Minimizing AP Expenses With Automation

The cost to manually process invoices is high. For most organizations it ranges somewhere between $10 and $20 each. In a recent study performed by IBM’s Sterling Commerce they found that manufacturing companies were paying as much as $30 per invoice. Since even small-to-medium sized organizations often receive hundreds of invoices per month simple math shows how costly invoice processing is. But what can be done to minimize AP expenses?

According to research by PayStream Advisors, businesses surveyed reported that 77% of invoices received are paper. That’s a large number especially considering that manual invoice processing relies on multiple ‘human touch points’ before payment approval. These ‘human touch points’ include: document preparation, scanning, PO matching, approval for non-PO images, routing, data entry, indexing and filing. All of these processes are tedious, time consuming, and carry an increased potential for error.

Most data entry doesn’t begin until invoices have navigated the maze of steps listed above. Data entry alone takes approximately 50% of an AP department’s time, and that labor expense accounts for about 60% of the total processing cost. When you factor in time for exception handling and disputed invoices, that number goes up. It’s not unusual for the cost of manually processing an invoice to be close to, or higher than, the invoice itself.

CFO Magazine recently performed a survey of 997 companies’ AP departments and discovered that only 25% of the companies surveyed had average invoice processing costs below $5.00.

The really hefty costs show up when mistakes in the manual process occur. Typically, these include data entry errors, improper approval routing, bad/duplicate checks, incorrect GL codes, incorrect invoice matching, or the myriad of other problems associated with simple human error. On average, the cost of rectifying a paper invoice error can reach $50, and reproducing a lost document as much as $100. Companies that rely on manual invoice processes regularly make errors and the costs are significant.

  • Transcription or transposition errors on 10% of invoice documents
  • Misfile errors on 5% of invoice documents
  • Document loss on 3% of the documents needed to approve an invoice.

Time taken to rectify these errors can create frustration between AP and Purchasing departments. Worse, it can erode supplier relationships. Additionally, with rising processing errors businesses incur late fees and miss early payment discounts. In a manual process, the way many companies try to rectify this is by throwing more employees at the problem. This sometimes helps with processing times, but it does nothing to improve AP costs.

So what can companies do to minimize AP processing costs and the errors associated with manual processing? They must decrease the number of times employees handle invoices, and invest in process automation. The more they are able to automate, the better the result. Let’s look at a few ways businesses can automate AP processes and minimize human touch points.

Paper invoices can be scanned and Optical Character Recognition (OCR), or the more advanced Intelligent Character Recognition (ICR), can be used to extract relevant invoice data to replace or significantly reduce manual keying. If a PO already exists, an invoice will often go untouched by human hands while ICR extracts the data and automated processes match and compare invoices, POs, and receipts. Incorporating additional safe guards is as simple as setting automated rule verification processes.

Since these technologies are too expensive for most companies to implement on their own, the best cost saving plan is often to outsource to a company that specializes in process automation and AP data capture.

Outsourcing your process automation and data entry to a specialized third party provider will decrease turnaround times, errors, and costs associated with manual invoice processing.

Companies that specialize in this type of work will have the automation technologies in place necessary to complete error-free invoice processing quickly. A sophisticated partner will also provide their customers with transparent reporting and workflow tools that will not only track invoices from the time of receipt, but will route non-PO invoices to the parties responsible for approval. The transparency organizations will receive from the right outsourcing partner provide:

  • Insight into cash flow
  • The ability to flag high-dollar or specific vendor invoices for additional scrutiny
  • The ability to capture early payment discounts
  • The avoidance of late payment penalties

They also provide a touch point for vendors to directly upload invoices so that the receiving and handling of paper invoices is bypassed.

By implementing automation independently or through an outsourcing partner, companies see immediate impact on AP process eciency, employee utilization, and vendor satisfaction. Less manual intervention also means fewer transcription and transposition mistakes and the elimination of easily lost or misplaced documents as invoices become digitized. According to research by Sterling Commerce, companies the introduced AP automation saw an average error reduction rate of 37 percent across all invoice types.

Let’s do a quick review. While many companies still manually process invoices, the cost is becoming prohibitive. This is because of the number of touch points in the approval process, long turnaround times, and the potential for high error rates. The good news is that large reductions in both time and error rates are possible through the use of automation technologies. These come in a number of forms from EDI, to ICR, to outsourced SAAS models that are low cost, low risk, and high return. Depending on an organization’s needs these tools will enhance their e—ciency in the marketplace while reducing overall costs. This is how companies can stop losing money with manual processes and start saving money with automation.

About iTech

iTech Data Services is a US-based data services and content management company with principal operations in the United States and India. iTech specializes in delivering cost-effective and quality solutions, including document scanning, OCR/ICR data capture, data entry, data integration, forms processing, workflow management, data transformation, and data archiving. Well trained and skilled employees, and state-of-the-art off-shore locations enable iTech to deliver optimal solutions for its clients. For more information contact Jason Dodge at