How Accounts Payable Automation Drives Profitability
Wednesday, 25 Feb 2015
Accounts payable automation has typically been viewed through the lens of increased efficiency and effectiveness: faster cycle times, improved accuracy, reduced costs, and fewer supplier inquiries.
Guest author: Mark Brousseau
President of Brousseau & Associates
To be sure, controllers and other senior finance executives recognize that automation is important to an accounts payable department’s efforts to reduce overhead and meet performance targets.
But what really excites senior finance executives about accounts payable automation is how it drives profitability through enhanced cash management, contract compliance and supplier relationships.
In fact, 37 percent of controllers plan to invest additional money in accounts payable improvement initiatives in 2015 – topping all other finance and administration functions – according to IOFM.
Here are some examples of why finance executives are so keen on accounts payable automation:
- Decreased inventory warehouse charges and lower support costs. IOFM’s 2010 AP Department Benchmarks and Analysis report found that as a company’s level of automation increased, its invoice processing turnaround accelerated. Faster invoice processing speeds delivery of inventory, in turn, reducing warehouse charges and associated support costs.
- Improved cash positions. Optimizing accounts payable enables organizations to improve their cash position through the elimination of late payment fees and the capture of more early payment discounts. And once an organization develops a track record of early and on-time payments, it can better negotiate dynamic payment discounts that offer financial incentives.
- Financing options. Liquidity management remains a top priority for CFOs, according to Aberdeen Group. Accounts payable automation enables financing options such as early-pay discounts, dynamic discounts, electronic payments, and supply chain financing (factoring).
- Reduced borrowing. Accelerating invoice processing through automation enables buyers to capture more early payment discounts. IOFM’s 2013 AP Department Benchmarking & Analysis found that moving to higher levels of automation clears the way for organizations to pay a higher percentage of invoices containing discounts within the discount period.
- More competitive pricing. Paying invoices to terms and offering discounted early payments reduces a supplier’s need to take high-cost financing options such as factoring receivables.
- Increased gross margin, net margin and net profit. Automation enables buyers to define business rules for invoice processing to ensure compliance with price and quantity tolerances.
The bottom line: Accounts payable automation makes it possible for finance organizations to drive corporate profitability, as well as improve the efficiency and effectiveness of invoice processing.
It is no wonder that senior finance executives would expand their interest in accounts payable automation from operational improvements to increasing profitability.
Controllers and other senior finance executives can learn more ways that accounts payable automation drives corporate profitability during a no-cost webinar on March 12 at 2 p.m. eastern.
Click here to register for the webinar.