The true cost of paying by invoice

At the end of last year I got on a call with the financial controller of a large school district in Washington State. I wanted to better understand how they managed spending across their 60+ schools.

It was fascinating to learn about the complexity of their administrative systems – both how they used them and, as a state owned organization, how they procured them.

One thing that stood out was that they had taken the time to calculate the cost to the organization in paying for a supplier for a good or service via a credit card transaction (SAAS for instance), vs the cost if the supplier needed to be paid by a more traditional invoice.

The difference was $17. Per expense.

They determined that an invoice costs on average of $39 to process. This was broken down into steps including:

  • Receipt of the invoice
  • Entering the data into the accounting system
  • Confirmation that the purchase was authorized
  • Initiate payment via their banking system
  • Communication with the supplier and internal point of contact

A credit or corporate card purchase on the other hand costs them only $22 to process. It might seem obvious in hindsight but this is because there are far fewer steps involved in making the purchase, which means fewer hours for the finance team.

The authorized purchaser simply makes the purchase, creates an expense and submits it for review. It’s reviewed in the system and verified. Then you’re done.

$17 might not sound like a lot but it’s an almost 60% difference in your administrative costs. For a school district with 60+ schools, each with over 1000 students, this quickly adds up.

Invoices aren’t just an antiquated way of processing a payment for a supplier, they’re also inefficient and expensive for your business.

So the next time you’re paying a supplier and have the option of paying via credit card or an invoice if everything else is equal consider going the card option. It won’t always make sense but more often than not the admin burden wins out.

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