CloudX Blog

The Real Costs of Not Transforming Transactional Document Processing

Posted by Chris Cosgrove

Apr 30, 2015 3:23:34 PM

DSCF4077 

 There's better things in the world to do than be bogged down under your paper process

 

They say nothing in the world is free, and I couldn’t agree more (with the exception of salvation, but I’ll leave the theological / philosophical discussion to other folks).  With respect to bringing in automation technologies and revamping manual processes, there certainly are no ways to go about improving without investing some resources into an initiative.  Sadly, there are so many upsides to modernizing static processes like AP invoice processing, AR remittance processing, check payments, and sales order processing, that it is something of a sin to leave them in the antiquated state that many companies do.  So beyond the investments required to transform a process, there are definite costs to not doing so and that’s what we want to deal with today.

 

 

Here we go:

 

Opportunity Cost

 

For many folks struggling with burdened, inefficient processes (the Accounts Payable process is a prime example), there are costs to that inefficiency. In some scenarios, particularly in invoice processing, there is an opportunity cost to invoices that are simply paid by their due date or worse, paid late.  The way this fleshes is out is via late payment fees in the worst case scenario. That is a penalty for the due date target being missed and results in a negative fiscal impact to the payee. However, though more benign, it is nonetheless equally true that early payment discounts on invoices are missed through inefficiency.  This means a potential financial gain to the payee is lost. 

 

In the space of check payments, there are massive opportunity costs for not pursuing more advanced methodologies for payment.  In the case of virtual payments, it’s difficult to argue with the compelling force that is the rebate stream they generate.  Whereas checks cost money to produce, send, and necessitate a longer period to deliver, receive, process, and clear, virtual payments are instant, and provide far greater security measures than that of checks.

 

Processing Costs

 

An area most Accounting and Operations leaders will be familiar with are the latent processing costs to advance a transaction. The calculation for processing costs is different in every process, but it is essentially a function of simple math by summing up the labor efforts associated with the process, along with the technology that supports the process, and then factoring in miscellaneous costs involved in transmitting documents.  Miscellaneous costs can include things like postage, the cost to print a document, courier costs or others.  The reality is that until and unless a process is modernized, you are stuck with higher than necessary costs, especially in the processing department.

 

Process Risks

 

Other areas for consideration that should be considered a cost are the risks associated with how a process is performed. In the case of a manual, paper-based process there are many factors to consider.  For starters, manual processes are virtually always slower and more error prone than digitized process.  By virtue of the fact that data is not passed along electronically, there is a requisite element of data entry that needs to happen to integrate data into disconnected systems.  With this effort comes human error.  Additionally, because manual processes are less visible, it is harder to get accurate reporting out of these processes.  This creates two difficulties; a. process administration from a key performance indicator standpoint, and b. massively diminished ability to curb payment errors or protocols to detect fraud on a dynamic basis.  Both of these are areas that can be improved through automation.

 

 Human Costs

 

Another area that is not something that is readily considered in most cases,  is the quality of the work that is done.  Not so much from a data throughput standpoint, but rather from the perspective of the labor staff that is responsible for the document processing. In most cases there is nascent understanding that most processes are ripe for improvement.  The net result of improvement in these areas is that the mundane and joyless task that is data entry and document processing is replaced by more valuable, analytically driven or socially rich experiences (vendor support and interaction) than in a manual processing environment. The reason being is that in a manual state, there is simply not enough time to get around to higher order items involving the process, when just ‘surviving the process’ so to speak is so cumbersome as to preclude other pursuits.  In turn, this means that the job function associated with these processes can be enriched through a more valuable work experience.

 

There’s a lot more to be said about document processing costs, and we get down and dirty on that subject in this eBook, which you might find cool  However, for oddball processes, sometimes it’s helpful to lay the cards on the table and have an outright discussion and consult with folks who have actually looked at hundreds and thousands of them to get insight as to the best way to achieve transformation.  We welcome you to do that here.

 Now get on with transorming your document processes so you can get out there and enjoy your life a little more!

Free eBook on Unlocking Profit From Transactional Document Processes!

Read More

Topics: Accounts Payable Process, invoice costs, document processing,

Accounts Payable Automation Facts: How much does it cost to process an invoice?

Posted by Chris Cosgrove

Jul 19, 2013 11:07:00 AM

Just like in counting the vote, counting invoice processing costs before and after Accounts Payable automation matters!

 Numbers are a big deal...

 

As we’ve 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 today’s 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 it’s 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.  We’ve 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!

Read More

Topics: Accounts Payable Automation, Invoice Processing, ap automation, invoice costs

Subscribe to Email Updates

Posts by Topic

see all