How Much Does it Cost to Collect an Invoice?

September 27, 2020

Every collection process starts with a good invoicing. But how much does it really cost to collect those invoices and process payments?

According to research, 90% of the total cost of collecting invoices is attributed to the tedious labor aspect of the collections process. This isn’t too surprising, as many companies fail to meet these standards due to a lack of automation or an over-reliance on old-fashioned manual processing workflows. To get an idea of how your company stacks up, take a step back and consider your entire invoicing collection process.

Collecting Invoices Cost Variables to Consider

Your manual invoicing costs are a function of several variables, including administrative costs, financing expenses, and costs associated with risk. To begin, take stock of the following processes to get an idea of your accounts receivable cost per invoice.

Processing time per invoice overall
Time spent reviewing, identifying, and correcting errors
Costs related to storing and shipping (for physical invoices)
Total penalties incurred from errors, missed payments, or duplication
Labor hours required to complete invoicing functions

That last point is key — poor invoice collection practices can lead to substantial losses in time, wages, and productivity.

Administrative Expenses

These are the direct expenses that contribute to the cost of processing an invoice, including labor as well as physical assets like paper and postage. This is a big cost sink when it comes to manual processing, and as such, it’s one of the biggest areas where automation in A/R collections management can have an impact.

Look for a system that lets you create digital invoices as the norm, as well as sending/accepting payments electronically. The right automation software will make this easy while also providing handy triggers and invoice/report generation features that will drastically reduce the amount of time spent on manual processing.

Financing Costs

You’ll encounter substantial financing costs when you hold large A/R balances, but you can reduce these expenses by reducing your Days Sales Outstanding (DSO) rate. Start by ensuring that you issue invoices promptly and make sure everything is accurate — any errors will delay your customer’s payment and extend your DSO.

This is another area where A/R collection automation software can help bring costs down. Reduce your DSO and financing costs lower in turn. With a platform like Gaviti behind you, it’s easy to reduce administrative effort and reduce outstanding receivables by 30% — producing big savings across your collections process.

Managing Risk

Every cost per invoice process calculation needs to account for some level of risk. Errors may be made, duplicates may be sent, or the invoice itself may never get paid, forcing you to write it off. If you want to reduce the average cost to process an invoice, managing risk is a good place to start. Of course, not all risk can be accounted for, but accounts receivable collections management software can make things easier.

Invest in automation technology to get more data on each customer’s payment practices, review credit histories, and potential risk overall. It comes down to having the right data available to make smarter choices regarding each customer’s risk. With an automated platform behind you, it’s easy to keep all information together to support your decision-making.

Bring Costs Down With A/R Automation

If you want to learn how to improve the collections process, automation is the best place to start. Many companies have invested in such solutions to reduce manual labor and improve payment efficiency, with broader applications for increasing collaboration and boosting profits. Consider how solutions like Gaviti could streamline your business. Even small changes can produce great effects — and automation is the easiest way to manage your growing A/R process.