What Are the Total Costs of Approving an Invoice?

I started to read an interesting survey, conducted by PayStream Advisors, regarding how companies receive, approve and pay invoices today as opposed to a few years ago.  I'm sure you can guess what comes next; invoice workflow automation is starting to gain traction as companies look for additional efficiencies.  But my question remains, how much does it really cost to approve an invoice? What are the real costs?

The answer to my question is not as simple as it seems, as there are many factors that come into play to paint a complete picture. Also, the answer might not be the same from one company to the next.

For starters, it helps if the buyer receives invoices in electronic format directly from its suppliers.  This is not a new concept; however, the challenge lies in how much leverage the buyer has over their suppliers.  Bigger companies can mandate electronic invoicing to their supplier base, but smaller buyers might not have this leverage.  Another issue is that the buyer is basically changing each supplier's invoicing process.  Even if the buyer can get away with that, it would still have to be able to receive paper, email, and faxed invoices as some suppliers might not comply.  Some buyers are resorting to paying external firms to turn these invoices into electronic format, and that is part of the answer.

If the buyer is already receiving electronic invoices from its suppliers, then they must look at their internal approval processes.  Does the Accounts Payable (AP) staff have to manually match each invoice to its respective purchase order and inventory receipt? What happens if the invoice needs additional approval?  Typically, companies use either email or intra-company mail, which might take days.  What if the invoice has to be reviewed/approved by more than one person? This could take several days or even weeks before the invoice is fully approved and entered into AP.

Another hidden cost, which is not so hidden, is the expense of researching and answering supplier inquiries. If you ask a CFO if her company receives ongoing supplier calls, she might not even be aware of them. She would probably answer by stating that they pay on time and a small number of calls might be received.  That might be the case; but if you talk to the AP manager, he will have a different answer.  Answering supplier inquiries is not AP's main focus, but it takes a lot of time out of AP's day.

Finally, the cost of not taking early payment discounts is the most expensive cost of all.  Some people might not agree with me on this, as they do not see this as a cost, but I do. If I pay $10 for an item when I could pay $8, it's costing me an additional $2.  Granted, approving invoices quickly and effectively is not the only component here; the buyer also needs to have the cash available to take advantage of early payment opportunities.

Technology is starting to help companies automate their manual processes, but they may need several solutions to fully automate invoice matching, invoice approval and early payments.  That could pose another set of challenges and might even discourage buyers from contemplating these initiatives. 

I don't want to finish on a negative note, so I will leave you with the following questions...

  • What if your company can receive invoices electronically without changing their suppliers' processes?
  • What if you allow AP to focus only on invoices that do not match their corresponding purchase order and inventory receipt?
  • What if you had a simple, electronic approval workflow that gave your suppliers visibility into the status of their invoices thus eliminating the need for supplier inquiry calls? 
  • What if you could offer early payment to your suppliers without impacting your cash flow?

If this is something your company is looking to explore, you should look at TradeRocket’s  solution (www.traderocket.net).  It's an elegant solution built to be a win-win for both buyer and supplier.

Santiago Venegas