PROACTIS Blog

Have You Really Gotten the Cost of Accounts Payable as Low as Possible?

Charlotte Sutton
Charlotte Sutton,
PROACTIS
Financial executives in most larger organisations have been conscious for some time now that they have an area right within their own span of responsibility that represents an opportunity to help improve their company’s overall bottom line – Accounts Payable.
In many organisations, invoice processing is the single most paper-intensive, “high touch” manual activity remaining today.  Even organizations that have largely automated their front office, operational and supply chain functions often still process invoices in a very manual manner.

In their E-Payables Benchmark 2009 study, Aberdeen Group found that the industry average cost to process an invoice was $11.19.
  • “Laggard” companies (bottom 30%) had an average cost of $35.56
  • “Best-in-Class” companies (top 20%) had an average cost of just $3.53
The difference between Laggard and Best-in-Class companies is over $32.00 per invoice!  Multiply that by thousands of invoices, add the cost of missed opportunities for early payment discounts, and add the cost of AP FTEs required to answer supplier payment inquiries, and it’s easy to see that the direct cost of inefficient invoice processing is substantial.

If you have responsibility for the Accounts Payable (AP) function, you have no doubt already taken steps to streamline the process – possibly by implementing document scanning technology or by working with certain suppliers to institute electronic invoicing.  There is no question that paper invoice handling is the enemy of efficiency in the AP department.  Scanning invoices into a document management system can help, but by no means solves the entire problem.  Receiving invoices electronically helps more, but only if the rest of the process is set up to really use the information in an automated fashion.

Have you really taken a holistic view of AP and developed a serious strategy to reduce cost – and to do so while actually improving the value AP delivers to the rest of the company?  Have you clearly identified the other problems caused by the “mail latency”, “desk float” and “information chase” associated with manual invoice processing, like:
  • Management does not have visibility of outstanding liabilities
  • Invoices are beyond the discount period before they even enter the AP system
  • The potential for paying duplicate invoices increases as suppliers send second copies
  • The inclination to “just pay it” becomes greater when the validation process is too cumbersome
  • AP personnel end up spending a high percentage of their time answering inquiries from suppliers about payment status
  • Audits become long, costly and problematic
A well-thought-out approach to invoice processing automation can address all of those issues as well as reduce the cost of AP operations.

There are a couple of PROACTIS resources that can help you formulate a practical and effective strategy for improving your AP operations:

Accounts Payable: How to Cut Costs and Improve Invoice Processing Efficiency
15Minute Health Check: Accounts Payable 

Consider downloading them today…
 
 
 
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