Paper Invoices Prevent Accounts Payable Efficiency
Stop Wasting Time and Money: Paper Invoices Prevent AP Efficiency
High rates of paper and unstructured email invoices prevent efficient invoice handling in middle market companies. Switching to e-invoices can spark Accounts Payable improvement.
Paper invoices, as well as email invoices with unstructured invoice data, continue to be the main sources of inefficiencies in Accounts Payable (AP) departments. And it is not only the SME companies that struggle to transition to electronic AP processes. According to a PayStream Advisors study, Lower Middle Market companies ($100–$500 million in revenue) have high rates of paper and unstructured invoices, too: 30% of invoices are received on paper and 43% via email (2018 Payables Insight Report, PayStream Advisors).
A company’s efficiency in Accounts Payable is typically closely tied to its ratio of paper/email invoices to electronic invoices, as the unstructured formats require manual labor that in turn causes delays and errors in invoice processing. In other words, paper is a waste of time and money in your Accounts Payable.
According to the study, most common workflow challenges in the Accounts Payable department are related to manual data entry and inefficient processes (48%), lost or missing invoices (34%), invoices in paper format (32%), and manual routing of invoices to approval (31%). Manual invoice management is costly for organizations for several reasons. It causes processing costs and leads to inefficient use of labor. It compromises cash flow and can lead to poorly managed financial data. It causes payment delays and may harm supplier relationships. Just to mention a few.
How much are you paying to receive a paper invoice?
Switching from paper to electronic invoices alone can spark the broader improvement in Accounts Payable efficiency. The cost savings potential is 64% per received invoice if a paper invoice (cost €17.60) can be sent and received as an electronic one (cost €6.40), and if it includes all the needed invoice data for electronic processing (Business Case E-Invoicing, Billentis/Bruno Koch, 2017).
Typically, an employee in an Accounts Payable department processes 5 000–15 000 paper invoices per year. So, according to the Billentis Business Case, the cost of Accounts Payable staff alone runs between €5–€15 per invoice. And additional cost comes from the paper-based approval and payment workflow and archiving.
These figures alone speak clearly of the benefits of receiving electronic invoices. But reaching the savings fully and improving Accounts Payable efficiency requires focusing on more than just the invoice.
Here are four important areas to look into.
Optimize your workflow
The discussion around Accounts Payable efficiency and improvement is focused on technology, systems and applications – too focused if you ask me. Technology is only the enabler. If the people in your organization use the same processes as before, there will be no magical change happening after a new system is implemented. Take a thorough look at your invoice processes and workflows, and harmonize them on a company level.
Get rid of paper with multichannel invoice receiving
Even organizations with high e-invoice rates often continue to receive paper invoices. It is possible to transition to an electronic invoice receiving process immediately with the help of a multichannel invoice receiving service. Multichannel invoice receiving allows you to create harmonized, centralized and fully electronic invoice process, while you continue work to improve your e-invoice ratio by demanding e-invoices from your suppliers.
Focus on purchasing
Thirdly, to be able to automate the Accounts Payable process, you need to be stricter when purchasing goods and services. If there is data missing from the invoices, especially the purchase order number, you cannot achieve automated invoice-to-order matching. Gain an understanding of your full purchase-to-pay process and define policies for purchasing. Within your organization, implementing a user-friendly purchasing solution establishes the use of purchase order numbers, and after that, you can require purchase order reference on supplier invoices, and eventually, reject them if it is missing.
Onboard your suppliers
Roughly put, 20% of your suppliers send 80% of the invoices you receive. Easy and effective onboarding process is the key to reaching a sufficient supplier base and getting them to send you e-invoices. Once your top suppliers are onboarded, you can focus on the rest of your suppliers. Active onboarding takes a lot of effort – good service providers offer supplier onboarding as a service.
Moving to e-invoicing is a good start to improving your Accounts Payable efficiency – although it’s not enough. To achieve the maximum benefits, you need to harmonize, centralize, automate, and optimize your entire invoice receiving and handling process. If you want to learn more on the topic, why don’t you watch a recording of our webinar where my colleague walks you through the basics of improving the Accounts Payable process.