Reducing cost per invoice is key to a lower cost AP operation
Reducing the cost per invoice in an accounts payable (AP) operation is essential for businesses looking to streamline their operations, reduce costs, and improve their bottom line. But first let’s define how cost per invoice is determined:
Cost per invoice = (Total personnel costs + Total overhead costs + Total technology costs + Other costs) / Total number of invoices processed
Considering the cost per invoice in your AP operation, here are some of the key elements on how to reduce the cost per invoice and add to your companies bottom line:
- Automate invoice processing: Automating the accounts payable process can significantly reduce the cost per invoice by minimizing manual intervention, reducing errors, and increasing efficiency. Use an automated accounts payable system that can capture invoices electronically, match invoices to purchase orders, and route them through a workflow for approval.
- Implement a purchase order system: Implementing a purchase order system can help prevent over-billing and eliminate duplicate payments. This can reduce the number of invoices processed, thereby reducing the cost per invoice.
- Negotiate vendor terms: Negotiating favorable vendor terms, such as discounts for early payment or bulk purchases, can reduce the cost per invoice by lowering the invoice amount. Also, when paying invoices use a best-of-terms calculations that compares contract price, PO price and invoice price and pay based on the lowest of the three.
- Use electronic payment methods: Electronic payment methods, such as ACH transfers or credit card payments, can reduce the cost per invoice by eliminating paper checks and associated mailing costs.
- Consolidate vendors: Consolidating vendors can reduce the total number of invoices processed and the associated administrative costs, such as vendor setup and maintenance.
- Use a cloud-based accounts payable solution: Cloud-based accounts payable solutions can offer cost savings in terms of hardware, software, and maintenance costs. This can also enable remote access and processing as well as a reduced the need for on-site IT support.
- Capture discounts: Capturing discounts can lower your invoice costs but will require an efficient AP process so that the invoice is processed for payment in time to earn the discount. Programs like dynamic discounting or supply chain finance can also be very effective drivers of lowering your overall invoice cost.
- Utilize Vendor Portals: Using vendor or supplier portals can assist you in lowering invoice costs by reducing the time and cost of vendor related research and greatly reducing or eliminating emails and phone calls from vendors. A vendor portal also enables the receipt invoices electronically allowing the use of PO flip to create a touch-less process.
- Conduct regular audits: Conducting regular audits can help identify discrepancies and errors in the accounts payable process. This can prevent over-payments, duplicate payments, fraud, and other costly mistakes that can increase the cost per invoice.
Overall, reducing the cost per invoice in an accounts payable operation requires a combination of process improvements, AP automation, and vendor management. By implementing these strategies through a collaboration between AP, Procurement and Finance, businesses can reduce costs, improve efficiency, and increase profitability. In these challenging economic times it may pay dividends to take a fresh look at your cost per invoice and and determine if it can be lowered using some of the strategies discussed above.
To learn more about how to lower your cost per invoice, or for a demonstration of cloud-hosted AP automation solutions please contact ICG. You can also take a moment to watch this brief video to learn more.