Managing bills may appear simple, but the hidden expenses can add up quickly, draining time, money, and resources. Every stage, from getting an invoice to completing a payment, reduces your company’s efficiency. Understanding these costs is critical for lowering overhead and improving cash flow.

Why should you care? Because cutting back on these unnecessary expenses can make a major impact.  Manual methods slow things down, increase errors, and require more labor. However, with the right technique, particularly through automation, you can save time, reduce oversights, and cut costs. 

See how understanding invoice processing expenses can help your business run more efficiently and save money.

What Are the Main Steps Involved in Invoice Processing?

Invoice processing consists of multiple vital steps, each of which adds to the total cost. Whether a corporation uses manual or automated techniques, these stages require employees, technology, and time, all of which impact invoice processing costs. Understanding these steps in detail enables firms to identify areas for improvement and cost savings.

1. Invoice Receipt

You can receive invoices in a variety of formats, including email, paper, and electronic data interchange (EDI). The cost of this stage varies significantly depending on the format. For example:

  • Manual process: Physical invoices need to be individually sorted, scanned, and entered into the accounting system. This can require significant labor and time, especially for businesses that deal with high invoice volumes. Manual data entry also increases the risk of errors, leading to potential rework and additional costs.
  • Automated process: With automation, invoices are received and processed digitally. This not only reduces labor but also speeds up the process. Electronic invoices can be captured and automatically entered into the system, minimizing the risk of human error. Though there may be upfront costs for implementing an automated system, the long-term savings can be significant.

2. Invoice Validation and Data Entry

Once an invoice is received, the next step is validation, which involves confirming the accuracy of the invoice details, such as vendor information, invoice number, and payment terms. This step is crucial to avoid issues like duplicate payments or processing fraudulent invoices.

  • Manual process: Manual procedure: Staff manually verifies each invoice by comparing it to contracts, purchase orders, and the goods received notes. This requires a lot of work and effort, particularly when supporting documents are jumbled up among departments or difficult to locate.
  • Automated process: Automated systems use pre-set rules to validate invoices. They can match invoices against purchase orders or delivery receipts without manual intervention, reducing both labor and the risk of errors. Automating this step greatly reduces costs by minimizing the time needed for manual checks and corrections.

3. Invoice Approval

Invoice approval is the process where the relevant manager or department reviews and approves the invoice for payment. This step can introduce delays, especially in companies with manual workflows that require physical signatures or routing between departments.

  • Manual process: Approval workflows can be slow if they depend on paper-based processes or email chains. Tracking down approvals can lead to bottlenecks, increasing processing time and costs. For larger organizations, managing approvals across multiple departments can further increase labor costs.
  • Automated process: Automation speeds up approvals by using digital workflows. Invoices can be automatically routed to the correct person or department for approval. Notifications can remind approvers to take action, savig from delays. This streamlined process reduces labor costs and the time required to obtain approvals, significantly cutting overall invoice processing costs.

4. Invoice Payment

Once approved, the invoice moves to the payment phase. The costs involved in this step vary depending on the payment method chosen (e.g., electronic transfer, ACH, or credit card) and the systems used to initiate payments.

  • Manual process: Payment requires staff to manually enter payment details into the system, initiate the transaction, and make sure the payment is recorded accurately. This step incurs labor costs and is prone to errors, which may lead to payment delays or even double payments. Moreover, manual processes often result in late payments, leading to penalties or strained vendor relationships.
  • Automated process: Automated payment systems can handle payments electronically, integrating directly with the company’s accounting software. This not only reduces labor costs but also makes sure payments are made promptly. Automation also improves accuracy, reducing the risk of errors and avoiding late payment fees.

5. Exception Handling and Issue Resolution

Not all invoices are processed smoothly; discrepancies or missing information may result in exceptions that need to be resolved. Exception handling, such as disputing invoice amounts, verifying incorrect data, or addressing missing documents, can significantly impact the cost of invoice processing.

  • Manual process: Handling exceptions manually requires additional staff time to investigate the issue, contact vendors, and resolve discrepancies. This can be a lengthy and costly process, especially if a high volume of invoices encounters issues.
  • Automated process: Automated systems often have built-in mechanisms to flag exceptions early in the process, enabling quick resolution. Automation reduces the time needed to address discrepancies by providing a clear audit trail and immediate access to supporting documents.

6. Record Keeping and Compliance

Invoice processing does not end with payment; maintaining accurate records and ensuring compliance with tax and regulatory requirements is a vital step. Businesses need to store and manage invoices for future reference, audits, or tax filings, which adds to the overall cost.

  • Manual process: Storing physical invoices and ensuring they are properly organized and retrievable is time-consuming and costly. Additionally, compliance-related tasks, such as preparing invoices for audits, often require substantial effort from the accounts payable team.
  • Automated process: Automation offers a more cost-effective solution by digitizing records and making them easily searchable. With automated systems, businesses can quickly retrieve invoices and make sure compliance with regulations, such as tax reporting or internal audits. This not only reduces storage costs but also minimizes the labor required for compliance-related tasks.

What Is the Average Cost To Process an Invoice?

The cost to process an invoice can vary significantly depending on factors such as the size of the business, the complexity of the invoicing system, and whether manual or automated processes are used. On average, studies estimate that the cost to process a single invoice ranges from $3 to $15 for businesses with automated systems, while it can soar to $12 to $40 for businesses relying on manual processes. For some large enterprises, the cost may even reach as high as $50 per invoice due to inefficiencies and high labor costs associated with manual handling.

Key Factors Affecting Average Invoice Processing Cost

Manual vs. Automated Processing

    • Manual processing typically involves multiple steps, such as physical receipt of invoices, manual data entry, approval workflows, and payment execution. This results in higher costs, as it requires more labor, time, and resources. Companies that still rely on paper-based invoices may also face additional costs related to paper storage, postage, and printing.
    • Automated processing, on the other hand, dramatically reduces these costs. Automated systems streamline the entire process—from receiving invoices electronically to routing them for approval and making payments. With automation, businesses can reduce labor costs and minimize errors, resulting in a much lower average cost per invoice, often between $3 and $6.

2.  Labor Costs Labor is one of the biggest components of invoice processing costs. Manual processes demand a higher level of human involvement, such as sorting, data entry, verification, and follow-ups, which significantly increases the cost. For example, an accounts payable team member may spend hours reviewing invoices, chasing approvals, and ensuring timely payments. These labor-intensive steps drive up the cost, especially for high-volume invoice processing environments.

3. Payment Methods The type of payment method used also impacts the cost. For instance, processing payments via check can be more expensive due to the need for printing, mailing, and reconciling checks. Conversely, electronic payments such as ACH transfers or credit cards are generally more cost-efficient, particularly when handled through an automated system. However, some electronic payment methods (like credit cards) can come with processing fees, adding to the overall cost.

4. Error Resolution Errors in invoice processing, such as duplicate payments or incorrect data entry, can escalate costs. Resolving these errors often requires additional time and labor, especially if the business uses a manual system. Invoice discrepancies or disputes may require multiple rounds of communication between vendors and the accounts payable team, adding to the overall cost per invoice.

Benchmarks for Invoice Processing Costs

  • Small to medium-sized businesses: For businesses that process a smaller volume of invoices (e.g., less than 1,000 invoices per month), the average cost to process a single invoice manually can range from $12 to $30. These companies may not have the resources to invest in full-scale automation, making manual processes more common.
  • Large enterprises: Larger organizations that process thousands of invoices every month typically face higher average costs per invoice due to the complexity and scale of their operations. Manual processes in large businesses can cost anywhere from $30 to $50 per invoice. Whereas, companies that fully automate their accounts payable processes, can significantly reduce their costs, lowering the average cost to around $3 to $6 per invoice.

How Invoice Volume Affects Cost

Invoice volume influences the average cost of processing an invoice. Companies that use automated systems can frequently achieve economies of scale as their invoice volume grows. Businesses that process a high volume of invoices can lower the average cost by spreading fixed infrastructure and system costs across a larger number of invoices. For example:

  • A company processing 1,000 invoices per year with a manual system might incur an average cost of $20 to $30 per invoice.
  • A company processing 100,000 invoices per year using an automated system could reduce that cost to as little as $3 to $5 per invoice due to automation efficiencies and bulk processing advantages.

Hidden Costs of Manual Invoice Processing

In addition to the direct costs mentioned above, manual invoice processing can incur hidden costs that inflate the average expense:

  • Late payment fees: Manual processes are slower, leading to missed payment deadlines and associated late fees.
  • Duplicate payments: The lack of automation increases the risk of paying the same invoice multiple times, resulting in financial losses.
  • Vendor relationship strain: Delayed payments and frequent errors can harm relationships with vendors, leading to less favorable payment terms or loss of trust.

By reducing these hidden costs through automation, businesses can not only lower their average invoice processing cost but also improve overall efficiency and vendor relationships.

 How Do You Calculate Invoice Processing Costs?

The total cost of processing an invoice can be broken down into multiple components. Here’s how you can calculate it:

1. Labor Costs

Labor represents the most significant portion of invoice processing costs. It includes the salaries of accounts payable staff who handle the following:

  • Invoice receipt and entry.
  • Invoice validation and approval.
  • Payment processing.

2. Cost of Infrastructure

Infrastructure costs cover the expenses of tools and systems used to process invoices, such as:

  • Accounting software.
  • Office space for accounts payable departments.
  • Data storage for paper or electronic invoices.

3. Payment Costs

If your business uses electronic payments, additional costs such as transaction fees may apply. These can vary depending on the method of payment:

  • ACH payments: Typically low-cost.
  • Credit card payments: Higher transaction fees, often around 2-3%.

How Many Invoices Can Be Processed in an Hour?

The number of invoices processed per hour depends on whether the process is manual or automated. On average:

  • Manual processing: Around 5 to 10 invoices per hour.
  • Automated processing: 50+ invoices per hour.

What Is the Cost To Process an Invoice With a Credit Card?

Credit card payments tend to increase the overall cost of processing an invoice due to transaction fees. Companies may face costs ranging from 2% to 3% of the invoice amount. This makes credit card payments a relatively expensive option compared to ACH transfers or other payment methods.

What Is the Invoice Processing Cost for a Company That Processes 100,000 Invoices per Year?

For companies processing large volumes of invoices (e.g., 100,000 per year), total processing costs can be significant. Here’s a rough estimate:

  • Manual process: At an average of $12 per invoice, processing 100,000 invoices can cost $1.2 million per year.
  • Automated process: At around $3 per invoice, the cost would be $300,000 per year.

By automating invoice processing, companies could save over 75% in processing costs.

What Are the Benefits of Invoice Processing Automation?

AP Automation software can drastically reduce the cost of processing an invoice. Some key benefits include:

  • Reduced labor costs: Fewer staff are required for manual entry, validation, and approval.
  • Increased accuracy: Automation reduces human errors, cutting down on rework and disputes.
  • Faster processing: Automated systems can handle high volumes of invoices in a fraction of the time.
  • Improved compliance: Automation helps businesses adhere to regulatory requirements more efficiently.

Cost of Processing an Invoice Example

Let’s look at an example to better understand the cost of processing an invoice. Consider a small business that manually processes 1,000 invoices per month:

  • Labor: $20 per hour, with 10 invoices processed per hour = $2 per invoice.
  • Infrastructure: $500 per month for software = $0.50 per invoice.
  • Payment fees: $0.20 per invoice (ACH).

Total cost per invoice = $2.70.

By switching to automation, the business could potentially reduce this to under $1 per invoice.

Cost of Processing an Invoice Formula

To calculate the total cost of processing an invoice, you can use the following formula:

Invoice Processing Cost=(Labor Cost+Infrastructure Cost+Payment Costs)/Number of Invoices Processed\text{Invoice Processing Cost} = (\text{Labor Cost} + \text{Infrastructure CoUnderstanding Cost of Invoice Process Automation for Accounts Invoicing 

st} + \text{Payment Costs}) / \text{Number of Invoices Processed}Invoice Processing Cost=(Labor Cost+Infrastructure Cost+Payment Costs)/Number of Invoices Processed

Cost of Processing an Invoice Calculator

Several online tools can serve as an invoice processing cost calculator, providing businesses with insights into their specific processing costs. Using these tools allows companies to:

  • Identify cost-saving opportunities.
  • Estimate potential savings from automation.

How Much Does It Cost To Process an Invoice?

As discussed, the cost to process an invoice can vary widely based on your company’s size, the volume of invoices, and whether you use manual or automated methods. However, typical processing costs range between:

  • $7 to $15 per invoice for manual processing.
  • $3 to $6 per invoice for automated processing.

By understanding and managing these costs, businesses can implement strategies to reduce their invoice processing expenses and improve overall financial efficiency.

 Automating the invoice process can dramatically reduce costs and improve efficiency for businesses, but it’s essential to understand the associated costs involved in implementing and maintaining automation systems. While the long-term savings from automating the invoicing process can be substantial, the upfront investment and ongoing expenses depend on several factors, such as the complexity of the system, the number of invoices processed, and the specific features required by the business.

1. Initial Setup Costs

The initial cost of invoice process automation can vary depending on the type of software or system being implemented. These costs include purchasing the software, setting up necessary infrastructure, and training staff to use the system effectively. Some common components of setup costs include:

  • Software Licensing Fees: Businesses typically pay for invoice automation software through one of two models—subscription-based (Software-as-a-Service, SaaS) or one-time purchase of licensed software. SaaS models usually charge monthly or annual fees based on the number of users or the volume of invoices processed. On average, small and mid-sized businesses may pay around $50 to $300 per month for SaaS solutions, while larger organizations may incur costs of $500 to $5,000 per month for more advanced features.
  • Custom Integrations: If a business needs to integrate the invoice automation system with its existing enterprise resource planning (ERP), accounting, or payment systems, custom integrations may be necessary. Integration costs depend on the complexity of the business’s current systems and the level of customization required, ranging from $2,000 to $10,000 or more for large-scale implementations.
  • Infrastructure Costs: Some systems require additional hardware or network upgrades to support invoice automation, although most modern solutions are cloud-based and do not require significant infrastructure investment.
  • Training and Onboarding: Transitioning to an automated system requires training staff to handle the new workflows. Training costs can range from $500 to $5,000, depending on the size of the team and the complexity of the system.

2. Ongoing Costs

Once the system is implemented, there are recurring costs to consider for maintaining and upgrading the automated invoice processing system.

  • Subscription Fees: SaaS systems usually impose recurring costs according to subscription tiers or use. Subscription rates for small firms that handle a small volume of invoices could range from $50 to $500 each month. Larger businesses should budget between $1,000 and $10,000 per month for complicated demands and higher invoice volumes.
  • Maintenance and Upgrades: On-premise solutions might need continuous IT support, covering security, upgrades, and system upkeep. These expenses can range from 15% to 20% of the system’s initial cost per year. Cloud-based solutions frequently incorporate upgrades as part of the subscription charge.
  • Support and Customer Service: Many automation service providers offer premium customer support packages at additional costs, ranging from $100 to $1,000 per year depending on the service level.

3. Cost Savings Through Automation

While automation incurs initial and ongoing costs, the potential savings in labor and time are significant. Businesses that automate their invoice processing often see a reduction in cost per invoice from manual processes (which range between $12 and $30 per invoice) to $3 to $6 per invoice through automation.

Key areas of savings include:

  • Reduced Labor Costs: Automation eliminates the need for manual data entry, validation, approval routing, and payment processing. This reduces the staff hours required for invoice handling, allowing businesses to reallocate resources or reduce headcount in accounts payable.
  • Improved Accuracy: Automating the process reduces human errors, such as duplicate payments or incorrect data entry, which can lead to financial loss or delays in payment processing. By minimizing errors, businesses save on costly corrections and rework.
  • Faster Payment Cycles: Automated systems enable faster invoice approval and payment, allowing businesses to take advantage of early payment discounts from vendors. These discounts can be substantial, typically 1-2% of the invoice amount if paid early.
  • Compliance and Reporting: Automated invoice systems often include built-in features for compliance and audit tracking, reducing the time and labor required to prepare for audits or meet regulatory requirements. This reduces the cost of compliance management and audit preparation.

4. Automation ROI: Return on Investment

Invoice processing automation typically pays for itself within the first year, particularly for businesses that handle a large volume of bills. The average cost savings from automating invoicing operations can range between 50% and 80%, depending on the volume and efficiency.

For example:

  • A company processing 10,000 invoices per year at a manual cost of $20 per invoice could reduce their cost to around $5 per invoice with automation, leading to savings of $150,000 per year.
  • A large organization that processes 100,000 invoices per year could reduce manual costs from $30 to $3 per invoice, saving more than $2.7 million per year.

5. Scalability of Automated Systems

Scalability is one of the most significant benefits of automating invoicing. The system can handle more invoices without increasing costs as the company’s size and invoice volume grow. The majority of SaaS platforms offer usage-based, scalable pricing, allowing businesses to pay for only what they use and avoid expensive upgrades. 

6. Long-Term Benefits of Automation

  • Improved Vendor Relationships: Faster, more accurate payments lead to stronger vendor relationships, which often result in better terms or early payment discounts.
  • Enhanced Security: Automated systems include security features like encryption and access controls, reducing the risk of fraud or data breaches.
  • Real-Time Insights: It provides real-time analytics and reporting, giving businesses better control over cash flow, outstanding payments, and their invoice status.

Conclusion

To optimize your accounts payable operations, you must first understand the costs associated with invoice processing. Businesses can significantly cut expenses, process invoices more efficiently, and increase overall productivity by determining these costs and bringing in automation.