Accounts Payable

The True Cost of Manually Processing Invoices

April 12, 2022

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Estimated Reading Time: 5 minutes

Even in the best of times, it is vital for organizations to keep a close eye on their operating costs. It’s even more important when the economy seems volatile.

That’s the situation that most businesses find themselves operating in today.

In a PYMNTS study of CFOs, it was found that 73% view economic uncertainty as a significant challenge for their organization.

To remain viable, companies must always be looking at ways to reduce costs while increasing profitability. While some expenses are obvious, others — such as the cost of processing an invoice — can be deceptive.

It’s helpful to look at the factors that influence the expense, and how automation reduces them.

cost to process an invoice

A simple equation… or is it?

Many people use a basic ratio to estimate how much it costs for their accounts payable team to process a single invoice. It’s considered equivalent to the cost of 30 minutes of labor from an employee. Using this measurement, the amount typically ranges between £12 and £35. Of course, that’s only a very rough estimate, and the range is quite significant, not giving you a particularly clear picture of the overall price tag.

To get a better idea, organizations can use an equation: the total cost of processing an invoice divided by the total number of invoices processed over a given period. Here’s where things start to get a little more complicated.

These are a few of the things you’ll need to know to get an accurate picture of what you’re actually spending.

  • Labor: Take the number of employees required to process a single invoice, come up with an hourly rate of pay for the workers as well as an estimate of how much time is spent on invoices each month. Multiply the numbers to get an idea of labor costs. This can be complicated if there is a large discrepancy between the hourly rate of each employee involved, and/or the amount of time invested. In that case, you’ll have to complete the equation for each employee, and then total the results to get your final number.
  • Infrastructure: Take the annual cost of each tool used for invoice processing — such as ERP — and break it down into a monthly cost. Then, calculate the sum total.
  • Supplies: Add up the monthly cost of supplies such as ink, paper, envelopes, and stamps. While these are typically smaller amounts, they quickly rack up when you are processing a significant number of invoices.
  • Transaction Fees: These are the bank charges you incur due to things like ACH and Credit Card transactions. Simply add them together.

Once you have completed the above, add up all the totals and divide them by your monthly invoices — now you have a rough idea of your outgoings.

But wait, there’s more!

While the data above can give you a baseline, it doesn’t cover the potential hidden costs involved. 

  • Human Error: Using manual processes is vulnerable to mistakes like incorrectly coded line items and manual key-in errors. Even the smallest issue can cause delays, potentially leading to fines or fees on an invoice and adding to the labor cost as team members must spend additional time fixing the problem.
  • Fraud: A lack of visibility and efficient audit solutions provided by automation also increases an organization’s risk of fraud.

71% of finance professionals in North America indicated that a lack of visibility left them open to fraud in payables. Just how costly is it? Studies show that businesses lose 5% of their revenue to it every year.

  • Communication Breakdowns: Without automation, delays can take place in the AP approval process with invoices languishing in inboxes or on desks. While team members spend time hunting down the correct managers to get sign-off, precious time is being wasted that could be spent on higher-value tasks. If these delays lead to late payments, they can also create interest charges or even cause a disruption in your supply chain if a vendor decides to suspend their relationship with your business.

While these threats may feel less tangible and harder to put a solid dollar amount on, they must still be considered as potential costs associated with manually processing an invoice.

Reduce AP cost

Stop throwing money away

Adopting an automation solution like Beanworks for the accounts payable process drastically reduces these costs. In fact, the expense drops to less than £5 per invoice, that’s a substantial amount when compared to the estimated £12-£35 seen as the typical price tag.

Beyond those hard costs, automation protects you from losing money due to wasted time, errors, and fraud. AP teams experience an 83% reduction in data entry. It also provides full visibility of the life of an invoice, from the moment it is received until it is paid. Because of this, the chance of documents getting lost in the shuffle becomes a thing of the past. The software allows you to create approval workflows that will send out reminders to the appropriate team member until the issue is resolved. It also eliminates the risk of manual errors, with a 99% accuracy rate.

The increased visibility also creates a clear audit trail, lowering the risk of fraud. It allows you to put controls in place, such as separating duties in the approval process, and ensures that the individual who approves payment is not the same person who is responsible for issuing it, decreasing the likelihood of internal fraud.

Taken altogether, these factors reduce the time and money that businesses expend on accounts payable.

To learn more about how automation can benefit your organization, check out “What AP Professionals Really Gain from Automation”, a Beanworks whitepaper.


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