The Real Cost of Invoicing: Metric of the Month

Invoicing can be an expensive process that involves intensive manual data entry, revisions, approvals, and bookkeeping.
Perry D. WigginsJune 6, 2018

For this month’s metric, we focus on the cost to invoice customers, per invoice processed, as reported to APQC’s Customer Credit and Invoicing Open Standards Benchmarking survey by 896 organizations.

The process of invoicing a customer, for purposes of this benchmark, includes maintaining customer and product master files, generating customer billing data, transmitting billing data to customers, posting receivable entries, and resolving billing inquiries. Process cost includes the fully loaded cost of personnel, outsourcing, systems, and overhead, as well as other allocations to the process.

The best-performing organizations (see chart below) spend $2 or less to invoice a customer, while the bottom performers are spending $9 or more each time an invoice goes out. At the median are the organizations spending a little less than $4 to invoice a customer.

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Depending on how many invoices an organization sends out each month, the cost to process an invoice can really add up. If an organization isn’t in the “top performer” range, knocking even a dollar or two off of the cost of invoice processing could produce substantial savings.

How to Cut the Cost

Invoicing isn’t just “the accounting team’s job.” An effective process requires coordination between sales and accounting, so making sure that these teams’ systems talk to each other is crucial.

When the sales team is using a different language or system than the billing and accounts receivable (AR) team, someone along the line has to translate sales orders as they come into the billing system, adding time and cost. For example, a sales order with an abbreviation or acronym that comes into the billing process might be misinterpreted, creating an inaccurate invoice and frustrated customer. The fix: An ERP system that merges sales and accounting into a common data model.

At APQC, we are currently living through this conversion, aiming to reduce inefficiency by creating a common system and data model for sales and billing that standardizes customer names, addresses, and all fields related to transactions.

Armed with a fully automated system, it’s easier and more effective to invoice frequently — or even daily. Manually processing invoices in large batches requires a lot of set-up time and is labor-intensive. It’s better to invoice in small batches every day than to wait to do it once a week or once a month.

An organization can save even more if it sends invoices to customers electronically, through email or a customer portal, skipping the costs of paper, postage, and labor associated with snail mail. Daily billing also starts the time clock on when payments are due, reducing working capital needs.

According to the invoicing benchmarking survey, at the median, 70% of invoice line items are invoiced using electronic or automatic methods. An even higher 80% of line items invoiced are automatically entered into a general ledger. Invoices that are automatically generated based on event triggers — such as discharge from a hospital — also take labor cost out of the process. According to the APQC survey, 74% of invoices are automatically generated this way.

A key factor working against increased automation and system integration is custom pricing, which adds time and errors to the invoicing process.

A customer may negotiate a discount, causing a salesperson to manually override the standard price. But unless that change translates to the billing system, the invoice is still going to go out with the original price. Few things make a customer more dissatisfied than a promise broken. And, an inaccurate invoice nearly always guarantees a payment delay.

A common system shared by sales and billing can avert such mistakes and eliminate the rework, corrections, and rounds of review that are part of a manual process.

Other factors also add time, labor, and cost to the invoicing process:

  • Excessive levels of approvals
  • Client or customer purchase order requirements
  • Out-of-date customer master file and terms
  • Other missing data, such as lack of customer tax identification information
  • Invoice customization to accommodate customer requests

In many cases, a simple checklist can ensure that all of the necessary billing information is current and in hand before an invoice is created, reducing rework and frustration.

As for invoice customization, 47% of organizations offer it to all customers, while another 31% offer it only to key customers. To reduce manual work, the only parts of an organization’s invoices that should differ from customer to customer are the products or services being billed. One way to reduce the cost of invoice customization is to create one standard invoice template that does it all, and include a separate, blank field for any unusual notes.

Like all cost-reduction efforts, continuous process evaluation and improvement is the key. Troubleshooting invoicing processes, and looking for ways to automate and improve interdepartmental communications and efficiency, will pay off as an organization begins to accumulate dollar savings, one invoice at a time.

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.