Invoice Processing Automation Can Return Your Investment in 1 Year
For every business, adopting technology is welcome as long as the change brings with it genuine benefits. It is a matter of Return on Investment. Despite reports of fast and impressive Returns on Investment, resistance to invoice automation prevails. But how is ROI calculated? And can it really be achieved in less than a year?
Research shows that switching from traditional manual invoice processing to an automated Accounts Payable system does make a positive difference to businesses. The benefits can vary, depending on the scope of the particular company’s operations, but include improvements in operational, procedural and cost-efficiency.
Depending on the size of the operations, the return on the investment can certainly be fast, even less than a year. Confidence in the extent and speed of these benefits comes down to what AP automation brings.
Manual Vs Automated AP Processes
There is hardly an area of any accounts payable operation that is not impacted positively by invoice automation. That is hardly news when you consider the manual AP process is typically slow, inefficient and prone to human error.
Invoice Automation delivers benefits that can have a very direct impact on the bottom line of a business operation:
- Reduced Manual Input
- Time and Cost Savings
- Increased Accuracy of Data Captured
- Greater Visibility and Control
An investment in AP Automation can deliver cost-saving and efficiency-boosting benefits that improve the bottom line. The principal benefits include:
- Freeing-up Processing Capacity across Finance
- Enables AP teams to Focus On more Value-Added Work
- Saving on Recruitment
- Shrinking the AP Team (if required)
Calculating The ROI
To provide the general picture of the potential ROI, however, it’s best to follow these 4 stages.
1. Examine Your Processes
Examine the end-to-end ledger journey for a typical invoice. How many invoices are processed per month or quarter? How many are PO and non-PO invoices? How are they received? How many are exceptions?
2. Calculate Process Times
Ascertain how time is consumed by the AP department in carrying out all of its necessary responsibilities (e.g.):
- Manual PO matching (40%)
- Manual data entry (15%)
- Chasing approvals (15%)
- Retrieving documents (15%)
- Managing duplicates (10%)
- Resolving disputes (5%)
Then look at the ledger journey of an invoice through AP Automation. How:
- Invoices are received (in any format, paper, scanned, email, uploaded)
- Invoices are scanned and the data extracted by the system
- Validation, PO matching, coding and approvals are processed
- Data is posted – clean, verified and approved – to Finance, with all information available for reporting
3. Apply the Efficiencies
Compare the difference in time taken between the manual and automated AP systems. Feedback received from our clients in recent years suggest:
- Manual Data Entry is 85% faster
- PO Matching is 65% faster
- Disputes are 65% fewer
- Approvals are 65% quicker
- Duplicates are 100% fewer
- Finding Documents is 95% faster
4. Return on Investment
Now, look at salaries of AP staff tasked with invoice processing. Then apply the time comparisons to see the savings.
For example, let’s say a company that processes 40,000 invoices annually has a dedicated full-time staff of 4, each earning £28,000 per year. Thus, an annual cost of £112,000.
If Manual Entry represents 40% of each employee’s time spent working, then the overall cost of that aspect is 40% of £112,000 or £44,800. And if AP automation is 85% faster, that means it costs only 15% that of Manual Entry, or 6% of the overall cost; that is £6,700.
Similarly, if PO Matching typically represents 15% of an employee’s time, £16,800, it now takes 65% less time, or 5% of the overall costs £5,600.
In fact, when Resolved Disputes (15% to 5%; £5,600), Approvals (15% to 5%; £5,600), Duplicates (10% to 0%; £0) and Finding documents (5% to 1%; £1,120), the savings in one-year amount to around 78%.
And that represents a reduction in AP department costs from £112,000 to just under £25,000.
Of course, Return on Investment in these challenging times depends on more than just AP Automation. There is the need to provide the means to work remotely, the need to ensure fluidity and efficiency in everyday office processes, and the need to ensure accessibility to stored data.
But there can be little doubt that, with the impact of Covid-19 proving so detrimental for businesses in all sectors, the opportunity provided by AP Automation technology and its streamlined processes can be a significant help to the recovery. And in less than just 12 months.
Click here if you would like us to help you understand more about Accounts Payable Automation technology and calculate the Return on Investment for your business.