When developing a business case for the implementation of an AP automation solutions, a key focus will be the potential return on investment.
Given that AP automation impacts so many different areas of a business and savings increase with higher invoice volumes, to calculate the ROI, organizations must consider both financial and non-financial benefits of automation.
The financial benefits of automation play a critical role in the ROI development. While specific numbers vary depending on industry, annual invoice volume, and complexity of the AP process, there are a number of core financial factors to consider, including:
Reduced invoice processing costs
The cost per invoice of automated processing is significantly less than manual processing. AP automation can save a significant amount of working hours by reducing the amount of time staff spend on manual tasks such as invoice data entry, invoice coding and approval, and the verification and matching of invoices. This will free up their time and skills to focus on other more strategic tasks.
Depending on the number of invoices the business processes each month, automation could save thousands or even millions of dollars each year.
To calculate the current cost of processing per invoice, divide the cost of the staff members that handle invoice processing by the total number of invoices they process.
Reduced filing and storage costs
AP automation allows businesses to save on the costs involved in the filing and storage of documents as well as accessing them for audit purposes.
To calculate the savings, consider the cost of filing invoices, as well as shredding, and storage costs.
Reduced costs of errors and exceptions
Manual processes are open to human error. This can result in the overpayment or double payment of invoices or incorrect data input. And correcting these errors can be financially costly. When the accounts payable process is automated, these errors and the costs associated with them are reduced.
Quicker payment time
Paying a manual invoice can take a number of weeks. This can be reduced to approximately three days when the process is automated, saving time and also reducing the risk of late fees which can be a significant expense for many businesses.
To calculate the savings, you could realize for early payments, you need to consider which of your vendors offer early discount payments.. This will give you the potential savings you could make on early payment discounts in one year.
Alongside the financial benefits, it’s important to also consider the non-financial benefits. These can add value to other areas of your business, including:
Automated AP processes are easier to control, with less room for error.
AP automation makes the auditing process faster, more accurate, and more efficient.
Better supplier relationships
By reducing errors and improving communication, automation can help your business build better relationships with suppliers.
Calculating the ROI of AP Automation
To calculate the overall ROI of AP automation in the first year, deduct the Total Cost of Implementation from the Sum of the Annual Savings.
To calculate the five-year ROI for AP automation, use the following calculation:
(Annual AP Savings x 5) – (Cost of Implementation + 5 Year Maintenance Costs)