data entry.
     
  • 99% accuracy rate: automated invoice entry helps your team reduce the scope of human error and saves countless hours on reconciliation.
     
  • Improved visibility and approvals: get custom approval workflows, automated email reminders, and regular reporting — making it easier to track where an invoice is being held and how long it’s been there.
     
  • Real-time access: accounting teams can look up invoice status in real-time, eliminating lengthy invoice processing times and late payments while opening up opportunities for early payment discounts.
     
  • Digital invoice storage and global search capabilities: store an image of each invoice in your automated solution and find what you need quickly and easily with global filtering and searching functions, making internal and external auditing more efficient.
     
  • Reduced risk of internal fraud: enable controls and workflows that separate duties and increase visibility of the invoice process, reducing the risk and opportunity for fraud.

Taken together, all these factors significantly reduce the time and resources spent processing invoices. If you want to see exactly how all of these savings can impact your organization, you can calculate your potential savings with this ROI calculator.

 

2023 and Beyond AP Guide