Uncovering the hidden costs of billing

As a business, you are always looking for costs to cut in order to increase your profit. Your survival depends on it. After all, if no money is flowing into the bank at the end of the day, you really have no reason to exist.

Many businesses underestimate one of the biggest expenses they incur: The cost of getting paid. Sending out invoices and processing payments as they come in is probably costing you more than you know.

In fact, the total cost of billing can be as high as $2.20 for every single billing envelope you send out. The good news is that once you’ve assessed the situation, you’ll discover there are solutions that will save your company enormous amounts of time and money.

It costs you more than paper and postage to send that invoice
Let’s start with the most obvious expense: Paper and postage. Surprisingly, these areas don’t represent as much of the billing cost as you might think. Still, they can be substantial – and constantly increasing. Postage alone has risen nearly 25 percent since 2000. And it’s not over yet.

All in all, the average company spends about 50 to 60 cents to print and mail each and every bill sent – just for postage, paper, envelopes and printing costs. But as we mentioned earlier, that’s only the beginning.

Someone has to stuff that envelope
Before it can be sent, each bill has to be printed, sorted and stuffed in the envelope. Then the envelope has to be sealed, stamped and addressed. For companies that are sending out invoices on a daily basis, the labor cost involved in this process are staggering.

Based on research conducted by Billtrust, the average employee can fold invoices and stuff them into envelopes at the rate of 190 envelopes per hour. Let’s say your fully loaded labor cost is $20 per hour – this includes social security and Medicare taxes, workers’ comp insurance, sick or vacation time – and all the other benefits that add to the cost of employment. This means that just folding and stuffing invoices into the envelope adds another 15 cents to each bill. Sorting the invoices, stamping, addressing and mailing them raises this cost even higher.

Then, what happens when the bill gets paid? Payment envelopes have to be opened, remittance information entered into the accounting package, bank deposit slips must be filled out, and the deposits taken to the bank. This entire process can cost anywhere from 50 cents to $1.50 per bill.

The bottom line: When you account for labor and the processing of payments, it can cost your business $1.10 to $2.20 per invoice just to get paid. If you are sending 25,000 bills per month, this would reduce your annual profits between $330,000 and $660,000. And that doesn’t even take into account the time factor. What other productive things could your employees be doing if they didn’t have to spend so much time sending invoices and processing payments?

Unnecessary equipment costs
Many companies buy or lease much more complex (and expensive) printers and folding machines than they would otherwise need. Then there’s the postage machine, which can run up to $150 per month or more. Each of these machines ties up capital that could otherwise be used to grow your business.

Further, these machines require maintenance. They break down; they require modifications and other hassles. Our research shows companies spend $10,000 per year on equipment and maintenance costs related to bill processing. A business that is sending 25,000 bills per month just added another 3.3 cents to the cost of every bill.

According to the Gartner Group, approximately 10 percent of invoices are disputed – sometimes that number can be as high as 40 percent. Disputes delay payments, which increases critical Days Sales Outstanding (DSO) numbers.

Companies that send out hundreds of invoices a day have a special challenge when it comes to settling disputes, often finding the right invoice can be like looking for the proverbial needle in a haystack.

Disputes do more than just slow payments. They cost money. The same Gartner Group study estimated that the cost to resolve a disputed bill could be as high as $20 per invoice.

Yet even that number pales in comparison to the potential loss of revenue caused by losing an unhappy customer. Unfortunately, billing errors and disputes are frustrating and costly to the payee as well – and often, reason enough for them to defect to your competition.

DSO: The critical measure of billing success
Billtrust recently interviewed credit managers and controllers across a range of industries to identify the factors that drive accurate and reliable bill payment. Almost all of the interviewees defined billing success on their ability to reduce bad debt and to minimize DSO.

It’s been said that the saddest words in the English language are “could have been.” And indeed, the most vicious cost of getting paid is the opportunity cost – what you could have done with the money you spent printing the invoice, paying someone to prepare and send it, settling disputes over it, and processing the payment when it finally arrived.

Management costs are especially painful. Time spent supervising the payment process, purchasing materials, making equipment repair or purchase decisions and revising bills is time not spent on core business tasks. What new profit points could be developed, or innovations discovered, if that time had not been spent on billing?

Now that you’ve uncovered the hidden costs of billing, you’ll be in a much better position to take steps to reduce them. In the same study mentioned above, Gartner estimates that a 5 percent reduction in operating costs has the same P&L impact as a 30 percent increase in sales.

Yet companies that choose to outsource their billing often see an immediate savings of 25 percent or more. That savings continues to grow as the process becomes more streamlined, and customers are moved to electronic invoice delivery.

For more information visit Billtrust online at www.billtrust.com, or call (888) 580-BILL.

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