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Reducing the Cost of Processing Invoices and Orders

Purchase order (PO) and invoice processing are behind-the-scenes operations that can have significant hidden costs. While the cost of processing individual transactions may seem modest, the cumulative impact of manual workflows on productivity and the bottom line is often underestimated.

As volumes increase, the incremental costs associated with repetitive tasks like data entry and physical document handling can eat away at your profitability.

Read on to find out the true toll of conventional PO and invoice methods while exploring how automation can deliver substantial savings through optimized procurement workflows.

What Is the Cost of Processing a Purchase Order?

Handling purchase orders incurs costs at every stage, from creation to payment. PO costs encompass fixed expenditures like labor and infrastructure and variable costs for materials, shipping, and postage. Research indicates the average company spends around $30 to process each purchase order when accounting for all associated order fulfillment costs, not including shipping fees.

Let’s take a look at the most significant components contributing to these costs and what they include:

  • Internal processing — Initiating requisitions, routing approvals, selecting vendors, and issuing POs
  • External processing — Clarifying details, updating information, and managing changes with vendors
  • Order management — Confirming delivery timelines, expediting orders, and resolving fulfillment issues
  • Receiving — Verifying accuracy against packing slips, handling returns or corrections
  • Invoice reconciliation — Matching invoices to POs and receipts while resolving exceptions

What Is the Cost of Processing an Invoice?

Due to the administrative workload, the costs of manually processing supplier invoices can be even higher for accounts payable departments. While estimates vary, the typical cost for manual invoice processing averages $6.20 per invoice, though Adobe reports costs ranging from $15 to $40 for more complex invoices requiring exception handling.

The key factors driving up invoice processing costs include:

  • Manual entry of data from paper or PDF invoices into accounting systems
  • Routing invoices for approval and resolving any kickbacks or exceptions
  • Filing, storing, and retrieving physical documents as needed
  • Responding to vendor inquiries about payment timing and status
  • Transaction fees for different payment methods like checks or credit cards

How to Calculate Your PO and Invoice Processing Costs

To accurately calculate your company's expenditures, follow these steps:

Step 1: Labor costs

Identify the hourly pay rates of every employee involved in procurement, receiving, accounts payable, and approval processes. Estimate how many hours each role spends on the various steps of PO and invoice processing per month.

Step 2: Infrastructure costs

Account for any software licensing, hardware, equipment, and storage/archival costs required to manage orders and invoices. Estimate what portion of these expenses can be reasonably attributed to the processing workflows.

Step 3: Materials costs

Calculate costs for paper, ink/toner, postage, envelopes, and other physical supplies consumed, including check stock for paying invoices.

Step 4: Transaction costs

Tally up any bank fees or payment processing costs for methods like ACH transfers, wire fees, or credit card charges. Don't overlook hidden costs like time spent resolving payment issues or validating transactions.

Step 5: Calculate totals and averages

Sum up all components from the previous steps to calculate your total monthly costs for PO and invoice processing. Then, divide these totals by the number of orders and invoices processed monthly to determine your average cost per transaction.

What Are the Disadvantages of Manual Invoice and Order Processing?

Beyond the expenses involved, there are several drawbacks to relying on manual methods for these critical procurement processes. Let’s take a look:

It’s Time-Consuming

Manual methods require more staff hours across procurement, receiving, and accounts payable teams to handle data entry, physical document handling, routing, and approvals.

It’s Prone to Inefficiency

With many individuals, handoffs, and touchpoints involved, manual processes are inherently inefficient and loaded with non-value-added tasks.

It’s Error-Prone

Human data entry is tedious and prone to errors, leading to costly consequences like late payment penalties, missed early payment discounts, duplicate payments, overpayments, and overlooked credits.

It Harms Productivity and Morale

These inefficient, repetitive back-office tasks distract employees from more strategic and valuable responsibilities in sales and customer service - harming staff morale, productivity, and performance.

How to Reduce Your PO and Invoice Processing Costs

To mitigate the challenges and expenses associated with manual PO and invoice processing, leading companies are pursuing automation solutions and process improvements.

Automated document handling solutions allow you to:

1.   Digitize and Automate

Deploying automation for PO creation, 3-way matching, exception handling, and routing can digitize most tedious tasks. Solutions like Conexiom leverage AI to enable processing of all orders and supplier invoices without requiring changes to legacy systems or processes, accelerating throughput by eliminating manual data entry.

2.   Centralize and Standardize

Once digitized, companies can standardize procurement processes, approval hierarchies, and vendor management across locations. Centralizing purchasing through consolidated vendor catalogs and preferred supplier agreements allows for negotiated discounts and volume-based cost savings. AP automation also helps eliminate maverick purchases through controlled workflows and approval enforcement.

3.   Collaborate and Communicate

Cloud-based purchase and payment platforms facilitate real-time visibility and collaboration between procurement, receiving, and accounts payable teams. Self-service supplier and employee inquiry portals reduce time spent responding to status requests. Proactive notifications keep all stakeholders synced and eliminate phone/email tennis.

4.   Measure and Monitor

Businesses can continuously monitor performance by establishing KPIs around processing costs, cycle times, exception rates, and automation levels - and by leveraging visual dashboards. Bottlenecks and opportunities for further optimization can be quickly identified. Results should be reviewed regularly to enact process improvements.

Rexel Canada, a major distributor of electrical supplies and services, deployed Conexiom's automation platform across 600 customer relationships. By eliminating manual ordering errors and rework, Rexel was able to reallocate thousands of staff hours to initiatives focused on improving customer satisfaction and service levels.

How Conexiom Reduces PO and Invoice Processing Costs

Conexiom's intelligent document automation platform addresses the complete purchase-to-pay cycle by extracting order, shipment, and invoice data from emailed documents with 100% accuracy thanks to advanced AI and machine learning models.

The Conexiom solution delivers compelling cost advantages by:

  • Reducing the per-invoice processing cost to $1.30 and the per-order cost to $10 on average
  • Eliminating human error and freeing employees for higher-value activities
  • Automatically extracting line-item details from even the most complex, PO-backed orders with comments or special instructions.
  • Performing 2-way and 3-way data matching to enable accurate invoice processing and payment
  • Allowing orders and invoices to be automatically routed according to customized business rules and approval hierarchies pre-integrated into all major ERP and accounting systems.
  • Providing complete visibility across the entire process with reporting on cycle times, bottlenecks, and exceptions to enable continuous improvement
  • Maintaining existing EDI and supplier integrations without requiring any changes on the supplier side

Graybar turned to Conexiom's automation platform to deal with its intensive, high-volume transactions. Within six months, Conexiom helped Graybar eliminate manual data entry, reduce human error, and process over 83,000 documents containing 9.5 million line items.

Choose Conexiom as Your Partner for Automation-Driven Cost Savings and Improved Customer Service

While often underestimated or overlooked, the costs of manually processing orders and invoices can severely drain productivity and profitability for businesses operating at scale. With most companies spending $15 per purchase order and up to $40 per supplier invoice when using aging manual methods, the savings potential offered by solutions like Conexiom's intelligent automation platform is immense.

More than just reducing per-transaction expenses, Conexiom’s platform enhances the purchasing experience by enabling digitization, collaboration, advanced analytics, and continuous improvement. Strategic priorities like customer service and growth can retake center stage with fewer errors, faster cycle times, and tighter integration between procurement, receiving, accounts payable, and stakeholders.

Book a personalized demo today to see how Conexiom's automation solution can unlock cost savings and renewed growth for your business.

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