Technology plays a key role in almost all business processes, from marketing to payroll and even retirement funding. Accounts-payable (AP) automation is one such valuable tool, but many businesses find themselves wondering if it’s worth the switch.
Handling AP manually is a long, tedious, and inefficient process—one that can be full of mistakes. For the many businesses still relying on outdated, error-prone manual processes, a 100% reduction in human errors is worth every potential penny, farthing, or cent.
Smart and digitally savvy businesses can focus on lowering their accounts-payable-related expenses and maximizing their returns. Not to mention that automating boring, time-consuming tasks is a surefire way to improve AP team morale.
An easy way to determine whether AP automation makes sense for your company is to actually calculate the ROI. Doing so can paint a clearer picture of how AP automation software can reduce processing times, do away with tedious and repetitive busywork, and improve team productivity and efficiency.
The costs of manual AP processes
In most cases, the AP process begins with incurring an expense, whether it’s scheduled or ad hoc. The rest of the process by which companies make payments for those expenses continues from there.
Although the process flow may differ from company to company, in most cases, once a vendor provides the company with an invoice, it will route through for approval and eventual payment.
Every company’s manual AP process flow includes several steps, each of which incur their own costs.
- Organizing invoices, including the receipt, opening, and sorting of mail. Costs come from person-hours that it takes to properly sort and send invoices on to the next steps for approval.
- Comparison of invoices against purchase orders and goods receipts to follow the procurement process and unplanned purchases—an important step for the right approval.
- Transmitting details over for approval—a process that requires forwarding the relevant information to the right individuals within the company. Missing information means the process is dragged on further. Follow-up is often an integral part of this step.
- Making the payment—as the last step—comes with its own costs. Filing, storing, and ensuring all the information is there for audit purposes is essential in this step.
One considerable expense associated with all of these steps is the labor (or employee) cost. Each step must go through an employee—a salaried individual that must use their valuable time on such tedious manual processes.
Many AP team members would rather spend their time focusing on more high-value, high-impact tasks for the company.
Also worth considering are overhead expenses, including the additional costs of digitizing paper invoices. Scanning, printing, and filing—which cost space, work hours, and other expenses—are all part of the costs that come with a manual AP process.
The indirect costs associated with a manual AP process also contribute to its overall price tag. Though they might not be tangible, they’re just as important.
- Potential loss of market reputation can have a large negative impact on a company. Making timely payments of invoices is vital to maintaining a good reputation. Unfortunately, this timeliness cannot be guaranteed in a manual AP process.
- Payment delays can cause a drop in the quality of supplies or services a company receives from others. Of course, a decrease in quality products and services means the company cannot, in turn, provide high-quality products or services to their customers.
- Potentially late payments resulting from an entirely manual AP process mean incurring late charges. Incurring enough fees will start to eat into a company’s profit margins.
- Relying on a manual AP process can result in inaccurate cash flow planning. With a poor AP management process in place, a backlog of payments may all leave a company’s bank account simultaneously, potentially leading to bank charges like overdraft fees.
- When your entire AP process and workflows are manual, AP team members are simply not motivated to be their most productive. Instead, talented team members feel stifled—they spend up to half their workweek (or more) manually processing, reconciling, and reviewing transactions that could easily be automated.
The costs of AP automation software
Onboarding and implementing the AP automation process comes with its own set of costs. These expenses can be used to calculate the ROI of automating your company’s AP process. A thorough review of these costs against those of a manual AP process will reveal just how beneficial it would be to upgrade to AP automation.
- The first cost to consider is the price of the software—in most cases, this takes the form of a licensing fee. Licensing fees are typically charged per user, which could help in reigning in the program’s overall cost.
- Scanning equipment is a necessity in the AP automation process since any paper invoices will need to be converted to a digital system. Alternatively, you should consider if your solution comes with a mailed-to-scan option, for vendors unwilling to change to digital.
- IT support is practically a given with any type of technology or software. It’s important to understand the costs associated with providing users the right internal IT support.
- Changing systems is an unavoidable cost in upgrading toward AP automation. Some methods will become outdated under older programs; these may need upgrading alongside the AP process.
The ROI Calculation
Calculating the ROI of AP automation is somewhat more difficult than, say, calculating the ROI of a marketing campaign. This is because AP automation touches so many different aspects of a business. That said, it’s not impossible to calculate this ROI with a little legwork.
The first step toward finding the ROI of AP automation is to consider the direct and indirect costs involved in continuing with a manual AP process. Reviewing the benefits—both financial and non-financial—of AP automation is the best way for a company to find just how valuable using an automated AP process can be.
Processing invoices is, for obvious reasons, the most important aspect of AP. According to IntelliChief, companies that spend $14 to $17 per manual invoice find that this cost drops down to just $3 after automating the invoicing process. The typical timeframe for processing invoices decreases as well, dropping from 14 days down to just 3 days.
While it depends on the number of invoices a company processes each month, a $10 decrease in costs could make an astronomical difference in the long run.
ROI of control
AP automation doesn’t remove humans from the equation—the process still requires a degree of management and auditing. However, those working within the AP department will get to spend their time reviewing more high-impact information rather than being bogged down processing mundane, manual tasks.
Automating the AP process also drastically reduces the possibility of errors. For example, by automating their AP, Accenture brought their 30% rate of spreadsheet data errors all the way down to 0%.
IT support is required for AP automation to work the way it should. But this is true of any other software or piece of technology a company employs—companies need IT support whether they automate the AP process or not. Though it comes with its own set of costs, the investment in this support (i.e., ensuring the transition to AP automation runs smoothly) is well worth the effort.
ROI of indirect costs
Indirect costs—such as reputation, quality products and services, and even employee happiness—all add to AP automation’s ROI. Accenture, for instance, found that their employee satisfaction grew a staggering 42% as the result of AP automation.
Employees feel they are getting paid their worth when their time is spent focusing on other, more important responsibilities (rather than the mundane tasks required by a manual AP process). With this increased satisfaction (as well as faster processing time and fewer errors), a company’s reputation increases, too. As a result, the company provides better products and services to its customers—and gains loyalty in return.
Well worth the effort
A 40 to 60% productivity gain, quicker turnaround times, and reduced invoicing errors are well worth the effort needed to make the switch to AP automation. But don’t take our word for it—calculating the ROI of manual vs. automated AP processes will reveal the benefits of employing AP automation for your own company.
Ultimately, AP automation is a well-rounded investment—one that will have benefits for many different aspects of a company’s processes. Making the switch to an automated AP process will not only save time—it will also lead to happier employees and a more productive company.
Calculate your ROI Today!
Posts by Category
Our choice of Chrome River EXPENSE was made in part due to the very user-friendly interface, easy configurability, and the clear commitment to impactful customer service – all aspects in which Chrome River was the clear winner. While Chrome River is not as large as some of the other vendors we considered, we found that to be a benefit and our due diligence showed that it could support us as well as any large players in the space, along with a personalized level of customer care.
We are excited to be able to enforce much more stringent compliance to our expense guidelines and significantly enhance our expense reporting and analytics. By automating these processes, we will be able to free up AP time formerly spent on manual administrative tasks, and enhance the role by being much more strategic.