Search the internet high and low for the cost of Procurement with software vs. without software and you’ll struggle to find actual figures. No one wants to put a number out there because, of course, procurement cost depends on so many variables. 

So how can you determine whether procurement software is right for you with only a vague idea of the relative costs of doing business with and without it? 

It needs to change.  

So in this article, you’ll get some cold, hard numbers to learn the total cost of procurement through traditional methods and the cost reduction with software. For your peace of mind – the numbers are sourced from a mix of industry averages, spend analysis and our own client surveys.

Factors that affect the cost of procurement

When you’re talking procurement, it’s worth breaking down the term into several of the procure-to-pay steps that finance teams deal with. In this case, focusing on three of the most common workflows in procurement: 

1. Invoice data capture
2. Accounts payable processing
3. Making the payment 

For each of these factors, you’ll learn the average cost of the traditional or manual methods, as well as how to automate using software. Then, you can compare the cost of each phase of procurement with vs without software.

Invoice Data Capture

When you receive an Invoice from a supplier, it takes a few different steps to get things ready for payment.

You’ll start with data entry, and then go over everything to proof the information. After any corrections are made, someone in finances will complete the GL coding to properly record the business transaction.

Finally, the invoice must then be processed so that your supply chain can get paid.

Manual invoice data capture costs

Based on the industry average, most invoice clerks can process around 5 invoices per hour. For an employee with experience, this means you’re spending approximately 12 minutes on data entry, proofing, corrections, GL coding and filing. 

Based on the average salary, and full time working hours (including paid leave), this means that each invoice costs approximately $3.44 in data capture labor. 

Note: this is just an example and will vary based on your own salary costs and timings.

Cost of invoice data capture with software

Verified invoice data capture technology facilitates procurement cost reduction through saved time. 

For example, you can set up some rules associated with GL coding based both on historic decision-making and certain conditions. When the conditions match up, the program will automatically fill out your general ledger codes – saving tons of time. 

You can make similar time savings through automating the data entry and inventory management tasks, too. This reduces the chance of mistakes and eliminates the need for proofing or corrections. 

Using invoice data capture technology means that you can comfortably process 30 invoices per hour. Six times the proficiency of manual invoice processing. Based on the same salary numbers as before, this saves approximately $2.75 per invoice in terms of labor and indirect costs – bringing the labor cost of data entry from $3.44 per invoice to $0.69 per invoice. 

Now imagine your accounts department is processing 200 invoices per month. Based on our numbers, that’s a saving of approximately $550 per month, or $6,600 per year.

Accounts payable processing

Accounts payable essentially refers to the process of taking the invoice information, approving it, and then marking it ready for payment. 

It first requires you to set up a vendor profile by entering all the details of your supplier. Then, you’ll need to perform three-way matching to verify that the goods or services you received were exactly equal to what you’re paying for (and what your purchase order said). 

Then, you’ll have to send approval requests for payment. Unfortunately, most businesses end up having to chase the approval two or three times before payment is authorized. 

This time cost almost negates all the hard work you’ve done on strategic sourcing and negotiating with suppliers!

So what’s the processing cost of procurement with software vs. without software?

Manual accounts payable costs

If each of the accounts payable processes are performed manually, you end up spending tons of time on data entry and risk making mistakes along the way. Not to mention waiting on managers for purchasing approval, which if they’re working remotely, could take days.

Through a mixture of direct cost (such as labor) and indirect procurement costs (like waiting around for payment approval), it’s estimated that manual accounts payable costs $14 – $20 per invoice.

AP automation costs

Paperless accounts payable uses optical character recognition technology (OCR) and robotic process automation. This can speed things up throughout the entire procurement workflow without compromising your control over finances. 

For example, OCR allows you to recognize characters in an image. It’s pretty cool since it means your invoices don’t need to be submitted in a particular way and you won’t have to chase suppliers up to re-submit in a compliant manner. 

Moreover, procurement software gives managers the information to authorize payments from any device, in any location. It significantly decreases the time your people have to wait around to pay vendors, giving you the power to negotiate early payment discounts with suppliers.  

A combination of these technologies is estimated to save $3 – $9 per invoice during accounts payable. Using a conservative estimate for hard savings (labor costs) and soft savings (indirect spend), we’ll set this at $4 per invoice. 

Imagine again that you’re processing 200 invoices per month – cost optimization through these methods could lead to a saving of $800 every month or $9600 per year.

Making the payment

In most companies, payment methods are treated as an afterthought. It’s set in stone as it always has been, even though the wrong payment method can make things so much harder for your suppliers. 

Even as procurement matures, teams don’t always make things smoother for their partners.

Instead, we think you should treat payments like dating: your finance department should try out a few and figure out its preferences before initiating a long-term commitment. 

Because frankly, there are lots of different payment methods out there, from check to bank transfer to wire and credit card payments.

Each system has varying benefits and disadvantages, and will suit different company structures. What’s more, each of these methods have processing fees, either for you or the recipient.

The cost of making payments

The cost of making manual payments varies depending on the method you choose – and all but one are expensive. Virtual cards are the cheapest ways to pay your suppliers… but we’ll get to that later.

For traditional payment methods, the average processing fees cost: 

• 2.75% for credit card payments
• $5.14 for checks
• $30 for outgoing wire transfers

Of course, the cost of these processing fees adds up quickly.

The average purchase order costs $217, imagine you’re making 4 per month. Paying by credit card would mean $23.87 in fees, checks would cost $20.56 and paying by domestic wire transfer would cost $120 per month.

The cost of digitizing your payments with virtual cards

By far, the cheapest way to pay your vendors is through virtual cards. Alongside cheap processing costs, this is because virtual cards can actually generate another stream of revenue – in the form of cashback! 

Our virtual cards payment processor generates the industry average of 1% per dollar spent. 

Let’s again imagine you’re making four ‘average’ purchase orders at $217 per month. If you pay by virtual cards, you pay $0 in processing fees, saving an average of $13.70 per invoice on processing costs. On top of that though, you can generate $2.17 in cashback per invoice. 

This would equate to a saving of $15.87 per invoice, $63.48 per month (based on four) or $761.76 per month.

Here’s the cost of procurement with software vs. without software

If you’re looking for a black and white comparison between the cost of performing procurement processes with software and manually, you’re in luck. Here’s a table with the exact costs as calculated by our industry averages:

Start making procurement savings with CoreIntegrator

It’s clear as day that adding the right software to your procurement process can lead to huge cost savings. What’s even better is that these savings scale as you do. 

It’s good to remember that the numbers here are based on averages – but if you know your own costs, we’ve got something else you might like. 

We built an interactive AP automation calculator to help you understand the exact savings you can expect to make. All you need to do is toggle:

• the number of invoices you process annually
• your annual AP invoice spend
• percent of spend through virtual card payments 

Try out the AP automation calculator here and learn exactly how much you could save while working with CoreIntegrator.

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