Invoice processing is one of the most important things your Accounts Payable department does in their day-to-day to keep your company running. So, how long does it take? and, how long should it take?
The truth is, most companies are processing invoices manually, or mostly manually. Manual processing requires a lot of human involvement and multiple touchpoints. Because of this, the transaction cycle and process of paying an invoice can take weeks when it actually shouldn’t take any longer than a day or two to complete. The average small-to-mid-sized company takes about 25 days to process a single invoice manually from receipt to payment. That means more late payments, high processing costs, missed pre-payment discounts, and many more issues.
AP automation software can greatly improve invoice processing times with more efficiency, streamlined processes, and better workflows.
If you're interested in finding your own cost to process an invoice, along with a valuable analysis of your entire procure-to-pay value chain:
Using AP automation to process invoices
Most companies have a similar process for receiving, processing, and paying invoices. Regardless of their current setup, accounts payable automation software can dramatically improve invoice processing time, reduce costs and errors, and ensure that you avoid late fees and capture more pre-payment discounts.
Ardent Partners reports that times vary according to organizational size and type, but AP automation software can reduce invoice processing time down to about 3-5 days from receipt to payment.
How does it work? AP Automation significantly reduces the time it takes to move invoices through this process by digitizing and automating the repetitive manual tasks that must be completed to process each invoice individually. The best AP Automation solutions use machine learning to constantly improve their recognition of invoices and the data they contain, getting faster with each invoice they process. Plus, they leverage deep integration into the user's ERP to match invoices to POs, automate coding, post back to ERP, route to the appropriate approvers, and much more.
In general, most invoices travel the same path:
- Vendor/supplier sends the invoice
- Received and processed by Accounts Payable or staff in charge of invoice processing
- Approval by staff and/or upper management (if necessary)
- Sent to Accounts Payable for final vendor payment (and reconciliation with the general ledger)
Setbacks at any stage in this process can be costly, strain relationships with suppliers/vendors, cause you to miss out on early payment discounts, tie up in AP teams in repetitive tasks rather than value-added tasks.
Cost to process an invoice
In addition to the time it takes to process an invoice, the cost to process a single invoice is another key performance indicator (KPI) businesses should be tracking.
The State of ePayables in 2019 report by Ardent Partners said that an all-inclusive AP benchmark cost to process a single invoice is slightly over $10, while various experts have found that processing paper invoices can range anywhere from $12-$30.
When considering what it costs to process a single invoice, it’s important to include your staffing and storage costs, as well as late fees, errors, and missed early payment discounts.
Benefits of AP automation software
AP automation software solutions replace paper-based and manual workflows to increase efficiency and invoice processing time. They allow most AP departments to process their invoices in about 3-5 days, which is more than 50% time savings compared to the few weeks it can take with a manual process.
- More centralized AP department. Automation software allows your AP department to have all the necessary information stored in a central database. With organized data, they can automatically generate reports in just a few clicks.
- Improved visibility. Manual AP processes lack clear visibility into how invoices travel, and tracking each one through the approval process can be difficult. Automation software makes it easy to see who is responsible for what, as well as how long it takes for an invoice to get approved from the moment it enters into your system.
- Reduce touchpoints of your AP process and eliminate errors. AP automation software eliminates all steps that are prone to human error so your staff can focus on value-added tasks.
- Cut your invoice processing time in half. Automation software can cut your invoice processing time in half and allow you to capture more early payment discounts. Pro Tip: Real-time integration to the ERP enables much faster processing time.
- Auto-route invoices to approvers where possible. In order for this to work, your solution needs to have the capability to automatically and reliably recognize the vendor.
- Eliminate extra routing. Most organizations route invoices back to accounts payable after an invoice has been approved. If the automation solution has real-time integration with the ERP, you can eliminate this touch because if there is a problem with the invoice, the integration will give the approver the feedback they need to correct it. Many organizations also have multiple levels of approvers for the same invoice, which can slow down the process. Invoice processing automation software can help eliminate this so early payment discount opportunities are not missed.
Identifying and eliminating inefficiencies in the procure-to-pay chain has become such an important opportunity for finance and accounting leaders lately. One of the most valuable pieces of information we can provide to our customers before they choose to do business with us is our ROI Calculator. We use some of your data to calculate the costs of your AP department and show you, in detail, where you can save money and how much by implementing AP Automation.