You Can’t Manage What You Don’t Measure

You've probably heard the old adage, "you can't manage what you don't measure". This statement holds true when analyzing the costs to process invoices. Most organizations have never taken the time to truly understand what it costs them to process just one invoice or pay one bill, and are truly shocked when they find out their true costs. It seems that companies’ biggest hindrance to establishing their cost per invoice is that they are too busy with their daily tasks, or that they simply don’t know of an easy way to capture their current costs.

I have worked with financial institutions from across the country. What I have discovered is that 90% of the time when I ask people about their company’s internal costs for processing invoices or paying their bills, that they have no idea. They have perpetuated inefficient processes simply because that's how they've always done them. They never challenge the status quo to gain visibility into areas for improvement.

Leading companies are constantly searching for strategies on how to reduce costs, or potential technologies that can replace outdated manual functions. However, you must first have a baseline of your costs to measure against. Typically these baselines are called either a Cost per Invoice (CPI) or Cost per Payment (CPP). Without a baseline it is impossible to determine whether leveraging technology would promote efficiency and fiscal effectiveness, or simply add more costs.

There are two primary components to consider when analyzing the costs to process an invoice: Hard Dollar and Soft Dollar Savings. Hard Dollar Savings are typically related to three areas that can be easily identified and quantified: opening the mail, filing, and data entry. One can easily determine the hours spent in each of these areas, either through a time study or through interviews with your AP staff.

Soft Dollar Savings, on the other hand, are typically more difficult to obtain, because they either happen sporadically, or are simply difficult to quantify. These costs include activities such as the time it takes to research a vendor question, approving a bill or pulling invoices for audits. Through working with clients we have discovered that although there is significant time associated with areas related to soft dollar costs, it is difficult to correlate a monetary value with these activities. However, hard dollar savings are straightforward, and as a result will be the primary focus for the duration of this discussion.

For more information,click hereto download a white paper with step-by-step instructions on how to calculate your cost per invoice and payment.