| Cover Story |
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World Without Invoices: Problem or Panacea?
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| Featured |
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Benchmarking: Processing costs
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Bouncing checks? Beware
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Special section: AP automation dilemma
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Special section: As demand rises, so do invoice processing solutions
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Special section: Financial supply chain automation - Coming of age?
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Special section: Hot ticket - Receivables auction site
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Special section: Purchasing cards 2.0 - Visibility, control, security
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Special section: Technology and expertise drive outsourcing
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Special section: When is automation not the answer?
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Technology Buyers Guide 2010: Special Advertising Supplement
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Professional Profile
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Reality AP
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Tax Advisory
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AR automation paves the way for paperless processing
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White paper: Cutting costs by cutting out invoices
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Benchmarking: Processing costs
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What gets counted varies as much as costs themselves
In spite of the adage, “What gets measured gets done,” when it comes to processing costs in the accounts payable department, about half of all commercial enterprises have not measured their processing costs, even periodically. This means many organizations are unaware of their processing efficiencies and may be missing out on opportunities to improve their AP department operations.
Impact of technology on processing costs
The IAPP 2008 Benchmarking Survey showed that processing costs varied significantly by type of invoice and the way it was delivered to the organization. The variation in the average cost to process a paper invoice and an electronic invoice shows that AP departments can reduce their processing costs significantly by making the switch from paper to electronic.
• Paper invoices, whether they must be matched to a purchase order or otherwise approved are, at $5.40, roughly twice as expensive to process as their electronic counterparts.
• On the other hand, electronic invoices that are received via EDI or a portal and did not need any manual data entry cost only $2.67 to process.
• When it came to processing travel and entertainment vouchers, electronic expense reports cost an average of $2.64 to process, while the cost for paper vouchers was almost 50 percent higher at $3.86.
It was interesting to note that the survey did not show any variation in processing costs by company size. While a similar survey in 2004 showed that better access to technology enabled larger companies to streamline their AP processes and dramatically drive down the cost of processing, this year’s survey did not reveal any significant differences across the range of organization size. One reason for this could be that the evolution of hosted and software-as-a-service (SaaS) models for technologies has succeeded in putting automation at the fingertips of even the smallest of companies.
Calculating invoice processing costs
A number of factors contribute to the cost of processing an invoice. Most of these will accrue directly to the AP department, but other costs will occur in the mailroom, information technology, and as part of general overhead. Five cost components are critical:
1. Salaries and benefits. In addition to AP, IT support and mailroom processing need to be included.
2. Check printing and postage. The cost of the paper stock used for checks as well as printer supplies need to be included along with postage. If remittances are processed electronically, there will still be bank charges.
3. Hardware and software. Depreciation on servers and printers along with software licensing fees can be significant. In addition, IT support and programming activities need to be included.
4. Storage costs. Maintaining either physical or electronic records will incur costs.
5. Facilities. The AP staff, physical records, blank check stock, and hardware all occupy office space that comes with associated overhead costs.
Surprisingly, most organizations do not include all these elements in their calculations of processing costs. In fact, only 75 percent include salaries and benefits and slightly fewer than half factor in check printing and postage, a very significant element. Hardware and software, storage costs, and facilities are considered by fewer than a third of the organizations that measure their invoice and T&E processing costs.
Organizations that measure processing costs but do not account for all the cost elements are not getting a complete picture. Admittedly, some costs may stay the same with paper and manual processing as in a largely electronic environment. Nonetheless, from a benchmarking perspective, it is important to be as comprehensive as possible.
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