What is the cost of P2P friction?
The force of gravity was famously discovered in the 17th century by Sir Isaac Newton as he watched an apple fall to the ground—or perhaps as he was hit on the head by one—and struggled to understand why it fell perpendicularly to the ground, rather than sideways. The force of P2P friction, on the other hand, is rediscovered every day by AP personnel who struggle to pay invoices in a timely fashion.
While it’s tempting to think about P2P friction as a universal force like gravity, it’s also important to remember that the inefficiency of AP processes varies greatly across companies. While all businesses will struggle to some degree with slow and clunky AP practices, some suffer more from its effects.
For example, recent metrics from APQC, featured on CMO.com, revealed average costs per invoice across 1,485 organizations. Total costs to process accounts payable from the report included labor, outsourcing, overhead, systems, and other AP process costs. The total cost was then divided by the total number of invoices processed by each organization. Businesses in the top quartile averaged $2.07 per invoice. Organizations at the median spent $5.83 per invoice to do the same task. The bottom quartile shelled out $10 or more per invoice—over four times the spend of top performers.
While instructive, APQC cautioned that the numbers need to be read in context. Just as the force of gravity depends on the size of the bodies in question and the distance separating them, P2P inefficiencies vary according to a number of factors. Accordingly the cost of processing an invoice can fluctuate significantly from company to company. Considerations such as company size, staff salaries, invoice volume, and technology utilized (or the lack thereof) play a part. Businesses that trade internationally may have to comply with additional rules and regulations, which take time and therefore add cost. Thus, comparing cross-industry benchmarks is like comparing apples to oranges.
Regardless of externalities, automation is the only way forward. It’s interesting to note that the APQC metrics are slightly lower than those from IOFM research in 2016, perhaps reflecting the increased use of e-invoicing platforms.
Of course, adoption rates are inconsistent, and APQC points out that the role of automation varies from business to business, and from industry to industry. Government and pharmaceuticals are two sectors that are just beginning to make the transition.
The fact that some businesses are paying more than others to handle incoming invoices suggests that the playing field is not yet level when it comes to AP processes. And while smart competitors are taking advantage of early AP automation adoption, those of us on the sidelines can see that it won’t be a truly fair competition until e-invoicing has evened out the competitive environment for everyone