Why AP Automation? Making a business case
More and more, organisations are recognising the benefits of automating their accounts payable (AP) processes. Enabling organisations to handle their AP processes electronically rather than manually, AP automation has transformed the way organisations process and pay invoices. Find out more about what AP automation is here.
Let’s consider the business benefits of AP automation and how to build a business case for automating your AP processes.
AP automation benefits include:
Automation makes processing and approving invoices quicker and more efficient, eliminating most of the manual stages involved. As a result, the number of human touches required per invoice is significantly reduced, meaning staff spend less time on this aspect of their role.
Reducing manual effort and exceptions involved in invoice processing, AP automation can help significantly reduce invoice processing costs as well as the costs involved with resolving exceptions.
According to research by PayStream Advisors, the most innovative AP departments process invoices in fewer than five days, at a cost of $2.36 per invoice, while those running on entirely manual processes can take up to nine times as long to process invoices, at six times the cost.
AP automation increases processing efficiencies by streamlining the invoicing and payment process and reducing cycle times. As a result, it increases productivity, enabling AP resources to process more transactions per FTE.
By eliminating the risk of human error, automation increases accuracy and reduces errors and exceptions across the entire invoice and payment processing cycle.
A further benefit of AP automation is that compliance is built into the system, making the process fully transparent. This allows common risks and instances of fraud to be tracked and prevented. Some automation systems can also be connected to major government hubs and deliver tax compliance in multiple countries around the world.
Integration with existing systems
AP automation software can integrate with your business’s existing systems, so you won’t need to duplicate data entry or switch between systems.
Accessible from anywhere
Paper-based manual processes can usually only be carried out in a dedicated space, such as an office. Documents will need to be stored and filed in the right place. When the process is automated and cloud based however, it can be done from anywhere with an internet connection.
Improved supplier relationships
Errors and delays in the accounts payable process can have a negative impact on your business relationships with suppliers. AP automation ensures that invoices are processed and paid accurately and on time, increasing discount capture and enhancing supplier satisfaction.
AP automation software can provide access to advanced analytics and insights. This can help identify bottlenecks in the system, monitor performance, and implement continuous improvements. Trends can also be analysed, leading to more strategic decision making and cashflow management.
Average Cost to Process Paper Invoices
The average cost to process paper invoices will depend upon a number of factors, including labor costs and storage and other associated costs. And the processing cost per invoice significantly increases when there is an exception that needs additional effort for resolution.
But, even for those companies whose cost per invoice is relatively low, when you consider the number of invoices processed annually, the costs can soon add up.
The average cost of processing electronic invoices is usually significantly lower than processing them manually. Creating a fully automated, touchless process can reduce invoice handling costs by over 80 percent.
ROI of AP Automation
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, organisations 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 realise 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)
Building a Business Case
Building a Business Case for AP Automation
Before you can implement an AP automation solution into your business, you’ll need to build a business case to present to other stakeholders within the organisation. It’s important that you get this right if you want to secure their buy-in.
Establish a plan for implementation
Firstly, you’ll need to identify the reasons for implementing an AP automation solution and produce a plan. This should include the steps and processes of AP you want to automate, the challenges posed by the current manual processes, and the benefits that the automation solution could offer.
Do your research
Next, you’ll need to carry out in-depth research to understand the current process and identify any issues or additional needs. Make sure you back all your findings up with accurate, measurable data.
Your research should cover every aspect of the AP process, including invoice receipt, workflow, matching and approval , and payments.
Highlight potential ROI
Calculate the total cost of the project and cover the anticipated savings.
The costs of the project will include subscription and license costs, upgrades, maintenance, training, and any third-party support. As discussed above, savings will include staff costs, error reduction, and early payment discounts.
Know your audience
Consider who you’re trying to get on board and what their potential pain points will be. Business executives, for example, will be most concerned with the financial case, whereas IT managers will want to know if the new system will increase demand for their resources.
AP Automation can offer a whole host of benefits and savings for businesses, including:
- Time savings
- Cost savings
- Enhanced efficiency
- Transparency and easy auditing
- Built-in compliance
- And more.
Find out more about how to implement AP automation in your workplace here or speak to a amember of the team to find out more about what Basware AP Automation can do for your business.