Why Accounts Payable is Expensive and What to Do About It

    Why Accounts Payable is Expensive and What to Do About ItThe accounting department in any organization is an invaluable resource to any company.

    Consider: the accounting department is the gateway through which all money flows in and out of the company. Whether paying vendors, managing payroll, or receiving incoming payments for services rendered - the accounting department manages money so that the rest of the company can focus on the customer and the service or product offered.

    The problem many executives or managers often face, however, is the that an accounting department that runs smoothly and efficiently requires a sometimes significant budget, a skilled and confident staff, and time.

    The three most valuable resources in a company - not giving those up easy, most times. How, then, can the accounting department be made to do more with less?

    Let's focus specifically on the accounts payable, or AP department, and how to watch for ways to improve. Whether you are in accounting or just somebody who has decision making authority, these tips can be a great way to begin process improvement for your accounts payable department.

    First, developing key performance indicators (KPI) for your AP department is key. If you don't already have these, we can start with one of the most common KPIs in the department - the cost per invoice.

    Measuring cost per invoice allows us to monetize the quantity of invoices paid throughout a period of time - the average cost per invoice in the United States for mid-level businesses is $26.

    $26/invoice. Why? An employee has to work the invoice for however long it takes, which obviously costs money. We could factor a percentage of usage for subscription or SaaS model software to each invoice if it already exists in the company. Plus the resources needed such as hardware like laptops, printers, etc. - these things have a lifespan, which could be broken down to total life span vs invoices completed in life span vs time spent on other tasks compared to the cost of the laptop and the ratio of cost per hardware resource used divided by the number of invoices it might service in a lifetime.

    To improve this number, there are really only a few options. Cut the actual costs from the bottom of the system by actually removing money from the equation - use cheaper software, fewer hardware resources or tangible materials like paper, ink, etc. and/or pay employees less. Neither of these are particularly good options, considering that paying employees less results in a multitude of new problems for the company, and with software, you typically get what you pay for in the accounting world.

    So then we start to consider removing time. Making more efficient the existing tasks, and doing more with the resources already available. Remember, if an invoice took half the time it does now, we could knock that number several factors, and continue making that same improvement in the long term to where that cost per invoice is in the realm of optimized, modern accounts payable departments.

    These departments have sophisticated automation platforms, and a talented staff of accountants and clerks who know how to use the software and resources to the maximum potential. Studies have estimated that the fully automated and efficiency maximized AP department can drop the cost per invoice to under $4/invoice.

    Consider that savings in a company who is processing hundreds, or thousands of invoices per month. Modernize the accounts payable department in your organization with a cutting-edge AP automation solution.

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