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Sep 03

Reducing the cost of invoices

The costs of processing invoices

Make the invoice process more efficient

One of the factors that are rarely considered in procurement is the processing costs of invoices. Even when people do bother to take into account TCO (total cost of ownership) it’s a step that often not considered.

So what are the costs?

Obviously, much, though not all, of it is time.

  • Purchase order (PO)
  • Sign off
  • Submitting
  • Receiving invoice
  • Processing
  • Payment
  • Receipt Correlation
  • Supplies
  • Errors

One expert has told me that it can take as much as £80 to process a single invoice, and I’ve heard for larger corporations it can be as much as £140.

What can we do to reduce these costs?

The first step is to do with authorising costs. Who gets to sign off purchase orders, and what amounts are involved.

I can give you two different examples. One law firm I know off required everything above £50 to be signed off by the CEO himself! Every expense form, every marketing invoice, every IT cost. On the other hand, there is a marketing department that has free reign on anything under £15 000 before higher levels had to be involved.

Most likely, you’ll be looking at something in between. But there are two ways to make it more efficient still.

Have enough authorised signatures around. It’s nothing but frustration having to wait for the one or two signatories you need to get back from holiday, field trip, or far-flung meeting. It also causes delays, which can have repercussions further down your supply line.

Secondly, categorize. The other way to make the process more efficient is to delegate different types of expenditure to different levels of seniority, and to different amounts.

It might end up looking something like this:

Self-sign off.

Value:  up to £50. Categories: Books, stationery.

Line managers sign off.

Value £250. Categories: Software, office equipment, external print work.

Senior management sign-of.

Value £250 upwards. Categories: everything else.

Clearly, if you are large enough to have separate departments, IT and marketing costs will be dealt with internally, but the same principles can apply internally.

So how do you decide which categories are which? You may have heard of the Kraljic matrix, which we used last month as the basis of our model of volunteer relationships.

Routine items are those which are those items which, in a small office, are brought often, if not regularly. You could do a lot of shopping around for these items, but the time spent on doing so (unless you have time and skillset for an official procurement review) is unlikely to be matched in savings. For these sorts of items, automating the process as much as possible is the way to find the true efficiencies. And, as there are likely a large number of these, automating it can reduce errors.

For example, using a browser with a secure password manager, such as Last Pass, a number of people should have access to online accounts that are paid by the credit card. Receipts are then printed off, collated with the monthly statement and then signed off by at least two people. Again, make sure your team know your monthly credit card limit and have the ability to pay it off in full.

So hopefully, we now have a more efficient purchasing process, with clear guidelines and areas of responsibility.

The next big headache to deal with is errors.

The types of invoicing errors most commonly come across are:

  • Delivery errors
  • Payment errors
  • Missing invoices

Delivery errors are often particularly annoying. Either the wrong item or the wrong unit count turns up, and you don’t have time to check immediately. Many companies make a point of saying that you need to check on delivery. Well, that’s just not the case. Their responsibility does not end with delivery, but with fulfilment of the terms of the contract, which means the right goods in the right place. But where ever possible, check as soon as you can and let them know of any difficulties. Of course, if it’s over £100 and on you paid with your credit card, remember to read this!

Payment errors. Well, that’s really in the hands of accounts payable department. But make their life as easy as possible by keeping accessible and clear records, and making sure you go through their processes as well!

Missing invoices. Sometimes invoices go missing. “Meh, big deal. They can wait” you might think. Well, even if you are not dealing with companies that provide goods and services with invoice conditions that accrue interest (which can be 8% on top of base rates) you are damaging your relationship with your supplier. Of course, they will still want to supply you, but their payment terms might become harsher for you if you regularly miss payments. And they are less likely to come through for you in emergencies. Finally, it’s not unheard of for even the largest organisations to get a county court judgement against them, making credit for larger purchases well-nigh impossible.

To help avoid missing invoices, obviously clear filing is a must. But an often forgotten aspect is that as invoices are often emailed – who has access to the emails? The simplest way for a small organisation is to set up forwarding rules to make sure that regular suppliers have their emails forwarded to the relevant people, or set up distribution lists to receive invoices (clearly printed on the PO and in email correspondence). That way, there is less likelihood of invoices not being on hand.

 

We hope this helps!

 

Image courtesy of Freedigitalphotos.net