Digitization of Accounting: Is digital invoice processing worthwhile for low volumes?

Digitization in accounting has made great strides. Accordingly, digital incoming invoice processing software is no longer an innovation today. Processes for automated recognition of document content, especially for incoming invoices, have already been in existence for over 20 years.

Is digitalization in accounting worthwhile, even with a low level of incoming invoices?

Up to now, digital processing of incoming invoices has mainly been used in industry, where the continuous supply of goods means that significantly more invoices have to be processed than in other sectors, such as the financial sector. A glance at the profit and loss statements of financial companies shows that the cost of materials plays only a minor role there.

In this respect, we know the following statement only too well: “With our number of incoming invoices, digital incoming invoice processing is simply not worth it.” But is that really true? In this blog article, we clarify: We present 6 scenarios as examples of how invoices are handled in companies. We also use a concrete calculation example to show that modern digital incoming invoice processing can be worthwhile today, even for low invoice volumes.

Six scenarios for analogous handling of incoming invoices in the company

1. Inquiry about the invoice by means of Post-it – Invoice is distributed to the mailbox of the colleague – Answers the inquiry – Invoice is distributed back to the mailbox of the “inquirer” – Has to get used to it again.
   The consequence: Time delay
2. Invoices remain undelivered, perhaps because the customer is on vacation or on a business trip.
   The consequence: loss of cash discount or reminders.
3. Invoices arrive first by e-mail, then in paper form. Double check, maybe even double payment.
   Consequence: high effort of clarification
4. The classic phone call “Has my invoice been received yet?” or “When can I expect to receive payment?” – Due to a lack of transparency regarding received invoices and their payment deadlines, employees are often unable to provide an answer or must first call through various departments until they receive an answer.
5. Employees have their “home office day”, therefore invoices remain unpaid
6. Employee is new to the company and still knows a digital ERV process from the previous company. But now the company is pretty “oldschool”.

Have you ever heard of this? With a digital ERV, this situation can be remedied, because this is the advantage of automated processing of your invoices:

4 good reasons for modern & digital incoming invoice processing

1. Shorter lead times & shorter processing times

The example of clarifying the “query about the invoice using Post-it” illustrates that the turnaround times for checking an invoice can be lengthy. According to the Institute for Business Informatics Leibniz University of Hanover, the check/release can take up to 14 days. With a digital ERV, turnaround times can be significantly reduced because the query is directly available digitally to colleagues and no time is lost to “delivery.” Of course, the shorter processing time has a positive effect on cash discounts. The actual processing time is also shortened, as the check/release is supported on a form-based basis, important master data is recognized automatically and the number of queries is reduced.

2. future-proof through location-independent working

At the latest since the Corona pandemic, home office & location-independent working has become standard for many companies. This change in the labor market will continue to gain importance in the coming years. With a digital solution for incoming invoice processing, companies have a good answer to these changes and can present themselves to their employees in a modern way.

3. transparency gain

With a digital ERV, authorized employees know the status of every invoice at all times. They can view all invoices and know which payments are due in the near future. And if a query is still “pending”, they don’t have to find out who currently has the invoice, but can check it directly in the software. This saves time, money and nerves.

4. legally compliant archiving

In addition, another problem is solved: invoices are directly archived electronically in compliance with the law. Employees will also no longer have to search for invoices in the future; thanks to the digital archive, they will never have to search for invoices again, but will be able to find them directly. Regardless of whether all invoices from a specific period or all invoices from a supplier are to be displayed, with the metadata search the required invoices are quickly displayed.

The question still remains, is such a solution worthwhile for your own company? To say it in advance: Yes. Or at least: Probably yes.

Because such a solution can be booked almost ready-made from the cloud and – after a little configuration of the personal, own release levels and authorizations – can be used almost immediately. But more on that later.

Is digitization in accounting worthwhile for my company?

There are countless possibilities for ROI considerations of ERV projects. In particular, the personnel costs (manual transfer of invoice data to ERP systems; manual forwarding to responsible auditors and approvers, clarification of queries, etc.) must be taken into account. The amount of the above-mentioned costs is regularly underestimated and there is a lack of transparency.

The topic “clarification of queries” is a good example of this. Typical situation: You have just familiarized yourself with a topic and are fully concentrated, then a colleague from accounting comes by and “only has a small question”, which you can also answer quickly. The actual clarification of the question is quickly done, then it’s back to the actual task. Due to this short distraction, you have lost your focus, you have to reorient yourself and you lose much more time than it seems at first glance. This time is lost. Studies show that this restart time is at least 5 minutes – regardless of the length of the interruption. Thus, the “small query” becomes a time eater.

Process costs of analog invoice processing

Ultimately, many companies ask themselves, “Is this even worth it for me – we’re a small company after all?” We get to the bottom of this question.

In the following, we present the process costs of analog invoice processing:
a) Average processing time per invoice (analog) 19 minutes consisting of:

• Time for invoice entry* 2 minutes
• Time for invoice release* 9 minutes
• Time for booking* 3 minutes
• Search & Find* 5 minutes

Source: Study by Pitney Bowes Management Services (PBMS)
b) Calculated costs per employee per hour: €35.00.

Process costs of digital invoice processing

With digital invoice processing, average processing times drop to 8 minutes per invoice:

• Time for invoice entry 1.5 minutes
• Time for invoice approval 3.5 minutes
• Time for posting 1 minute
• Search & find 2 minutes

Possible improved discount achievement, which is achieved through digital ERV, was not taken into account in our sample calculation, which can have an additional positive effect.

Nevertheless, we would like to remain transparent: Not considered here are the initial costs for the setup, as well as possible interfaces to existing ERP systems. We will be happy to coordinate these individually.

It can be stated: Even with a small invoice volume of 250 invoices per month, there is considerable cost reduction potential.

Cloud technology: the solution for accounting digitization for small businesses?

A key difference between a cloud and an “in-house” (“on-premises”) system is that the fixed start-up costs for a cloud project are much lower than for an on-premises project. With a cloud solution, there are no costs for installation and infrastructure provision. It also does not require hardware, internal maintenance or manual updates.

Especially for the reason of low entry costs, a cloud-based ERV is worthwhile even for low invoice volumes. A preconfigured solution can be made available completely without manual effort. This makes it possible to implement simple ERV projects with just a few man-days.

Another advantage of cloud-based solutions is that they require significantly less IT expertise for an implementation project. The projects run directly in collaboration with the respective specialist departments. This reliefs the internal IT and still enables a personal approval process as well as the implementation of individual requirements.

Cloud-based ERV in the context of financial regulatory requirements.

Companies from highly regulated markets in particular often wince a little at the topic of “cloud”. Of course, there are regulatory and data protection aspects to consider here as well. Let’s take a look at what needs to be considered as a financial company:

The company must evaluate whether the invoice processing process is to be classified as other third-party procurement or a (material) outsourcing in the sense of the regulatory requirements for risk management. In our understanding, the original bank processes are the focus of the regulatory requirements. However, the process of invoice processing is not a typical process of the financial industry, but a general standard process. Incidentally, this process can also be carried out “analog” again at any time, so the digital process is also not of material importance. Furthermore, it is not a process in the sense of risk management control. So there are many good reasons not to classify this process as outsourcing.

And, of course, data protection plays an important role. It is important to ensure that invoices are processed in Germany, or at least in data centers located in the EU, which are geo-redundant and certified (e.g. ISO 27001 or C5). The documents should be secured using the latest encryption methods, both for data storage in the data center and for uploading and downloading. By means of an authorization concept, it must be ensured who has access to these data and documents. By the way: d.velop invoices fulfills all these requirements.