The True Cost of AP
Running an analysis to determine how much AP costs is no easy task. Of course you have your AP staff cost, materials cost, but there are also many other “soft” costs associated with managing the entire process. Do you take into account the time spent by managers to approve things? How about the amount of time your AP staff spends simply trying to manage the process? Are you able to pay your bills on time? How much did your company pay in late fees last year? This article is designed to help you take a better look at these costs, and to find ways to shrink your total expenditure.
IOMA estimates that every bill you pay is incurring somewhere between $5 and $26 in processing cost. Lets break these numbers down to help make some sense out of them.
Standard Process Cost
Data Entry- $1.50
Data entry is something that many companies accept as a fixed cost of doing business. As technology advances Optical Character Recognition (OCR) can greatly reduce (if not eliminate) the cost of data entry. If it takes your AP account a minute to prep an invoice, 2 minutes to key in data, and 2 minutes to then file an pull the next invoice you’re looking at nearly 5 minutes to enter a single invoice. Estimating a fully burdened cost of labor at 30 dollars per hour (conservatively) costs approach $1.50 just to key in a single document.
Process Costs- $2 per approval
The cost to approve invoices is something that many overlook in their cost analyses, and there are many parts of that process to take into consideration. The first is that your AP staff has to somehow get the document to the correct person for approval. This cost (while difficult to calculate on a per invoice basis) is reflected in the amount of AP staff you need to stay on top of your bills. Once delivered to the correct approver, the approver then has to either manually approve on paper, or approve by a manual email process, every invoice that comes across their plate. These approvers vary from department managers to CEOs, and can quickly cost a company time and money. If a department manager can approve 30 invoices an hour(at a rate of $40 fully burdened cost of labor per hour), they are incurring $1.33 dollars worth of expense on every document they approve. This number can increase drastically when a CFO or CEO is involved in the process. It’s safe to see if you have any high level approvers in the process you’ll be pushing $2 for every invoice requiring approval. If there are 3 approvers in the process, the total cost inflates to $6 per invoice quite quickly.
Material Costs- $0.10
It may seem crazy to print invoices that were received by email but many companies still make that their standard operating procedure. Without a proper system to manage emailed approvals, printing invoices is certainly cheaper than forgetting to pay several bills per month. With a cost per page at 5 cents, and an average of 2 pages per invoices, you’re adding another $0.10 per invoice simply to turn it into paper, or reprint for approval. If you have to ship invoices using Fedex (or any other standard shipping service) for approvals your costs can inflate quickly towards another additional $3 per invoice.
Storage- $150 per month (starter package)
Invoice storage can also add additional cost to your AP process. Maintaining records of all bills is required for many audits, and storing them electronically is often to difficult for most companies to manage. Offsite storage companies incur additional costs. Storing them locally takes up valuable space and puts you at risk of losing those records. These costs can vary wildly but a starter plan for offsite data storage is roughly $150 per month and up. Dividing this by the number of monthly invoices can fairly easily provide a per document estimate.
Error Rates/Late Payments- $0.00 - $200 per
Error Rates and Late Payments are the wildcard of cost analysis. They can be negligible or huge depending on the error made and the policy of the vendor you’re working with. This aspect of AP cost is difficult to place a number on, but looking into your monthly late feels will certainly leave a dent on your monthly AP cost.
As we so with the industry standard estimate from IOMA, invoice process can vary from $5 on the low end, and easily inflate to over $20 on the upper end. So as a CFO/Business Owner/Vested Party, what do you do about this? Enliven Software offers ePayables as a way to drive down the cost of doing business for mid-level to large companies. Here is a similar breakdown of cost and how we can help.
Cost using ePaybles
Data Entry- $0.64
ePayables offers OCR service for 64 cents per document. This will capture all relevant data and turn it into a format compatible with your ERP system. This alone can save you over 50% on your processing costs for data entry.
Process Cost- >$0.20 per approval
We make approvals easy and make it so your AP accountants don’t have to manually manage the process (allowing you to grow without adding more staff). All invoices are approved through an easy-to-use web portal, making approvals take only a few seconds.
Storage Cost- $0.00
ePayables stores all your documents for free. They are stored for 7 years, and you will always have audit access to the original PDFs as needed as well as have the option to save the electronic versions locally.
Error Rate/Late Payments- Greatly reduced
ePayables can help eliminate errors and late payments completely. AP staff can manage the entire approval process to make sure everything is flowing smoothly, and has simple and fast final approval on all invoices before they hit your ERP system. Aside from visibility, ePayables gives approvers the ability to approve invoices from virtuallyanywhere. As long as they have a web connection, approvers will be able to view and approve invoices in a timely manner. No more missed payments simply because someone “forgot” to make their approval.
Do your own ePayables ROI analysis. Simply enter estimate for volume and use either industry standard estimates for costs, or feel free to enter your own. With ePayables packages starting at $199 per month with everything included, you’ll save money in the very first month you try us out.