Accounts payable automation is an increasingly popular way for businesses large and small to create positive change; its benefits are real, proven and repeatable. Unfortunately, a few persistent myths are holding many companies back from automating AP. In this exclusive BerkOne blog series, we’re investigating one each month; this entry tackles the perception that AP automation is simply too expensive to deliver positive ROI.
Everyone with any experience in the subject knows that accounts payable – the seemingly simple act of paying your vendors – can become extremely expensive, extremely quickly. Every step from the time an invoice enters the building to payment being transmitted takes staff time (and often hard costs) to complete … and it all adds up.
Think, for instance, about a typical company’s AP workflow. When a paper invoice arrives in the mail, it must be:
- Opened and routed to the correct department
- Booked and coded
- Approved (or denied) according to pre-set business rules
- Routed back to accounts payable
- Entered into the accounting or ERP/MRP system
- Closed out and paid
- Filed for future reference, along with supporting materials (like the PO and packing slip)
This process gets even more complex when an invoice is an outlier. What if there’s no PO? What if the packing slip doesn’t match? What if it’s a new vendor, or an old vendor with a new name or contact details? What if invoices come in via multiple channels – USPS, email, fax, in-person? What if it’s a duplicate? What if trade or barter is involved? In a legacy AP environment, all of this must be sorted out by hand – taking up yet more valuable time, and more mindshare.
What does all this cost? According to the Institute of Financial Operations’ 2014 AP Automation Study, 60 percent of organizations process more than 5,000 invoices per month. Fifty-eight percent of respondents said it costs their company at least $6 to process each invoice, and 12 percent said it costs at least $11 apiece. Assuming the low end of these numbers, a typical company is paying some $30,000 a month just to process its invoices. Assuming the high end—approximately $25 per invoice—you’re well into the six figures each month rather quickly. That’s a lot of money and a lot of staff time that could be better spent (think multiple FTEs being entirely devoted to non-value-add tasks).
These numbers can be dramatically reduced by deploying an effective AP automation plan and process. AP Connected – BerkOne’s flagship accounts payable automation solution – has cut some clients’ total AP processing costs by 50 percent – $15,000-$50,000 (or more) per month in the above example.
Implementing accounts payable automation isn’t free, of course. There’s the soft cost of time spent vetting potential partners and kicking off the project, as well as hard costs like professional services and software licensing. These vary dramatically based on the complexity of the project. But more complex AP workflows are already inherently more expensive using legacy processes. So, the more involved the AP automation project, the more opportunity for high ROI and rapid payback.
At the end of the day, automating accounts payable is an investment in your organization and your people. Like any major business change, you will incur some expense to get it done. Fortunately, however, the results are highly measurable; what once took a specific amount of time prior to automation will be reduced by the time savings achieved. That time savings multiplied by the average wage of AP employees plus legacy hard costs (paper, postage, etc.) is your savings. Over time (usually within months), this number will add up to be greater than the investment in AP automation. Anything beyond that is, essentially, pure profit.
So, is AP automation too expensive for most companies? Hardly! While it’s certainly an investment, it’s one that’s recouped relatively quickly – and one that creates positive change for years to come.
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