5 Steps to Lowering the Cost of AP Processing and Reducing Transaction Processing Time

In an ever-changing world where organizations face stiff competition and pressure from management to improve profitability and the bottom-line, Accounts Payable (AP) organizations have become increasingly focused on process improvement and optimization initiatives that drive business performances.

To continually create value for their organizations, AP leaders are always looking for innovative ways to lower the cost of AP processing or reduce transaction processing time – especially those organizations that have made significant investments in ERP applications (Enterprise Resource Planning). The majority now have standardized AP processes with the potential to increase efficiency, reduce cost of AP functions and processes, and greatly improve the ability to manage working capital effectively.

Yet, despite the ERP capabilities, AP teams are somehow still burdened with processing numerous invoices manually or called to intervene in the procure to pay process.

What does it really cost to process a single AP Invoice?

According to a study conducted by APQC on 997 organizations to help CFOs understand how their finance processes compares to other companies in terms of cost efficiency, it was estimated that it costs ‘Bottom Performers’ $12.44 to process a single AP Invoice.


Top performers spent $4.98 or less to process a single invoice
Median performer spent $7.75 to process a single invoice
Bottom performers spent $12.44 or more to process a single invoice – 2.5x the cost of Top-Performing Companies

*Note: The top performers represent the best 25 percent of organizations in the test; the number shown for them indicates the percentile level above which all the winners operate. The bottom performers do worse than 75 percent of all other survey takers. The median is the middle of the range captured. -Mary Driscoll, Senior Research Fellow for Financial Management at APQC

Why does it cost so much?

According to the same study, manual intervention required to resolve manual invoices is the single biggest contributor to the cost of invoice processing for the bottom-performing companies. This is because labor costs account for about two- thirds (62 percent) of total AP processing costs. Manual intervention is required when there are data errors in purchase orders, shipping and receiving documents, and invoices.

You should perform monthly root cause analysis to determine why manual interventions are required by your AP organization.

Below are 5 Steps to Lowering the Cost of AP Processing and Reducing Transaction Processing Time.

1.) Automate PO Matching as much as possible

I have seen many companies that have implemented an ERP system with world-class capabilities, yet AP processes were still largely manual and paper-intensive. I cannot overstate the challenges of receiving paper invoices and matching them against POs manually. As companies have grown, so has the volume of AP invoices that need to be processed. It’s only a matter of time before AP starts bursting at the seams.

Recommendation: I know several companies that have automated portions of the AP process by receiving invoices electronically via electronic data interchange (EDI), though typically many manual validation and approval steps remain.

Electronic Capture Technology can be used to scan and convert invoices to electronic images from those that are scanned, faxed or emailed. Optical Character Recognition (OCR) Technology is widely used to capture, validate and integrated with ERP. OCR is a big enough topic worthy of a separate blog discussion.

Bottom line: This area presents one of the biggest opportunities for automation. Imagine the manual intervention cost of matching 80% of your AP invoices to PO. Back to APQC study – 62% of invoice processing cost is due to manual intervention. The inability to keep up with the volumes will ultimately lead to bigger challenges for the organization, from accruals for financial closing and lack of visibility right into spend analysis.

2.) Eliminate one-time low dollar, frequent lower dollar and non-PO purchases where possible.

Recommendation: This is the time to consider a Purchasing Card Program (P-Card) or a Corporate Card Program – if you don’t already have one. They drive up operation efficiencies significantly; they will dramatically reduce the numbers of invoices to process from individual suppliers and the number of checks or electronic payments. Most banks will provide support to implement the solution and integrate with your ERP systems.

3.) Automate Non-PO Invoice Approval Workflow

To automatically route non-PO invoice to cost center or budget holder for timely approval. This approval request can include the scanned invoice image to expedite AP invoice approval.

***Bottom line: ***There are no manual invoices sitting on approvers’ desks and draws. Thus, this gives visibility into spend, fewer GL accruals at month-end and realized discount opportunities.

4.) Reduce the number of checks you write

Always offer your suppliers electronic payment options where possible. It is worth exploring the interoperability capabilities built on ISO20022 standards for payments across most payment systems.

I will create a separate blog about my experiences of a recent ISO20022 integration at an oil and gas company using Oracle E-Business Suite (12.2) with JPMorgan Chase.

5.) Share the workload with your suppliers

You will significantly lower the cost of AP Invoice Processing and Reduce Transaction Processing Time by empowering your suppliers – encourage them to submit their invoices directly and upload invoice images directly to your ERP portal matched directly to approved PO.

If you don’t already have an iSupplier program, most ERP applications come with a Supplier Self-Service portal – a portal that provides a secure platform for real-time communication between Suppliers, Buyers and AP. Suppliers can see all POs, changes requests, create invoices, view payments, upload invoice images and much more. This is a win-win for all stakeholders, from procurement to AP to supplier.

Bottom line: It all translates into fewer errors, greater efficiencies, lower costs, transparency of invoices, payments and holds statuses, and faster payments that capitalize on eligible discounts.

Final thoughts: Always ensure that suppliers legibly reference your PO numbers on their invoices every time, and strictly enforce a 1 PO number = 1 Invoice rule where possible.

Secondly, reduce or eliminate reclass of paid invoices. I have seen too many requests to AP teams to reclass previously paid invoices to another cost center, project or GL account. This could be an early indication that approvers are blindly approving invoices without careful consideration for the GL coding. Get to the root cause of these requests and address them.

A combination of process automations and optimization can lead to fewer manual interventions in AP invoice processing. Understand the root cause of your manual interventions to lower ‘AP cost per invoice’ and reduce processing time to free up time to focus on value-add initiatives – which create value that improves your organization’s bottom-line. Thanks for reading.


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