You’ve heard the term Accounts Payable a thousand times, maybe even a million. It’s probably instilled in your mind and has become second nature at this point. Or maybe it hasn’t.
Either way, it’s okay. We’re here to give you the 411 on everything you need to know in relation to Accounts Payable.
Accounts Payable is the money due to vendors or suppliers for goods or services received. In short, it is money that has not been paid yet.
Accounts Payable could be anything from ingredients and disposables to your lease and licenses you need to operate your restaurant.
For restaurant operators, this process can be laborious, frustrating, and unreliable. Accounting itself is already stressful. When you’re a fast-paced restaurant, you have invoices coming in almost every day. It’s hard to keep up with every single order you receive… and having to count and process it all too?! Forget about it. Nobody has the time for that, especially in 2022.
Keeping Track of Numbers
When running a restaurant, it’s important to keep your numbers accurate and consistent. Whether it’s your food costs, cost of goods sold, or inventory—you never want to see errors.
Although, when you’re making multiple orders every week, you’re bound to come across vendor payment issues every so often. This ranges from delays to late fees, increased operational costs, or even strained relationships between you and your vendors. Nobody wants to experience this, but unfortunately, sometimes it’s inevitable.
You want to make sure you’re keeping track of your payment schedule as soon as you receive an invoice. The best way to do this is to keep track of inventory in a timely, organized manner. It’s easy to misplace files when you have hundreds coming in regularly. This is where technology comes in.
It’s important to upload your inventory somewhere that is easily accessible and effortlessly manageable. We recommend utilizing technology such as Food Cost Management because it becomes easier to manage food costs and reduce food waste.
This also means monitoring your cash flow and sales. You have to keep track of your revenue consistently in order to make sure you’re hitting the margins you need to succeed as a restaurant operator. When you’re calculating all of this by hand (the traditional way), it leaves room for lots of mistakes and miscounts.
When a majority of your restaurant operates through an online system, whether it’s takeout orders or POS, it’s evident that paying the bills for your restaurant should be paid the same way. I mean, it’s rare when someone is walking around with a check book these days. Making the switch to technology for your Accounts Payable is crucial to saving time and making accurate payments on time.
The True Cost of Paying Your Invoices
Every part of your business has hidden costs, including the process of paying your invoices. Have you ever thought about how much your restaurant is handing over just to pay the bills?
When you pay an invoice, you are also paying your staff for the time it takes to collect invoices, input them into spreadsheets and mail out paper checks.
Over the course of a year, these costs add up to some serious cash!
To help you get a grip on these hidden invoice costs, we are going to walk you through the process of calculating your business’s AP cost per invoice to help you better understand the actual cost of paying invoices and where you might be able to save in the future.
How to Calculate the Cost of an Invoice
The cost per invoice is the total expense incurred by your Accounts Payable department to process a single invoice.
To determine how much an invoice costs you to process, simply take the total number of invoices paid for a given time period and divide by all the costs incurred to pay them for that same time period. The result is your AP cost per invoice, which will give you a measure of your business’s AP efficiency. A high cost per invoice could demonstrate inefficiencies in your Accounts Payable department.
Direct and Indirect Costs to Consider
Labor Costs
Accounts Payable is a manual task that traditionally requires manual labor and not just involving one person. Typically you have an employee who is receiving the invoice, one who approves the invoice and an employee who actually pays the invoice.
During each stage every employee who touches the invoice is devoting precious time and attention and sometimes doing work already done by the person before them.
Once you’ve identified the employees involved in the invoice paying process, it’s time to calculate an hourly rate. Take average monthly salary and divide by 160. You can either take the average salary across these three employees if they are close in pay, or calculate the hourly rate per AP employee if their salaries vary.
Lastly, you’ll need to identify how much time each AP employee spends processing an invoice. This can be done by asking each employee to document how much time they are spending dealing with invoices.
Software Costs
Most restaurants require software to help with their accounts payable and managing invoices (think physical computers, IT infrastructure, etc.) These all have overhead costs relating to your Accounts Payable process whether they be monthly fee’s or even the time needed to train employees.
Physical Goods Costs
There are usually tangible goods involved in the accounts payable process that incur real costs. Think of things like paper checks, envelopes, stamps and printers. These are all sunk costs that go into each invoice that you pay.
Transaction Fees
If you aren’t paying invoices by physical check, you’re most likely paying by using an electronic method. These typically include ACH transfers, credit card payments and wire transfers. Though much easier than writing paper checks, all these forms of payment generally include a per-transaction fee. Over the course of a year these transaction fees add up and come directly out of your pocket!
What’s the Formula to Calculate Cost Per Invoice?
The formula to calculate your cost per invoice is as follows:
Total Accounts Payable Departments Expense for a given time period / Total Number of Invoices Processed for a given period= Cost Per Invoice
The first value- Total Accounts Payable Departments Expense- should include everything from labor costs, technology costs and all other overhead expenses for that time period. The second value should cover every invoice that was processed during that same time period.
Now that you know your cost per invoice, what can you do to reduce that cost?
Why Automate Accounts Payable?
Like other processes in your restaurant, automation could be an easy and effective way to lower costs.
The appeal of automating your Accounts Payable could save you time, giving you and your team the flexibility to focus on other initiatives.
Automating your Accounts Payable also reduces the chance of human error- especially if you are using paper invoices. You’re less likely to have data entry errors and will have better visibility and control over your cash flow.
Manage Your Accounts Payable with Technology
Do you really have time to write checks, stuff envelopes, and mail them out when you have a handful of other things take care of? Time is valuable now more than ever. Wouldn’t it be nice to have one less thing to worry about? BillPay is a great solution to modernizing your Accounts Payable.
By implementing technology into this process, you can put time back into your day and save money. When using BillPay, you can see all of your bills, choose when to schedule them out, and the status of each payment, all in one centralized location.
This also means you can pay your bills from anywhere at any time—whether you’re away on a beach somewhere or lying in bed enjoying a glass of wine, it’s available to you at all hours, right from your fingertips.
Online transactions are secure and safe to use, and they prevent you from any fraud. You can monitor each of your payments to see when they have arrived and been processed. No more scrambling through tracking codes from the Post Office and waiting over the phone for hours to check the status of your payment. It’s updated in real-time when done online.
There’s no better feeling than taking control over your accounting. It’s a tedious process but making use out of technology makes it a lot easier.
If you pay all of your personal bills online—mortgage, phone, utilities, then why not your restaurant bills too? It’s 2022, embrace technology. It’s here to help.
How to Get Started
Here at Dining Alliance, we make things easier for our operators. If you’re a Dining Alliance member, you can now take advantage of our new Food Cost Management technology, as well as our Bill Pay to help you get on track with all of your accounting needs. Login to your myDA portal to get started!
If you’re new to Dining Alliance, become a member today and embrace these solutions that help run your restaurant operation more efficiently. You’ll also have access to exclusive savings and discounts on items you buy every day. Join today!
Frequently Asked Questions
What is accounts payable in a restaurant?
Accounts payable is the money your restaurant owes vendors and suppliers for goods or services you’ve already received, from food and disposables to utilities, rent, and other operating expenses.
How do you calculate the cost of processing an invoice?
Divide your total Accounts Payable expenses for a specific period by the total number of invoices processed during that same period.
How can a restaurant lower its accounts payable costs?
Automating manual tasks, reducing paper-based processes, and keeping invoices and payments organized in one place can help lower Accounts Payable costs and save valuable time.
What are the benefits of automating restaurant accounts payable?
Accounts Payable automation can save time, reduce manual errors, simplify payments, and give you better visibility into bills and cash flow.
What costs are included in accounts payable processing?
Accounts Payable processing costs can include employee labor, software, transaction fees, paper checks, postage, and other expenses associated with processing and paying invoices.
