Do large organizations spend an average of $25 per invoice to issue a bill and collect payment?

Almost a year ago, one of our blog articles reported that the leading research companies who look at international billing and payment issues on an ongoing basis, (including perhaps the leader in the field of billing research -Billentis) said that on average, the overall cost of sending out a bill or invoice and then collecting payment from the customer, is £17 per invoice or around $25 (based on data in Europe for the year 2010). We also pointed out that many merchants were disbelieving of this figure, suggesting that they spend nowhere near that kind of money on such a mundane and clerical activity.

Although individual merchant data is often difficult to come by, a private study of the billing and collections practices of three very different organizations was made available recently and the data sheds some light on the real costs that are experienced. These three relatively large organizations were an electricity utility, a city/council organization and a regional telecommunications enterprise. All of these are US based and currently bill their customers with a physical bill in the mail. All three offered payment via their web site but take-up is less than 5% of the combined customer base (a total of 540,000 customers across all the organizations that are billed each month).

What did the study show?
These organizations classified their costs of issuing bills and collecting payment into “direct” and “indirect”. Direct costs included:
• Invoice bill/file preparation time
• Bill printing
• Envelopes
• Postage/Franking
• Payment type fees (fees on credit/debit cards etc)
• Bank fees

The estimated average direct cost for these companies was $6.50 per bill

Indirect costs included:
• Customer service manpower to handle calls/queries or take phone payments
• Accounting/Reconciliation time
• Lost invoices (and the time taken to deal with this)
• Undelivered bills (and the time taken to deal with this)
• The cost of bill storage (space rental or fixed costs)
• Bill query handling time
• Additional or extra payment transaction fees that were unexpected
• Invoice/billing run or payment processing errors
• The need for a higher than wanted or necessary financing to cover outstanding receivables
• Slower than expected bill settlements
• Extra costs associated with compliance/regulatory issues

Of the above, the first two items (call-centre and account reconciliation costs) accounted for about 80% of the indirect costs, which on average were stated to be $18.00 per customer invoice.

So in summary, these three companies suggested that their real costs were a total of $24.50 per bill, based on real internal data from the year 2011. At least for these large merchants therefore, the Billentis estimate looks to be pretty accurate and it is even more reason for merchants of all types and sizes to look very carefully at finding ways to reduce these costs. One immediate solution, of course, is to adopt  online digital billing and payment practices by partnering with a third-party bill presentment and payment portal such as PaySwyft (where these costs can be cut in half very quickly).