By Ray Emirzian, Vice President of Operations & Product Management, docSTAR
Have you made any resolutions for your business? Perhaps regional recognition as a best place to work or a plan to improve your company’s social pulse? Like many organizations, topping the list is fiscal prudence and improving corporate profitability. Since these resolutions are usually related to spending less and saving more, it’s important to first understand how your business is spending or allocating resources. A common business process that is generally labor intensive is accounts payable (AP) invoice processing.
According to a 2013 Aberdeen Group study, the industry average invoice cost is $9.60. This study also shows that it takes an average of 8.8 days to process an invoice from receipt through approval for payment, creating a 42.7 percent capture rate for early payment discounts.
There are two ways to calculate how much it costs to process an invoice at your company. The top down approach takes into account the total costs of AP function, such as staff salaries, software licenses, and other technology costs, divided by the number of invoices processed over a given time period (invoices processed per month).
Image Credit: Aberdeen Group
As seen in the image, the top down approach aims to capture the cost of supporting the full invoice volume of the organization. The information needed is easy to access, and it’s a great way to monitor the effect of wide-scale changes; however, since it’s a high-level measure it’s not useful in identifying bottlenecks in the invoicing and payment processes.
The bottom up approach looks at the time required for each stage of the process, multiplied by the hourly rate for the staff to complete each task. For example, data entry time multiplied by the entry clerk hourly rate, added to invoice/PO/contract comparison time multiplied by the AP clerk hourly rate, etc.
Image Credit: Aberdeen Group
With the bottom up approach, you are able to find bottlenecks and gauge the success of process-related changes, but the data is usually difficult to find, and it doesn’t take fixed costs into account.
The key to achieving your money saving resolution is to have a firm understanding of how much an invoice costs and why it costs so much. From there, you can make strategic plans and implement the needed tools for a successful year!
Ray Emirzian is Vice President of Operations & Product Management at docSTAR, a B2B software firm specializing in cloud document management software and business process automation. He has more than two decades of experience in business process analysis, business process automation, and business consultation working with industry-leading organizations including NCR, Canon USA, and AuthentiDate Holding Corporation. Emirzian offers innovative perspectives on streamlining business for improved efficiency and productivity with emphasis on Accounts Payable Solutions. You can follow him and the docSTAR team on Twitter, @docSTARsoftware.