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Cutting the Cost of Costs: Is Your Accounts Payable Department Inefficient?

While the investment associated with having an accounts payable (AP) department may be considered a standard cost of doing business, it’s one that you can control, and ideally, minimize with efficient AP processes.

Here are a few ways an efficient AP department can make a direct impact on your business’s bottom line:

Maximize the outputs of your staff

Every invoice processed through your AP department presents a cost, in the form of the human resources expense your company bears for AP employees, and material costs associated with invoice preparation, particularly when your system still relies on hard copy-based billing processes. Regardless of whether your company processes hundreds or thousands of invoices each month, the function presents a substantial cost that you can easily manipulate by instilling processes and making investments that optimize employee contribution and productivity.

As experts at RPI Consultants explain, the average AP team member paid a salary of about $45,000 can contribute to “all in” invoice processing costs as high as $60 per invoice, mainly due to inefficiency. RPI Consultants explain that figure is largely because 75 percent of the costs associated with the average AP department are attributed to basic data entry.

Nearly 35 percent of businesses surveyed by The Institute of Financial Operations echoed that sentiment; they employ between five to 10 full-time employees in their AP departments whose primary job function is to match and enter invoices into an AP system. Your business can optimize the potential return on investment from every person in the AP department by leveraging cost-efficient technologies like automated accounting systems and image capture tools that eliminate manual processes, redundancy and human error, so AP staff can focus on the business functions and needs that impact the bottom line.

Improve customer service

Your vendor relationships are just as important as those you cultivate with your customers, for different reasons. As Deb Golden, AP lead at the pharmaceutical provider Astrella reported, highly efficient and centralized AP departments deliver cost efficiency in tandem with increased performance. The company reports low invoice costs (ranging from about $2 to $5 per invoice), improved accountability and enhanced convenience thanks to one centralized location tasked with handling all AP needs.

Eliminate human delays

Despite the size of your AP department, the efficacy of your work flows and the degree to which they are impacted by “human delays” greatly influence departmental performance and cost. With automated work flows, for example, your business can reduce the “bottleneck” that occurs when items must receive approvals or escalation from business leadership before processing continues.

When the appropriate business leader is electronically notified of the need for his/her involvement in an AP matter as part of the automated work flow, he/she can provide necessary guidance and/or approval electronically, and reduce the delays that often arise from travel and similar schedule challenges when leadership approval is required. At the same time, optimized and automated work flows can electronically alert the AP team about items that need to be escalated, eliminating the need for cumbersome manual tracking.

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