Every invoice your accounts payable team touches has a price attached to it. And while that’s literally true, considering the invoice needs to be paid, your organization also pays for the labor involved in invoice processing. While there isn’t a specific amount for each invoice, there are formulas to determine how much each invoice costs an organization.
The good news is that reducing cost per invoice doesn’t require hiring more people. Instead, removing the manual touches, exceptions, and delays will help to bring your cost per invoice down. But where does your organization start in this process? First, you’ll need to know how to calculate your cost per invoice and what drives it up. Then, we’ll discuss seven practical strategies to bring it down.
What is cost per invoice?
Cost per invoice is the total cost to move a single invoice from receipt to payment. It includes labor, software, overhead, and the time spent fixing errors and exceptions.
How to calculate cost per invoice
Add up your total AP processing costs for a period, then divide by the number of invoices processed in that same period.
Cost Per Invoice = (Labor + Technology + Overhead) / Number of Invoices Processed
For an accurate number, include:
- Labor: Fully loaded salaries and benefits for AP staff, plus time approvers and managers spend on invoices.
- Technology: AP software, OCR or capture tools, ERP licensing allocated to AP, and IT support.
- Overhead: Paper, printing, postage, check stock, storage, and office space.
- Any other AP costs associated with processing an invoice
Example: An AP team spends $45,000 a month in total costs and processes 4,000 invoices. Its cost per invoice is $11.25.
What drives invoice processing costs up?
High cost per invoice is almost always a symptom of too many human touches. These are the most common culprits:
- Manual data entry
- Paper and email-based intake
- Exceptions
- Slow approval routing
- Supplier inquiries
- Paper checks
If your exception volume keeps climbing as the business grows, that’s often a sign you’ve outgrown your current process or tools.
ICG Tools to Reduce Cost Per Invoice
Automate invoice capture with intelligent document processing
ICG’s IDP tools read invoices in any format, extract header and line-item data, and validate it against your ERP. This means that your team reviews only what the system flags, rather than keying every field. ICG’s IDP solution is tuned using your own invoices, meaning that the rate of extraction improves over time.
Centralize and standardize invoice intake
When invoices arrive through a dozen channels, someone has to sort them. Route everything to a single inbox or intake point, and set clear submission requirements for suppliers.
At ICG, we recommend a vendor portal for invoice intake. Creating one place designated for invoice ingestion makes it significantly easier to collect invoices, and vendor portals improve supplier relationships and communication over time. Additionally, depending on the visibility you choose to give to your suppliers, there can be a large reduction in the “where is my invoice” calls and emails common in AP.
Find the root cause of exceptions
Exceptions are a significant source of hidden costs in AP. To find out why they happen, track every exception by type and supplier for 30 days. You’ll usually find that a small group of suppliers or a few recurring issues, like missing POs or pricing mismatches, cause most of them.
Additionally, with AI-powered analytics and reporting technology, your team can find reasons for exceptions faster.
Automate PO matching
Two-way and three-way matching compare invoices against purchase orders and receiving records. When automated with ICG’s solutions, it lets clean invoices flow straight through to approval with no human touch, a goal often called touchless or straight-through processing.
Implement and streamline approval workflows
Route invoices automatically based on amount, department, or GL code. Give approvers tools and automatic reminders. It may also be beneficial to build in automatic escalations or rerouting if an approver doesn’t respond or is out of the office. Fewer approval steps on low-risk, PO-backed invoices means faster cycles and fewer missed discounts. ICG’s approval workflows ensure that invoices keep moving automatically instead of getting lost on someone’s desk.
Give suppliers self-service visibility
As we discussed previously, ICG’s vendor portal lets suppliers submit invoices, check status, and see payment dates on their own. That drastically decreases the calls and emails that eat into AP’s day, and improves data quality at the source.
Move payments off paper
Shift supplier payments from checks to ACH, virtual cards, or other electronic methods. Electronic payments are cheaper to issue, easier to reconcile, and far less exposed to fraud. Some, like virtual cards, can even earn rebates. ICG’s vendor onboarding solution is a good place to get this started at the source. In your onboarding packet, only offer specific types of payment information or offer discounts to those who choose specific payment methods.
How to measure your progress
Cost per invoice tells you where you stand. These companion metrics tell you why, and show whether your changes are working.
| Metric | What it tells you | Direction you want |
|---|---|---|
| Invoice cycle time | Days from receipt to approval or payment | Decrease |
| Exception rate | Share of invoices that need manual intervention | Decrease |
| Touchless processing rate | Share of invoices processed with no human touch | Increase |
| Invoices per AP FTE | How much volume each team member handles | Increase |
| Early-payment discounts captured | Savings you’re earning by paying on time | Increase |
| Electronic payment share | Share of payments made by ACH, card, or other digital methods | Increase |
Measure your baseline before making changes, then review monthly. As exception rates fall and touchless rates rise, cost per invoice follows.
Lower your cost per invoice with ICG Innovations
Reducing cost per invoice is all about giving your AP team a process where clean invoices flow through on their own, and people spend their time on the work that needs judgment.
At ICG Innovations, we’ve been helping businesses drive process efficiency since 1990. We partner with AP and finance teams to automate invoice and statement processing, reduce exceptions, and give suppliers self-service visibility through vendor portals. We start by understanding your current process, then build a solution that fits how your business actually works.