The area of accounts payable is one of the areas that allows a large saving in the company if orientated adequately. Externalization is one of the best forms ways of achieving this saving and efficiency.
However, to evaluate this possible improvement and to be able to compare it, it is necessary to quantify it in a way which is real and close to the true cost of paying an invoice.
How to calculate the Cost per Invoice
It is possible to approximate by dividing the total budget for the accounts payable department by the number invoices processed each year. But by using this method the intangible costs, such as the cost of time dedicated by other departments to the invoicing process, are not taken into consideration.
Another different approach to calculating costs is to separate them into direct and indirect tasks. By dividing the number of invoices processed by the staff who process each one, direct costs can be easily obtained. What is more difficult is to measure indirect costs, which in some cases account for up to 60% of the total costs of the accounts payable process.
This cost varies from company to company, but according to some studies, it is between €7 and €8.
Considering that for each billion euros, a company processes approximately 400,000 invoices per year, a saving of 25% could mean a reduction in costs of around €800,000 per year.
Accounts Payable Outsourcing
For this reason, there are companies that have invested a lot in introducing solutions which can make this process more efficient, especially with regards to invoices which are not correct and make up 35%-40% of invoices received.
When speaking about the externalization of accounts payable, or any other externalization, one point to consider, depending on the model of externalization chosen, is the inexistence of initial costs. The only costs to consider in the externalization of AP should be costs per transaction. And the cost per invoice reduces dramatically, an automated electronic invoicing system, in both reception and issuing, means an approximate cost of €0.30 per invoice.
Benefits of Accounts Payable Outsourcing
Even though the saving is the main factor in the decision to externalize, there are many other reasons that could come to elevate even more the image and competitivity of the company:
- Have a key process under the control of a one clear manager, who you can demand results from.
- Bring new useful and necessary services which makes provider management optimum.
- Dynamic follow-up of exceptions enshrined by the functionality of electronic approvals.
- Reduction in exception resolution times of up to 70%.
- Variable costs which give a great flexibility to the company to face, without worry, the ups and downs of seasonality, accelerated growth and adverse times..
- Possibility to re-assign the department personnel to more important and strategic functions. Decreasing rotation dramatically.
- In a short time there is a substantial improvement in the satisfaction of Internal Clients and Providers revitalizing the image of the Finance department.
To find out more about the general aspects of the competitive improvement of the company with AP externalization, checkout this other article.
