Average cost to process an invoice is a noun that refers to the average amount of money it costs to complete all the tasks associated with processing an invoice, including: receiving, reviewing, coding, approving, and posting the invoice. For instance, a study by the Institute of Finance and Management found that the average cost to process an invoice was $7 in 2016.
Knowing the average cost to process an invoice is important for businesses because it can help them identify opportunities to save money. By reducing the cost of invoice processing, businesses can free up cash flow that can be used for other purposes. One key historical development that has helped to reduce the cost of invoice processing is the advent of electronic invoicing (e-invoicing). E-invoicing eliminates many of the manual tasks associated with paper-based invoicing and can help companies to significantly reduce their invoice processing costs.
This article will discuss the various factors that affect the average cost to process an invoice and will provide tips on how to reduce the cost of invoice processing.
Average Cost to Process an Invoice
The average cost to process an invoice is a crucial metric for businesses to track, as it can significantly impact their bottom line. The essential aspects of invoice processing costs include:
- Staff costs: Salaries and benefits of employees involved in invoice processing.
- Technology costs: Hardware, software, and other technology used to process invoices.
- Outsourcing costs: Fees paid to third-party providers to process invoices.
- Postage costs: Costs associated with mailing invoices and related documents.
- Supplies costs: Costs of paper, envelopes, ink, and other supplies used in invoice processing.
- Overhead costs: Rent, utilities, and other overhead costs allocated to invoice processing.
- Invoice volume: The number of invoices processed per period.
- Invoice complexity: The level of complexity of invoices processed.
- Payment terms: The terms of payment specified on invoices.
- Process efficiency: The efficiency of the invoice processing workflow.
Understanding these aspects can help businesses identify opportunities to reduce invoice processing costs. For example, a business may be able to reduce staff costs by automating invoice processing tasks or outsourcing to a third-party provider. A business may also be able to reduce technology costs by negotiating better rates with vendors or by using open-source software. By taking steps to reduce invoice processing costs, businesses can improve their bottom line and free up cash flow for other purposes.
Staff costs
Staff costs are a significant component of the average cost to process an invoice. These costs include the salaries and benefits of employees who are involved in any aspect of invoice processing, from data entry to approval.
- Salaries: The salaries of employees who process invoices can vary depending on their experience, skill level, and location.
- Benefits: In addition to salaries, businesses also incur costs for employee benefits, such as health insurance, paid time off, and retirement contributions.
- Payroll taxes: Businesses are also responsible for paying payroll taxes on employee salaries and benefits.
- Training: Employees who process invoices may require training on new software or procedures.
By understanding the various components of staff costs, businesses can take steps to reduce the cost of invoice processing. For example, businesses may be able to negotiate lower salaries for new hires or reduce the number of employees who are involved in invoice processing. Additionally, businesses may be able to reduce the cost of employee benefits by offering a more limited benefits package or by negotiating lower rates with insurance providers.
Technology costs
Technology costs are a critical component of the average cost to process an invoice. These costs include the hardware, software, and other technology that is used to process invoices, such as computers, printers, scanners, and invoice processing software.
The type of technology that is used to process invoices can have a significant impact on the average cost to process an invoice. For example, businesses that use manual invoice processing methods, such as paper-based invoices and manual data entry, typically have higher invoice processing costs than businesses that use automated invoice processing methods, such as electronic invoicing (e-invoicing) and invoice processing software.
E-invoicing and invoice processing software can help businesses to reduce their invoice processing costs by automating many of the tasks that are associated with manual invoice processing. For example, e-invoicing can eliminate the need for businesses to print, mail, and store paper invoices. Invoice processing software can automate the tasks of data entry, invoice approval, and payment processing.
By understanding the connection between technology costs and the average cost to process an invoice, businesses can make informed decisions about how to invest in technology to reduce their invoice processing costs. For example, a business may decide to invest in e-invoicing software to eliminate the need for paper invoices and reduce postage costs. A business may also decide to invest in invoice processing software to automate data entry and invoice approval tasks.
Outsourcing costs
Outsourcing costs are a critical component of the average cost to process an invoice. These costs include the fees that businesses pay to third-party providers to process invoices. There are several reasons why businesses choose to outsource invoice processing. Some businesses do not have the in-house resources to process invoices efficiently. Other businesses may find that it is more cost-effective to outsource invoice processing to a third-party provider.
Many different third-party providers offer invoice processing services. These providers can range from small, local businesses to large, multinational corporations. The fees that third-party providers charge for invoice processing services can vary depending on the provider’s size, location, and the services that are provided.
When choosing a third-party provider to process invoices, it is important to consider the provider’s fees, experience, and reputation. It is also important to make sure that the provider has the capacity to handle the volume of invoices that your business processes.
Outsourcing invoice processing can be a cost-effective way to improve efficiency and reduce the average cost to process an invoice. However, it is important to carefully consider the fees, experience, and reputation of potential providers before making a decision.
Postage costs
Postage costs are a significant component of the average cost to process an invoice. These costs include the cost of postage stamps, envelopes, and other materials used to mail invoices and related documents. Postage costs can vary depending on the weight and size of the invoice, the distance it is being mailed, and the type of postage used.
For businesses that mail a large volume of invoices, postage costs can be a significant expense. For example, a business that mails 10,000 invoices per year could spend over $10,000 on postage alone.
There are several ways to reduce postage costs. One way is to use electronic invoicing (e-invoicing). E-invoicing eliminates the need to print and mail paper invoices, which can save businesses money on postage costs. Another way to reduce postage costs is to use a postage meter. Postage meters can print postage directly onto envelopes, which can save businesses time and money.
By understanding the connection between postage costs and the average cost to process an invoice, businesses can make informed decisions about how to reduce their postage costs. For example, a business may decide to switch to e-invoicing or to use a postage meter to reduce its postage costs.
Supplies costs
Supplies costs are a critical component of the average cost to process an invoice. These costs include the cost of paper, envelopes, ink, and other supplies used to print, mail, and store invoices and related documents. Supplies costs can vary depending on the volume of invoices processed, the type of supplies used, and the frequency with which supplies are purchased.
For businesses that process a large volume of invoices, supplies costs can be a significant expense. For example, a business that processes 10,000 invoices per year could spend over $1,000 on supplies costs alone.
There are several ways to reduce supplies costs. One way is to use electronic invoicing (e-invoicing). E-invoicing eliminates the need to print and mail paper invoices, which can save businesses money on supplies costs. Another way to reduce supplies costs is to purchase supplies in bulk. Purchasing supplies in bulk can help businesses to get a lower price per unit.
By understanding the connection between supplies costs and the average cost to process an invoice, businesses can make informed decisions about how to reduce their supplies costs. For example, a business may decide to switch to e-invoicing or to purchase supplies in bulk to reduce its supplies costs.
Overhead costs
Overhead costs are a critical component of the average cost to process an invoice. These costs include rent, utilities, and other overhead costs that are allocated to invoice processing. Overhead costs can vary depending on the size of the business, the location of the business, and the type of business.
For example, a business that operates in a large office building will have higher overhead costs than a business that operates in a small office. Similarly, a business that is located in a major city will have higher overhead costs than a business that is located in a rural area.
It is important for businesses to understand the connection between overhead costs and the average cost to process an invoice. By understanding this connection, businesses can make informed decisions about how to reduce their overhead costs and, consequently, their average cost to process an invoice.
There are several ways to reduce overhead costs. One way is to negotiate lower rents with landlords. Another way is to reduce energy consumption by making simple changes to the way the business operates. For example, a business could turn off lights when they are not in use and could unplug electronics when they are not in use.
By reducing overhead costs, businesses can reduce their average cost to process an invoice. This can lead to significant savings over time.
Invoice volume
Invoice volume is a critical component of the average cost to process an invoice. The more invoices a business processes, the higher its average cost to process an invoice will be. This is because the fixed costs of invoice processing, such as staff salaries and overhead costs, are spread over a larger number of invoices. As a result, the average cost to process each invoice increases.
For example, a business that processes 10,000 invoices per year will have a higher average cost to process an invoice than a business that processes 1,000 invoices per year. This is because the fixed costs of invoice processing are the same for both businesses, but the business that processes 10,000 invoices per year has to spread these costs over a larger number of invoices.
Understanding the connection between invoice volume and the average cost to process an invoice can help businesses to make informed decisions about how to reduce their invoice processing costs. For example, a business may decide to reduce its invoice volume by automating its invoice processing tasks or by outsourcing its invoice processing to a third-party provider.
By reducing its invoice volume, a business can reduce its average cost to process an invoice and improve its bottom line.
Invoice complexity
Invoice complexity is a critical component of the average cost to process an invoice. The more complex an invoice is, the more time and effort it will take to process it. This can lead to higher labor costs, longer processing times, and a greater risk of errors.
- Number of line items: Invoices with a large number of line items are more complex and time-consuming to process than invoices with a small number of line items. This is because each line item must be entered into the accounting system separately.
- Type of line items: The type of line items on an invoice can also affect its complexity. For example, invoices with line items for products or services that are not commonly purchased may require additional research to determine the correct account codes.
- Discounts and taxes: Invoices that include discounts or taxes can be more complex to process than invoices that do not. This is because the discounts and taxes must be calculated and applied correctly.
- Foreign currency: Invoices that are denominated in a foreign currency can be more complex to process than invoices that are denominated in the local currency. This is because the exchange rate must be taken into account when processing the invoice.
Businesses can take steps to reduce the complexity of their invoices, which can lead to lower processing costs. For example, businesses can use templates to create invoices, which can help to ensure that all invoices are consistent and easy to understand. Businesses can also use software to automate the invoice processing process, which can help to reduce the risk of errors and improve efficiency.
Payment terms
Payment terms are an essential aspect of invoice processing, as they determine when and how an invoice is to be paid. The terms of payment can impact the average cost to process an invoice in several ways.
- Discount period: The discount period is the time frame during which a customer can take advantage of a discount for early payment. If a customer takes advantage of the discount, the business will receive less money for the invoice. This can lead to a lower average cost to process an invoice, as the business will not have to spend as much time chasing late payments.
- Due date: The due date is the date by which the invoice must be paid. If a customer does not pay the invoice by the due date, the business may have to spend additional time and effort collecting the payment. This can lead to a higher average cost to process an invoice.
- Payment method: The payment method specified on the invoice can also impact the average cost to process an invoice. For example, if a customer pays by check, the business will have to spend time and effort depositing the check and reconciling the payment. This can lead to a higher average cost to process an invoice than if the customer had paid by credit card or electronic funds transfer.
- Late payment fees: If a customer does not pay the invoice by the due date, the business may charge a late payment fee. This fee can help to offset the additional costs associated with collecting late payments, such as the cost of postage and phone calls.
By understanding the impact of payment terms on the average cost to process an invoice, businesses can make informed decisions about how to set their payment terms. For example, a business may decide to offer a discount for early payment to encourage customers to pay their invoices on time. A business may also decide to charge a late payment fee to discourage customers from paying their invoices late.
Process efficiency
Process efficiency is a critical component of the average cost to process an invoice. The more efficient the invoice processing workflow, the lower the average cost to process an invoice will be. There are many different ways to improve the efficiency of the invoice processing workflow, such as:
- Automation: Using software to automate tasks such as data entry, invoice approval, and payment processing can help to reduce the time and effort required to process invoices.
- Streamlining the workflow: Identifying and eliminating bottlenecks in the invoice processing workflow can help to speed up the process. For example, a business may be able to reduce the time it takes to process invoices by eliminating the need for manual approval.
- Centralizing the invoice processing function: Having a central team responsible for processing all invoices can help to improve efficiency and reduce the risk of errors.
- Training staff: Ensuring that staff is properly trained on the invoice processing procedures can help to improve efficiency and reduce the risk of errors.
By taking steps to improve the efficiency of the invoice processing workflow, businesses can reduce their average cost to process an invoice and improve their bottom line.
Frequently Asked Questions About Average Cost to Process an Invoice
This FAQ section provides answers to common questions about the average cost to process an invoice, including factors that affect it, strategies to reduce it, and its impact on business operations.
Question 1: What are the key factors that affect the average cost to process an invoice?
The average cost to process an invoice is influenced by various factors, including invoice volume, invoice complexity, payment terms, process efficiency, and the use of automation and technology.
Question 2: How can businesses reduce the average cost to process an invoice?
Businesses can reduce invoice processing costs by implementing strategies such as automating tasks, streamlining the workflow, centralizing the function, training staff, and leveraging technology solutions.
Question 3: What is the impact of invoice processing costs on business operations?
High invoice processing costs can impact cash flow, profitability, and overall operational efficiency. Reducing these costs can free up resources, improve financial performance, and enhance competitiveness.
Question 4: How does invoice volume affect the average cost to process an invoice?
As invoice volume increases, the average cost to process an invoice typically decreases due to economies of scale and the distribution of fixed costs over a larger number of invoices.
Question 5: What role does technology play in reducing invoice processing costs?
Technology, including automation software, electronic invoicing, and data capture tools, can significantly reduce invoice processing costs by eliminating manual tasks, improving accuracy, and speeding up the process.
Question 6: How can businesses measure and track the average cost to process an invoice?
Businesses can measure and track invoice processing costs by considering factors such as staff time, technology expenses, and overhead costs associated with the invoice processing function.
These FAQs provide essential insights into the concept of average cost to process an invoice, highlighting its key drivers, strategies for reduction, and the importance of efficient invoice processing for overall business performance.
In the next section, we will delve deeper into the benefits of reducing invoice processing costs and explore best practices for optimizing invoice processing operations.
Tips to Reduce the Average Cost to Process an Invoice
Implementing strategies to reduce the average cost to process an invoice can significantly benefit businesses. Here are some actionable tips to help you achieve this goal:
Tip 1: Automate Invoice Processing: Leverage technology solutions to automate tasks such as data entry, invoice approval, and payment processing. This can free up staff time and reduce the risk of errors.
Tip 2: Streamline Invoice Workflow: Analyze and optimize the invoice processing workflow to eliminate bottlenecks and redundancies. Consider implementing a centralized system or using workflow automation tools.
Tip 3: Centralize Invoice Processing: Establish a dedicated team or department responsible for handling all invoice processing tasks. This can improve efficiency, accountability, and control.
Tip 4: Train and Develop Staff: Provide comprehensive training to staff involved in invoice processing to ensure they are proficient in the latest processes and technologies.
Tip 5: Leverage Electronic Invoicing: Adopt electronic invoicing (e-invoicing) to reduce paper-based processes, postage costs, and manual data entry errors.
Tip 6: Negotiate Favorable Payment Terms: Negotiate favorable payment terms with suppliers, such as early payment discounts or extended payment periods, to optimize cash flow and reduce late payment fees.
Tip 7: Implement Self-Service Portals: Provide online self-service portals for suppliers to submit invoices electronically, track their payment status, and access relevant documents.
Tip 8: Regularly Review and Monitor: Continuously review and monitor invoice processing performance to identify areas for further improvement and cost reduction opportunities.
By implementing these tips, businesses can significantly reduce the average cost to process an invoice, enhance operational efficiency, and improve their overall financial performance.
In the concluding section of this article, we will discuss the broader implications of reducing invoice processing costs and its impact on business profitability and competitiveness.
Conclusion
Throughout this article, we have explored the concept of “average cost to process an invoice,” examining its key components, drivers, and strategies for reduction. By understanding and optimizing invoice processing operations, businesses can significantly improve their financial performance and gain a competitive edge.
In summary, reducing the average cost to process an invoice involves:
- Identifying and streamlining inefficient processes
- Leveraging technology and automation to reduce manual tasks
- Centralizing invoice processing functions for better control and efficiency
By implementing these strategies, businesses can free up valuable resources, improve cash flow, and enhance their overall profitability. Remember, optimizing invoice processing is an ongoing journey, and businesses must continuously review and refine their processes to maintain efficiency and drive continuous improvement.
