Numbers are a big deal...
As weve seen from recent election history in the United States, votes matter. More specifically, the accuracy of measuring votes matters quite a bit. Consider the debacle that ensued in the 2000 Presidential Election between George W. Bush and Al Gore. As many may recall, the voting process in the state of FL lead to a recount of certain ballots and the infamous butterfly chad that dictated who would be the ultimate winner. Now, on a more contemporary and Accounts Payable relevant issue, costs matter, and specifically invoice processing costs. We want to address in this post a common question from our customers and blog subscribers.
What is the cost of processing an invoice in todays market?
That largely depends on HOW you go about processing.
AP benchmark data from Aberdeen Group (2012) suggests that invoice processing costs range between $3.34 - $16.67 per invoice from receipt, through workflows, approvals, routing, and posting. For the best in class organizations, or those who have invested significantly into Accounts Payable automation systems, and what they have determined to be the top 20% of their respondents (aka the market), the processing cost per invoice is $3.34. Achieving low process costs is also predicated upon centralization of the processing function along with tight controls and extensive collaboration between Procurement and Payables departments.
For the next tier of respondents, and nearly 50% of their encompassing survey, the processing cost averages around $6.29. Some of these organizations may have deployed some levels of Accounts Payable automation, and from our experience its typically oriented around electronic imaging. In most cases this imaging does not integrated a full-blown OCR(Optical Character Recognition) module, but instead relies upon manual indexing at the end of the process. To be sure, these types of organizations have better internal controls of their requisition processes than the last group but still have quite a bit of room for improvement.
The bottom 30% of respondents have ballooning processing costs, averaging $16.87 per invoice and little to no Accounts Payable automation technologies in place. Weve seen egregious examples of wasted costs associated with invoice processing to include redundant data entry steps, decentralized processing, entirely manual invoice routing including expensive express couriers, and nightmarish storage and retrieval scenarious.
What should invoice processing look like from a transactional cost perspective?
Much has been touted about SaaS or cloud-based Accounts Payable automation and with good reason. For starters, invoice processing costs from these types of providers can range from as low as $.50 -$2.00 per transaction but what determines the costing associated with the service?
The following components can affect the transactional cost to process an invoice:
-Scanning Is this being performed by a custodian or third party. Multi-page invoices can drive up processing costs, as most scan service providers will charge on a per page basis.
-Data Extraction If a provider is leveraging OCR, they may elect to only provide header level detail. While helpful on Non-PO based invoice transactions, much more information is necessary to truly automate PO based invoices to include extensive line item detail information. Service costs can vary quite a bit based upon the level of detail necessary. That being said, in almost all cases, automated data capture will be far more efficient via an OCR conversion process than through a human data entry service.
-Data Validation For exception handling whether at a post-OCR or invoice exception (business rule issue), someone will have to be auditing exceptions. In our DPO approach, we do not take responsibility for the AP function of processing invoices, but instead expedite the processing by ensuring that all data (character/syntax exceptions) are addressed prior to processing being completed.
-Routing Electronic workflow costs offer considerable advantage over manual paper based or even email routing. Also, workflow provides visibility to invoices in process and can greatly tighten accountability for Approvers and GL coders. Many companies have not deployed workflow solutions because software costs have been prohibitive, but transactional models have made this more palatable in recent years.
-Integration Data integration is a key component of effective Accounts Payable automation. With it in place, you enable reverse look ups to critical vendor, purchase, and tax data. By having it in place, automating 2 and 3 way matching becomes a reality greatly saving processing time and costs.
-Imaging & Storage Electronic document management capabilities are a lynch pin to any AP automation effort. Being able to search, retrieve, and collaborate on AP invoices and supporting documents is a charter tenet for any manager or executive pioneering improvements in this area, but how you archive and store images can greatly influence cost factors. Typically, many organizations will purchase servers and software licenses to accommodate their users in various roles. This tends to greatly increase the costs of an invoice process though great progress has been made by adopting a SaaS approach to this.
Other Invoice costs Certainly the other parties involved in AP throughout the day and year have stakes in how cost effective your process is. For example, Auditors who are assigned to review your AP process and information can take more time when they are dealing with a manual environment. Therefore an electronic system, can help decrease the number of billable hours and help you lower your audit costs. Similarly, by influencing your vendors to supply you with electronic formatted invoices (Tiff/PDF), you can greatly decrease your own processing costs by obviating the need for paper with the right set up.
There are many other processing cost factors that can contribute to streamlined or bloated metrics, but one thing is certain here at CloudX we are total advocates for cloud-based Accounts Payale automation as we believe it represents the best of both worlds for scalability and affordability, making automation a reality for companies that have previously never been able to enter the automation fray!