Are you struggling to get your senior management on board with AP automation?
Does your CFO start participating in the ‘Bird Box Challenge’ whenever you try to show him your chosen solution?
Perhaps this is because you are focusing too much on what the AP automation solution will do, or alleviate, and not enough on how much money will be saved and when.
The thing with AP Automation is that the earlier you implement it into your business, the earlier you start getting the benefits, the earlier you start seeing major cost savings and a return on investment.
If money is the only way you can justify projects to your CFO then you must figure out three things: how much your current processes are costing, how much your proposed solution will cost, and how quickly you will see your return on investment.
The Price of AP
Working out the cost of your Accounts Payable process is more complicated than simply totting up salaries.
The full cost of your process culminates salaries, utilities, storage, equipment, and so on…
With a fully manual invoice process your business will have costs including:
- Receipt of invoices (post room clerks in your building)
- Manually typing data from invoices into finance system
- Time spent on phone to suppliers chasing payment
- Internal posting of invoices for approvals
- Storage of invoices (filing cabinet then archiving)
- Retrieval of invoices for Audit (plus prolonged cost of auditors when they can’t find what they’re looking for)
The Price of AP Automation
Automating your Accounts Payable process will almost definitely save your organisation money, but it’s not free, so you must decide if it’s worth a fundamental change in how your department works.
The only way you can tell if you will make savings through automation is to know the full cost of your current process and work from there.
For example, a company processing 10,000 invoices a year might spend more money to process them than a company processing 100,000. They could be complicating the process by having long approval chains, or just hiring too many people to do the job.
This means there is no “volume cut-off” to justify automating, there is simply a cost factor.
You may have looked at automating before but found it was too expensive, which is very likely since before now automation has been the realm of the biggest organisations and not of the medium size companies. Thanks to the cloud, automation is far more accessible and easier to install than ever.
For example, a previous, on premise, solution would incur the costs of:
- Initial project work and set up
- Internal IT department inclusion
- Server costs
- License fee
- Support & maintenance
- Upgrades (or continued support of out-of-date software)
- For some of our competitor’s clients, staff to create templates for OCR
Instead, current (and future) cloud applications would demand:
- Initial account set up
- License fee
Because the software is hosted in the cloud, there is no need for internal IT resource. The server costs are included in the License fee, as well as support (since the hosted software is updated by the supplier, usually in business-down time).
As you can imagine, it’s much easier to calculate a return on investment now more than ever.
Bonus Cost Savings
Not only will you be spending less money on support and upgrades, but you will be able to create savings through automation.
In some cases (80% of US companies), early payment discounts can be awarded by suppliers to organisations that pay invoices within 10 days of receipt. These discounts can be as much as 1% and can allow an annual return of 18%. Read more about this in this article.
All the new time given to the P2P department through automation can also now be spent reviewing contracts and negotiating lower prices, amongst other beneficial tasks.
A manual process is very costly, but so were traditional automation solutions. New cloud offerings allow a massive flexibility, and a far cheaper solution bringing you a return on investment like never before.
Figure out the cost of your current process, find your supplier, be sure you know when you will break even, and automate as much menial processing as possible!