The costs of manual and software-supported invoice extraction part 3
This article is the last in our mini-series on the costs of manual and software-based invoice extraction. But first a short recap. In the first article, we looked at the different cost positions that are usually relevant for manual invoice extraction. Often some of these costs are not considered and decisions are therefore made on not quite correct bases. In addition, I presented the sample company Musterfirma AG with its key data, which we use to calculate the costs.
In the second part, we then used the basis from the first part to calculate the average costs incurred per manually processed invoice. What we are now interested in is the costs per processed invoice by means of software, which we will ultimately use for the direct comparison of the two methods.
Calculation of the costs of software-based invoice extraction
Before the Musterfirma AG can use a system for automatic data extraction, this must of course first be implemented in the company’s software system landscape and business processes. Depending on the preconditions and requirements of the company, this can vary considerably and therefore also the costs. Usually, however, such projects are located somewhere in the range of CHF 3’000 to CHF 20’000. What can also vary greatly are the various costs associated with the implementation. Keyword: Change Management. However, we do not take this dimension into account for the following calculations.
The calculation of the direct costs of an automatically processed invoice differs relatively substantially from those of manual processing. Obviously, you no longer have any wage costs for the data entry and you usually have to calculate much less effort to iron out errors in invoices. The latter now probably needs some differentiation and a little more explanation. Let’s start with the differentiation. If you have systematic errors in invoices that are related to a system error or something similar at the supplier, then you will of course still have some effort to clear situation. However, as far as the quality of the pure data capture is concerned (now for to the explanation), with Parashift you have an OCR solution that not only automates the extraction process, but also offers you a complementary product option with which you directly receive high-quality validated data, which is ensured by a multi-stage quality control process. This option differentiates Parashift from other OCR software vendors and reduces the complexity of processes for you quite significantly. Because what you get is data that can be processed directly for downstream processes without any need for interaction on your side.
Now let’s get down to the concrete figures. Instead of having to finance large upfront investments and entering into complex license agreements, Parashift allows you to process documents according to a consumption model. So, the Musterfirma AG pays CHF 100’295.09 for the 240’000 invoices it receives each year, including post-processing and ensuring the correctness of the data. That’s it.
Well, let’s add the expected costs for the revisions. Let’s say that instead of 12.5% of all invoices, only 5% of all invoices need such a triage with an average processing time of 6 minutes. That would be 12’000 invoices or additional direct costs of CHF 58’085.11 (12’000 x 6 minutes / 60 = 1’200 hours and 91’000 gross salary / 1’880 working time p.a. x 1’200 hours). Thus we have a total of CHF 158’280.2 direct costs.
Because we have included a residual value for potential revision of problems with invoices in the direct cost, we should of course also budget for a part of this in terms of indirect costs. For the sake of simplicity, let’s take the same percentage – 40% – of the indirect costs as we did above for the direct costs. So instead of CHF 92’287.55 we take CHF 36’915.02.
Other indirect costs such as maintenance and the like do not occur with Parashift’s software. Updates are also made available continuously without any further effort.
The opportunity costs are also different with Parashift’s extraction solution. Cause what you achieve with it is that you can relieve your employees of work that does not directly add value and use them elsewhere instead. However, because we want to remain as close to reality as possible, we also take a residual value into account in this cost dimension, since we still assume that in certain cases, clerks will have to carry out investigations. Here again, we take the same lower ratio of invoices that need to be revised. Instead of CHF 115’359.44 before, we therefore calculate with CHF 46’143.78.
Soooo… Anyone who has done the math will have noticed that the cost difference between manual and automated invoice processing is relatively significant. For 240’000 invoices per year, the Musterfirma AG paid a hefty CHF 669’084.76 for manual data entry, whereas with the Parashift solution, which also includes optional data validation, this is only CHF 241’439, i.e. a little more than CHF 1 per document. And do not forget… In addition to the software costs, we have also taken into account the costs incurred by the clerks of the Musterfirma AG (with overhead and opportunity costs) in revision cases. The costs with software-based invoice extraction are therefore just 36% of the original costs. It is time to change something here as soon as possible I’d say.
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