Let’s face it, profit and loss are vital parts of a business. There are times when you sign a deal that gets you huge profits and there are also times when a negotiation goes wrong. As a successful business owner, your efforts are always to minimize losses using effective measures and grabbing opportunities.
One measure is to cut costs where possible because “a penny saved is a penny earned.” That’s when you step inside your accounting department, manage your finances, and execute billings. Careful observation has shown how account payable is one area that costs companies tons of returns every year. Inefficient and manual tasks like invoice processing often lead to approval delays, errors, late payments, and the most significant issue of high costs.
Damage to Business
Due to a lack of proper solutions, these issues are considered an unavoidable part of running a business. But it doesn’t have to be this way. Automating AR is one effective way to reduce unnecessary spending and to break free from manual processing. A 2020 survey by EY, UK, concluded that 41% of the participants agreed that any form of investment in automation is vital to keep business afloat.
Why is it Vital to Monitor Invoice Processing Costs?
Manual processing makes up 90% of all invoices generated around the world. But due to lengthy paperwork for overburdened staff and use out-of-date tech, invoice processing turns into a slow and tedious job. It eventually hampers the overall growth of the company and slowly eats away chunks of profits earned. As losses occur not only in monetary form but also in time and productivity, they are hard to retrieve. The damages are far worse if there are approval delays or invoice exceptions. Thus, it is essential to evaluate the cost of invoice processing.
Levvel Research, a research firm, found out that a single, manual invoice processing costs a company an average of up to $15. Companies that have introduced some automatic invoicing like AR automation system have witnessed savings between 60% -80%. They agree that automated AR has brought invoice processing cost down to $5 from what they spent in manual processing.
Manual invoicing and its impact on business
Manual invoicing affects your business through:
- Direct Costs: Manual processing requires a pen, paper, postal attachments, etc., to make a complete invoice. Apart from that, both accounts receivable (AR) and accounts payable (AP) paper invoices must be stored at a secure location for reporting and auditing. Such storage adds additional cost to the budget.
- Human Errors: Mistake in filling the correct items, manual key-in errors, lack of data – there is a big roam for error in manual invoice processing. Such errors only add to the final expenditure, and correcting them causes loss of time and energy.
- Communication Gap: Manual working often leads to slow and distant communication. The problem is even more significant if your team is working from a remote location. There is time lost in getting approvals, and such gaps during audits lead to unwelcomed stress.
- Susceptible to Fraud: Due to inefficiency in making and auditing the paper invoice, put a business at risk of AR fraud. There are too many gaps for such scams to slip away under the radar and can prove devastating.
How can you Calculate your Invoice Processing Cost?
To calculate the exact cost of your manual invoice processing, you need to evaluate:
- Amount of time spent in invoice processing.
- Amount of time spent in invoice reviewing.
- Amount of time devoted to finding and correct errors
- Cost of storage of paperwork
- Amount of time spent by the team to prepare invoices.
- Any losses due to communication gaps, errors in the file, etc.
So, once you have calculated all these points, divide it with the total number of processed invoices, and you will get an average cost you spent on manual invoice processing.
How does Automating your Invoice Processing Boost your Profitability?
Automating your invoice processing is a significant step to reduce and remove redundancies.
- More considerable savings per invoice: Levvel Research concluded that AR automation could help a business save an average of $13 per invoice.
- Less time in data entry: With automation, your team can spend more time on the valuable task at hand.
- Open approval channels: Automation allows quick invoice process and smooth approval workflow. It provides checking invoice status in real-time and more seamless tracking.
- Quick access to data: Using automation in the mainframe, your team and the administration can access any invoice in real-time and advise any changes.
- Heightened accuracy: With proper automation, there will be no human error in invoice processing. It means you save countless hours spent in finding and correcting mistakes in the report.
When you understand the unnecessary expenditure in your business, it helps you create efficient ways to counter them. And automating AR is one way to do so. The countless benefits it offers are on par with any argument to defend manual processing.