Are you looking to reduce the overhead expenses of your business? One key area often overlooked is the cost of invoice processing.
It might surprise you, companies that automate their invoice processing can reduce their costs by up to 60-80%, according to a report by the American Productivity & Quality Center (APQC).
This variation largely depends on the level of automation and streamlining in their accounts payable processes. With such a wide range of potential costs, it's clear that there's significant room for optimization.
Businesses that take a strategic approach to manage their accounts payable processes can significantly reduce their cost per invoice.
In this blog, we delve into five proven strategies to reduce your cost per invoice. From embracing automation to refining vendor Payment Terms, each section provides actionable insights and practical tips.
Automation is the key to unlocking new levels of efficiency and cost savings within your accounts payable (AP) department. Ardent Partners' survey reveals a striking insight: 55% of AP professionals cite manual data entry and inefficient processes as their prime obstacles.
Automating the invoice processing workflow does more than just speed up the process; it completely changes the game.
Using financial automation tools that handle everything from data capture to payment authorization, businesses are able to cut down on human error, and significantly reduce the cost per invoice.
The biggest benefit of automation is how it simplifies time-consuming work. When you automate repetitive tasks such as entering data, checking it, and sending invoices where they need to go, your finance team can focus on bigger-picture tasks instead of getting stuck in paperwork.
This change not only makes the process faster but also cuts down on errors, which often happen with manual work and can be expensive to fix.
Automation tools use technologies like optical character recognition (OCR) to extract data from invoices, which is then matched to purchase orders and shipping receipts without any human intervention.
A tool like Constant, which utilizes such technology, can streamline this process, ensuring accurate data capture from invoices, thereby reducing the time spent on manual reviews.
Workflow automation in Constant ensures that invoices are routed correctly and efficiently through the approval process, notifying stakeholders at each step and providing a clear audit trail.
One of the most immediate impacts of automating your invoice processing is a drastic reduction in turnaround time.
This efficiency doesn't save cost; it also enhances your relationships with vendors. Faster processing leads to timely payments, which can open the door to early payment discounts and better terms – a win-win for both parties.
And, these companies see a reduction in the invoice cycle time by as much as 80%, allowing for more favorable payment terms with vendors and the opportunity for early payment discounts.
How quickly does your business turn around invoice approvals?
TreviPay reports that the optimal time frame from receiving an invoice to depositing funds into a customer's account ranges from three days to two weeks.
If your process falls outside of this range, you may be incurring unnecessary costs and inefficiencies. In a manual process, this duration can stretch even longer, bogging down your cash flow and operational agility.
The first step to streamlining is to identify where the bottlenecks are occurring. Are there too many approval layers?
Is there a lack of clarity on who should approve what?
Often, companies find that reducing the number of approvers and setting clear thresholds for approval amounts can dramatically speed up the process.
Effective invoice approval is pivotal for streamlined accounts payable operations. Implementing a tiered approval system is made more effective with Constant.
At level 1 stage, Constant's OCR extracts invoice data which is then reviewed by an AP executive for accuracy of the invoice, such as amounts, vendor details, and dates.
If the details align, the invoice is promptly moved to the next approval stage within Constant's platform.
For higher-value or complex invoices, Constant facilitates a more detailed Level 2 approval, typically involving senior management like CFOs or department heads.
They assess the invoice's alignment with budgetary and policy considerations, adding an extra layer of scrutiny and financial control.
This streamlined, tiered approach in Constant ensures that invoices receive the appropriate level of review efficiently, enhancing overall invoice processing speed and accuracy.
Organizations that optimize their approval workflows, as facilitated by tools like Constant, can see a significant reduction in their invoice processing costs, sometimes as much as 30%, as reported by Deloitte. This optimization also leads to stronger cash flow control and improved vendor relationships due to timely payments.
- Set clear approval limits to empower quick decision-making.
- Regularly train and update your team on the approval process.
- Integrate your approval workflow with your procurement and accounting systems for seamless operations.
- Monitor and review the process regularly to identify and address new bottlenecks.
Focusing on these areas lets your business turn the invoice approval process from a bottleneck into an efficiency driver.
With the foundation of automation and a streamlined approval process in place, the next logical step in reducing your invoice processing costs is optimizing your payment methods.
The way you handle payments can significantly impact the overall efficiency and cost-effectiveness of your accounts payable (AP) department.
Electronic payments, including ACH transfers, wire transfers, and virtual cards, are not just faster but also more secure and less costly than paper checks.
The Federal Reserve has noted that the cost of processing a paper check can be up to ten times more than an electronic transaction. By switching to electronic payments, businesses can avoid costs associated with printing, mailing, and handling checks.
Payment automation solutions can further streamline the payment process. These systems can schedule payments, manage transaction records, and even optimize the timing of payments to take advantage of early payment discounts offered by vendors.
Consolidating payments can also lead to cost reductions. Instead of processing multiple payments to the same vendor separately, consolidating them into a single transaction can save time and reduce transaction fees. This approach also simplifies reconciliation and record-keeping.
- Assess and choose the right mix of electronic payment methods to suit your business needs.
- Integrate your payment systems with your invoice processing tools for a seamless flow from invoice receipt to payment.
- Regularly review vendor payment terms to take advantage of any early payment discounts.
- Monitor payment processing costs and make adjustments as necessary to ensure cost-effectiveness.
Optimizing vendor payment terms can have a significant impact on your cash flow and overall cost efficiency.
Payment terms dictate the timeline for when payments should be made to vendors. Standard terms might range from immediate payment upon receipt of invoice to net 30, net 60, or even net 90 days.
By negotiating these terms, you can better align your outflows with your cash inflows, thus improving your cash position and reducing the need for short-term borrowing.
Negotiation is an art, especially when it comes to vendor payment terms. It’s about striking a balance between maintaining healthy supplier relationships and improving your business’s cash management.
Start by understanding the standard terms and consider if they align with your company's payment cycle.
Could extending the payment terms from 30 to 45 days improve your cash flow? Would shorter terms yield significant discounts that could offset the faster outlay of cash?
Developing a collaborative relationship with your vendors can lead to more favorable terms. Regular communication and reliable, on-time payments build trust and open the door to negotiations.
In some cases, vendors are willing to offer discounts for consistent early payments, bulk orders, or long-term contracts
Early payment discounts are a win-win for both parties; your business saves cost, and your vendor benefits from improved cash flow.
A 2/10 Net 30 discount, where you get a 2% discount for paying within 10 days on a 30-day invoice, is a common example. These discounts can accumulate to a substantial amount over time, directly impacting your bottom line.
- Conduct a thorough review of all current vendor payment terms.
- Engage in proactive negotiations with a data-driven approach, armed with your payment history and spend analysis.
- Incentivize early payments where possible to capitalize on discount opportunities.
- Regularly reassess terms based on your company’s changing needs and the economic landscape.
Strategically managing and optimizing your vendor payment terms can significantly reduce your invoice processing costs and enhance your business's cash flow.
In a global economy where businesses often engage with international vendors and customers, the complexity of handling diverse invoice formats can escalate costs and processing times.
Adopting a standardized global invoice template can streamline the invoicing process, ensure compliance across different tax jurisdictions, and reduce processing errors that lead to increased costs.
Each vendor may have its own invoice format, which can create inconsistencies and complicate the accounts payable process.
A standardized invoice template ensures that all invoices, regardless of their origin, follow the same format, making it easier for the AP team to process and approve payments. This uniformity can lead to a reduction in time spent on data entry and error resolution.
A standardized template simplifies the invoice management process by ensuring that all necessary information is presented in a clear and consistent manner.
This not only speeds up the approval and payment process but also facilitates easier auditing and reporting. For multinational companies, it also ensures that invoices comply with the varying tax laws and regulations of different countries.
A standardized template is particularly beneficial if you're using automated data capture technologies.
These technologies work best when they can easily recognize and extract data from a consistent format. By standardizing your invoices, you ensure that your automation tools can operate at peak efficiency, further reducing processing costs.
For businesses dealing with international vendors, a standardized global invoice template simplifies compliance with various international invoicing regulations and tax requirements. It ensures that all necessary details are included, regardless of the country of origin, thus avoiding delays or complications in processing.
When designing a standardized invoice template, certain key elements should be included such as:
- Vendor and customer details (name, address, contact information)
- Unique invoice number
- Date of issue and payment due date
- Detailed description of goods or services provided
- Unit costs and total cost
- Tax calculations, if applicable
- Payment terms and instructions
- Currency used for the transaction
As we've navigated through the strategic approaches to reducing invoice processing costs, the recurring theme has been efficiency.
Embracing these strategies means moving beyond the traditional, manual handling of invoices and stepping into an era of digital finance management. The benefits extend beyond cost savings, touching on improved vendor relationships, enhanced team productivity, and stronger financial governance.
With workflow automation, simplifying approval processes, optimizing payment methods, and leveraging financial automation tools such as Constant, businesses can achieve substantial cost savings and operational improvements.
With Constant’s multi-level approval system, streamlined workflows, and automated data capture, the platform accelerates the approval process and introduces a new level of accuracy and control.
Constant's AP automation solution is built to adapt to your specific business needs, offering a level of customization that can lead to substantial improvements in your operational efficiency.
We invite you to see the difference Constant can make for your business. If you’re ready to reduce your invoice processing costs and take control of your AP processes, book a demo with us today.
