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6 Ways to Reduce High Invoice Processing Costs

Alika Cooper
Alika Cooper

Invoice processing costs a lot of money. Here are some tips for reducing the costs.

Accounts payable plays a significant role in generating cash flow and maintaining operational productivity. In a business, on-time invoice processing ensures timely payments and healthy relationships with vendors. More importantly, owners need detailed reports on expenses for financial projection for all other departments. Yes, the cost of processing an invoice matters because it impacts the entire business directly.

Many businesses rely on costly data entry processes, which has always been one of the top AP challenges. Although technology has made the entire process quite easy, legacy systems are equally preferred for convenience, directly or indirectly increasing the cost per invoice processed.

According to the Institute of Finance and Management, the invoice processing cost can vary greatly between $1 and $21. Now, for example, if your company is paying $15 (on average) for processing a single paper invoice, and you have processed multiple $10 or $12 invoices, the cost of invoice processing surpasses the actual amount of the invoice.

Factors driving high invoice processing costs

  • Time is money: Your team gathers invoices, enters data into the system, checks other documents for accuracy and reconciles the values with purchase orders. It sometimes takes weeks to process invoices, because the AP team needs to get relevant information and payment approval from different departments; this consumes several working hours.

  • Risk of costly errors: Manual processes rarely get 100% accurate results; in fact, the most attentive and detail-oriented professionals can make a mistake while processing invoices or performing invoice accounting. Besides, many errors (that computer can detect) can easily slip away unnoticed by human operators as they process several invoices per day. These mistakes can lead to costly penalties.

  • Document management costs: Businesses must keep records of AR and AP invoices for business development and compliance purposes. Consequently, your company is spending money on the maintaining and storage of all finance related papers. Additionally, in case of an audit, someone from your team will need to search for the required documents from piles of papers, taking a considerable amount of their valuable time.

  • Late payment fees: Many suppliers and vendors usually offer discounts on advance or early payments. But many times, such opportunities are missed due to time-taking approval processes. When companies are hit with additional costs in the form of late fees, often, the reason is not a shortage of cash but a longer delay in approval. This way, you not only lose impressive discounts and pay the late fee, along with the actual amount of invoice, but you are also putting your business relationships at risk. If your vendors lay trust in you, they are likely to help you with flexible payment plans in times of financial hardship.

  • The cost of lost invoices: When invoices are processed manually, it becomes difficult to manage their organization and storage, which further leads to teams spending more effort tracking them and not following internal control measures properly. As you store paper documents for a specific period, and if there is no protection to save them from different factors, there is a big problem. Lack of control/security can increase fraud risks, leading to costly penalties for compliance violations.

How to calculate the cost of invoice processing

The cost of processing one invoice is one of the several KPIs most AP teams track; however, you might not consider some of the hidden costs involved in processing paper invoices. Here's the equation that will help you find how much you averagely spend on processing one invoice.

You need to add the costs of labor, postage, stationery, storage, late fees, lost discounts, and errors, and divide the sum by the total number of invoices you processed. The result will be the cost per invoice processed.

There are several solutions for all these costly AP challenges. Let's read about the solutions to cut costs of invoice processing in brief.

6 ways to cut invoice processing costs

  1. Go paperless. You may choose to eliminate paper-based functions from the entire process and use the available technology to reduce labor-intensive, time-consuming invoice processing tasks. Manually entering information from paper to a system is tedious; with modern AP solutions, computerized processes can capture and extract data from invoices that you receive in different formats. Digital documents and management are the future of invoice processing.

  2. Ensure accurate invoice reconciliation. Since it is vital to match invoices to purchase orders and other relevant documents, you need a system at the place that can analyze data in detail, match with other documents, and detect errors in less time to complete different invoice matching processes. This will help you achieve smooth invoice processing as data can be matched, approved and processed further accurately within the due date.

  3. Adopt automation. In this fast-paced world, you need an end-to-end automation solution for handling accounts payable. Having a specialized system built for efficiently managing the accounts payable process can help you automate almost all AP tasks. Any of such reliable solutions will save your team valuable time and eliminate errors, enhance compliance, and generate accurate data on time for necessarily required financial statements without much human interaction.

  4. Make invoice approvals easier. With modern automation solutions, you can also provide leaders responsible for approving payments against invoices with easy-to-use tools that streamline the process. For instance, they can use mobile tools so that they can approve payments at anytime, from anywhere. This will reduce the turnaround time taken to approve a single invoice, speeding up the processing of invoices; besides, leaders and managers can get more time to focus on their core jobs.

  5. Make neverending improvements in the AP process. As your business grows with time, you will have to adopt multiple ways to reduce expenses and improve agility, compliance, efficiency, and productivity of the entire AP process. For that, you need to make several improvements, for example, removing bottlenecks responsible for delays, leading to additional money that your company might be paying almost every month. You can save some money each month by reviewing how the invoices are processed, monitoring the efficiency of vital AP processes, analyzing KPIs to track overall performance, and determining areas that need improvement.

  6. Future-proof your business. The future is cloud technology. It offers several advantages to all major industries; for finance and accounting, it has a unique set of opportunities and benefits. Cloud-based invoice processing systems help employees get rid of the cumbersome, tedious jobs they often don't want to do. In fact, you also release your IT team from a lot of work-related hassles.

A cloud-based solution can help you with the effective management of invoices; you get real-time reports on the go. All the invoice-related data is captured, entered, organized, and stored accurately on a highly secure cloud server, eliminating the potential risk of errors, data breach/theft, etc. 

Also, such a system will automatically be upgraded, which ensures you use the latest, convenient AP tools, reducing the overall system maintenance costs dramatically.

Things to consider before investing in technology

Technological advancements, such as digital document management, online financial transactions, automated data entry, cloud-based records management, and invoice accounting, impact the way businesses process invoices. Still, there are complications, too; for instance, not all members of your AP team would be familiar with such technologies, or many of them might not be comfortable with/ interested in shifting from legacy to advance systems. Besides this, training your employees can take a toll on your company's expenditures, and the more time it takes, the more you would need to invest.

It will help if you consider the cost of acquiring such advanced systems before investing. Generally, software and tools can be used as (software as a service), making it easier to manage software usage and maintenance costs. However, these SAAS prices can widely vary, as per the service provider you consult.

Currently, several businesses might be dealing with a shortage of human or financial resources. Such firms can focus more on increasing productivity by completely utilizing the currently available resources – for example, AP employees performing multiple tasks or by investing in inexpensive or customized subscription of software tools. Other than that, they may consider temp services or outsourcing some AP functions, to prevent recruiting and training costs; this will help cut a considerable portion of expenses.


As no one can predict what happens next, especially when considering the current healthcare and financial crises around the globe, businesses need to look for solutions that can help them prepare for the coming years.

With the right technology and AP tools, you can quickly bring down high invoice processing costs. You must understand that the need to reduce operating costs is to remain in a highly competitive business environment. Thus, if you start cutting costs of invoice processing and implementing less costly solutions, it will significantly impact your business's bottom line.

Image Credit: AndreyPopov / Getty Images
Alika Cooper
Alika Cooper Member
Alika Cooper works a Business Development Manager at Cogneesol, a well-renowned company offering data management, technology, accounting and legal services. She has been working with Cogneesol for the past 10 years and is responsible for branding and generating sales. While handling the projects, she has witnessed a lot of changes over the years. She has been thoroughly researching and sharing her viewpoints about these industry trends and changes on many platforms across the Internet.