Business operations inevitably lead to costs, but experts suggest certain processes may be unnecessarily expensive. Here’s how costly processes affect businesses and ways to improve efficiency, especially in invoice processing.
Businesses are spending up to 10 hours per month on invoice processing
When onboarding new clients, companies often spend between 1-2 working days per month on accounts payable (AP) and accounts receivable (AR) processes. Clients within shipping and logistics, e-commerce, travel, marketing, tech and other professional services often come with a challenge, looking to automate systems and reduce lengthy processes. Many have noted processing between 100-300 invoices per month.
The impact of lengthy financial processes on cash flow
Businesses must move with the times and adapt. When processes within the business become clunky and slow, it can have a negative impact on overall efficiency.
When processes such as AP are rigid and outdated, they can cause delayed payments, create bottlenecks and control issues within the company. This can lead to a strained relationship with suppliers' payment and have an overall negative impact on the business's cash flow.
According to a study by Aberdeen Group, laggard organizations are processing invoices at a rate of about 2.9 invoices per day per full-time employee. This translates to the invoice processing costs of approximately 41.3 days to process a single invoice, costing $25.83 to process a single invoice. Delayed payments and inaccurate payables data can have an impact on forecasting and planning, which may lead to poor decision making due to inaccuracies.
Internally, the impact of lengthy financial processes on businesses is that it can increase costs, reduce productivity, and in turn, lead to dissatisfaction amongst employees. This is often the case when the majority of their time is spent on manual tasks, giving little time for creative and strategic activities.”
How reducing lengthy processes can improve cash flow
It is imperative in business that any unnecessarily time-consuming areas of the business are reduced to create a streamlined and profitable process. To improve cash flow within a business, you must first remove any inefficient and ineffective processes causing delays or errors.
Any manual tasks, such as reconciling invoices or manual payment runs, can lead to delays and mistakes and incur additional labor costs. Automating these processes will free up time within the business and reallocate resources for more strategic activities, allowing more relationship building and human interaction, which cannot be replaced by automated processes for the same result.
The result of streamlining processes within AP tools ultimately gives companies a quicker and more accurate processing and reconciliation system, allowing for healthy cash flow and freeing up time where it could be better utilized.
When systems are automated, the number of invoices processed per hour in turn increases. Where a manual process can handle between 5-10 in an hour, a semi-automated process can help this increase to between 15-20, or a fully automated system where they can potentially handle hundreds of invoices per hour.
Automation: The secret to saving time and money on cash flow in large businesses
Many large businesses are overlooking the impact inefficient AP processes are having on their cash flow. Spending time on invoicing and bills means that payments and collections can often be delayed, which can cause a severe hit to cash flow, which isn't factored into many businesses, especially larger ones. Automation can free up this drain on time and resources significantly, allowing the business to continue growing.”
What is the cost of this time on employee salaries by industry?
According to UK salary data, an AP role is paid, on average, £31,046. If processing invoices is taking up to 10 hours per month, it is estimated that businesses are spending £159 per month on invoice processing. This equates to £1,908 spent every year on invoice processing alone.
In the United States, an AP worker is paid an average salary of $45,680, meaning that per month, they are being paid $234.50 to process invoices. A staggering $2,814 per year.
Without the right tools, companies are spending unnecessary time and money; that’s why it’s important to streamline and reduce the amount of inefficient manual processes. This by no means diminishes the need for people working in roles where these processes are done; an air-tight, polished payables process with automation in place gives more control and governance over what has been paid and what hasn't, meaning there is more oversight and better control. This is especially important for businesses with multiple entities or a high volume of invoices.
