How many invoices does your organization process in a day? That critical question is fundamental to assessing whether a business's accounts payable department functions as it should. For a small business, the number might be small because you don't transact very often with outside vendors. For larger organizations, however, annual invoice volume can easily pass into the hundreds of thousands. Are your clerks keeping up with that pace?
How many invoices can an AP clerk process? In traditional manual workflows, the standard answer is usually about five invoices per hour. Over the course of a workday and a typical month, one clerk might be able to process almost 1,000 invoices—assuming that every single one conforms to expected standards and there are no errors to reconcile.
It's not hard to see that those numbers are far too low for companies that must capably handle high-volume invoice processing. When each clerk can only handle four or five invoices per hour, you could easily fill an entire office floor or more for AP alone trying to keep up with your vendors. In this article, we'll consider why many businesses struggle with low throughput numbers in AP and explore what modern solutions can eliminate these bottlenecks.
We'll cover the following topics:
- What Are the Components of Invoice Processing?
- Why Your Business Should Automate Invoice Processing
- Demonstrating the Value of Automation to Your Business
- Conclusion
What Are the Components of Invoice Processing?
To understand why the average number of invoices processed per day outside of automated workflows has traditionally been so low, it's important to consider all its elements. It's not as simple as picking up an invoice, deciding to pay it and then writing a check. The numerous steps and stages of processing can make it a major challenge to stay on top of a heavy or increasing invoice volume.
Let's consider each of the factors that contribute to how many invoices can be processed in a day. Although your clerks don't always need to take all these steps with every vendor invoice, they commonly contribute to the daily workload they face.
Data Entry into the ERP
A typical step at the start of the invoice processing cycle, clerks must first enter various forms of data into your company's ERP. When invoices arrive, this includes recreating line items, recording the amounts charged and noting other important bookkeeping information. There are many opportunities for introducing errors into your data at this early stage. It is also one of the most time-consuming parts of the AP cycle.
Matching Invoices Against Outstanding Purchase Orders
With the invoice information recorded, a clerk must next associate the invoice with a specific purchase order. Without a PO, there are fewer ways to know the purchase was authorized or that the invoice is even valid. The clerk must go into the computer system, search for the relevant purchase orders and match its contents to what is printed on the invoice. Additional three-way matching, such as with receiving reports, takes additional time.
Verifying Your General Ledger Coding
AP doesn't work in a vacuum, and every transaction has an impact on the firm's overall finances. Accurately recording the debits and credits that occur as AP receives POs and invoices is essential for providing a clear view of the company's cash flow. Properly coding these transactions into the general ledger, therefore, requires careful attention from your clerks before they can move on to the next stage.
Resolving Exceptions
Some invoices are easy to process. They match their PO exactly, the quantities received and amount billed are correct and there are no other issues to resolve. However, there are many other occasions when AP clerks will need to spend time chasing down exceptions within invoices. This could be mismatched PO numbers, incorrect line items, potential duplicate invoices and more. Exception handling can add hours or even days to the amount of time an invoice remains in processing.
Verifying Approvals
When an invoice has been processed and verified for accuracy, a clerk must route it to the correct individual for approval and verify that approval has been received. This step is also often a bottleneck because approval routing may not be automatic or even digital. Finding the right individual to approve the payment may take time that delays the invoice from finally getting its "paid" stamp and going into the archive.
Performing Disbursement
AP is also responsible for the actual payment of funds to vendors once you have a matched and approved invoice in hand. Automated systems can handle this step immediately, but manual processes require clerks to proceed on their own. That slows down payment and keeps suppliers waiting longer than necessary and could even mean the loss of early payment discounts.
Processing Check Requests
Not every invoice comes with an associated purchase order. Sometimes others in the business will produce check requests for non-PO buys. These might be emergency supply acquisitions made as a result of a pressing need or small business expenses. Correctly handling these requests for payment can be even trickier than a typical invoice when processed manually.
Carrying Out Vendor Maintenance
AP clerks have a wide range of duties outside of the actual invoice processing workflow they must attend to on a regular basis, such as vendor maintenance. This includes onboarding new vendors and entering their information into the system along with keeping existing vendor information up to date. Automated solutions can offload this work to a self-service portal used by vendors themselves. Otherwise, your clerks have even more to handle.
Processing 1099s
Your business must provide Form 1099s to every supplier with whom you transact business during a fiscal year. These important tax forms must go out on time according to rules determined by the IRS. Accounts payable is the responsible department for 1099 processing, and this process can be very tedious when your clerks must process forms for hundreds of suppliers.
Statement Reconciliation
Do the numbers in AP's books match the numbers in the general ledger? If not, there will need to be an extensive audit to determine the source of the mismatch. An AP clerk must periodically perform reconciliation to keep the information accurate—or else your business might operate thinking it has more cash available than it actually does. Reconciliation is one of the most important accounting processes in your department.
Answering Phone Calls
In between all the other steps above, AP clerks will still need to answer the phones. They may field requests for information from vendors, queries from other departments about payment and more. Every call and inquiry takes time away from the cycle.
Responding to Emails
The phones might be ringing off the hook, but that won't stop emails from flooding a clerk's inbox, too. With suppliers always curious about when they'll get paid, plus the usual daily volume of business email, trying to stay on top of this task alongside every other responsibility can be overwhelming.
Automation solutions are a clear answer to many of the problems inherent in this process. With tools such as Kofax AP Essentials™ and Kofax AP Agility®, automate many of the steps of invoice processing is within easy reach for even the largest businesses. Learn more about these innovative solutions today.
Why Your Business Should Automate Invoice Processing
Obviously, an AP clerk has many processes to handle throughout the workday. Would AP automation be able to make a significant difference in the outcomes of your department's work? With mature technologies spreading throughout the industry, the answer has been a resounding "yes" for many organizations. However, "automation makes it easier" is vague and unhelpful reasoning.
Why should your business automate this process? Placing mission-critical workflows in the care of software alone can be a difficult proposal to accept for some AP directors. To explore why so many have already embraced these new tools, we can focus on specific questions about accounts payable automation and their answers.
How Does Automation Save Time?
A better question might be, "Where does automation not create time savings?" At virtually every step of the process, automation makes things faster. Cognitive capture intelligently reads scanned invoices electronically and inputs the data into AP automation and ERP systems. That same software can send approvals immediately to the right individual, then make scheduled payments without additional human interaction. Automation saves time at every level of AP.
How Many Invoices Should an AP Clerk Process Manually?
As few as possible. The more invoices that require manual processing, the higher the cost and the longer the cycle time. Whereas a clerk might be able to only process five invoices per hour manually, automation can increase that number five or even sixfold. One clerk could then handle dozens of invoices per hour, accounting to well over a hundred in a given day. Every employee's productivity improves with automation.
How Long Does It Take to Process an Invoice?
Some cycle times can stretch out to nearly three or four weeks before you finally pay an invoice. With automation, some invoices could be paid within days, assuming it is a positive move for the company to do so. Automation quickly drops cycle times by reducing exception handling time and increasing the number of invoices processed in a completely touchless manner.
How Many Invoices Can You Process in a Month?
Look at the KPIs surrounding your workflows. Compare what accounts payable sees in terms of invoices per month versus how many complete the processing cycle. Are you constantly dealing with a backlog of invoices? Look at the number of invoices marked late, or which incurred additional fees, too. Compare these numbers to what you might be able to achieve in terms of invoices a month with a custom automation solution and the value becomes clear.
How Much Does It Cost to Process an Invoice?
Based on labor alone, it usually costs a company several dollars to process every invoice. Add it all up and that could account to tens or even hundreds of thousands of dollars a year. That's money you're paying just to be able to pay others—so shouldn't you minimize cost to process as much as possible?
Automation not only dramatically increases the number of invoices one clerk can process, but also drops the cost at the same time. Combined those benefits with realizing more discounts, and AP has the opportunity to substantially cut its financial footprint.
Demonstrating the Value of Automation to Your Business
To recap, automation saves time, dramatically boosts invoice processing speed and reduces the time every invoice spends in your system. It does all this while having a positive on the cost to process each invoice. You may understand its potential value now, but how do you pitch the investment to your bosses?
Understanding how to demonstrate the value of automation to upper management can be the key to winning space in the budget for pursuing these goals in your department. There are three key ways to demonstrate its value: show the savings, reveal current bottlenecks and unlock new business insights.
Showcase the Potential Cost Savings
Gather information about how much your department's average cost per invoice is currently with your existing procedures. Investigate potential invoice automation solutions and create estimates based on the process improvements you could implement. By demonstrating the overall annual impact of a simple reduction in cost per invoice—even by as little as 50 cents per invoice—you can make it clear that these small changes can have big impacts.
Measure How Much Time You'll Save
Capturing early payment discounts can build strong supplier relationships and improve the company's cash reserves and overall financial flexibility. Doing so is very difficult when it takes weeks to process each invoice. By showcasing how much time automation saves your department, you can also demonstrate how much it will save the company financially on top of the cost savings that come from automating in the first place.
Explain Why Better Monitoring Matters
Automation tools do more than streamline processing—they also capture an immense amount of information useful for your business. Automation provides better oversight and insight, letting you draw smarter business conclusions from the way the department functions. Highlight the advantages of better monitoring over the process, such as reduced fraud and easier auditing, which come alongside boosting how many invoices each clerk handles.
Conclusion
Ultimately, the answer to "How many invoices can one person process?" will always vary between organizations. What is clear, though, is that the traditional rate of five invoices per hour is far too slow to support the high volume and rapid growth characteristic of today's business world. With automation, processing hundreds or thousands of invoices a week becomes far simpler. Every clerk contributes more when smart software supports their efforts from start to finish.
Find out more about how to select automation solutions that can slot seamlessly into your company's existing ERP systems and more. Leave the manual processes of yesterday behind and instead discover how to work like tomorrow.