When it comes to the accounts payable department, many businesses are still using outdated manual processes.
But, they work. Or so you might think.
As it turns out, there is a faster, cheaper, and more effective solution — AP automation.
Technology is taking over every aspect of running a business, from marketing to payroll and even HR and retirement savings. It was only a matter of time before AP joined the technology revolution.
But, is it worth it to make the switch?
When weighing the pros and cons of AP automation, many businesses are missing a crucial piece of the equation — that is, the true ROI of AP automation.
And it might be more than you think.
What is the True ROI of AP Automation?
When it comes to marketing, ROI is pretty simple to calculate. You subtract the amount you spent on a campaign from the revenue it brought in, and that’s your ROI.
The ROI of AP automation can be a bit more complex to calculate.
Why? For starters, it impacts so many different aspects of your business. Plus, those saving compound as volume increases.
In addition, some savings are difficult to calculate. For example, what is the value of a less frustrating process?
Let’s start by considering the financial benefits of AP automation. Then, we will take a look at the non-financial benefits of switching to AP automation.
The Financial ROI of AP Automation
When it comes to AP automation, most companies are interested in the financial benefits. While the actual numbers will depend on your industry, how much your company invoices every month, and how much you currently spend, the average numbers are promising.
Save on Invoice Processing Costs
One report found the average company spends between $14-$17 per manually processed invoice, versus just $3 per automated invoice. Depending on the number of invoices your business processes each month, this could easily add up to hundreds or thousands of dollars of savings each year.
Reduce Losses Caused by Errors
No matter how careful your AP department is, mistakes happen. A slip of a finger can change a $400 invoice to a $4,000 invoice. Or, an invoice might be double paid because it was sent to two different departments.
While those mistakes can be fixed, they come at a cost.
According to one survey, the average cost of correcting a paper invoice statement is $53.50 — more than the cost to process the original invoice!
AP automation can help reduce errors by reducing manual data entry and making it easier to communicate with vendors, approvers, and the AP department.
Reduce Time & Prevent Late Fees
The typical cycle for paying an invoice can be cut from 14 days to 3 days with automation. Speeding up the payment process can also save on late fees, which cost businesses $3 trillion dollars every year.
Time equals money, and switching to AP automation can save countless hours of work for your entire organization by reducing the amount of time AP staff and approvers spend on tasks, including:
- Spend less time manually coding invoices by automatically capturing the header information on PDFs and images.
- Reduce time spent on managing the approval process by automatically notifying approvers when invoices are ready.
- Save time spent matching invoices to purchase orders by streamlining the verification and matching process.
Contrary to popular belief, AP automation is not about eliminating your AP department or even reducing staff numbers. Instead, AP automation augments your staff by removing the volume of repetitive manual tasks and giving them more time to focus on tasks such as negotiating better payment terms with vendors, analyzing cash flow, or looking for opportunities to save or earn even more money.
Efficiently scale to meet growth with minimal impact on headcount
As your company grows, so does the number of invoices. In the past, this might have led to hiring more employees but that’s not necessarily the case with AP automation. AP automation allows your business to scale both in terms of invoice volume and processes with minimal impact on headcount.
Non-Financial ROI for AP Automation
Getting executive buy-in for AP automation is critical, yet most people only focus on the financial benefits. Which makes sense; it is easier to convince higher-ups that AP automation is beneficial when you can say, “This will save our company $X per year.”
But, don’t overlook the non-financial benefits. These benefits might not have an easy to calculate cash value, but they can still help your company grow and increase employee happiness long term.
More Control: AP automation creates a streamlined, controlled process that leaves less room for errors and mistakes. Every person in the process understands exactly what is expected of them, which results in less confusion. The result is a tighter, well-controlled AP process with fewer errors.
Streamline Auditing: Do you dread the audit process? AP automation makes it easier to stay organized and pull reports so you can get audits done faster, with better accuracy and less frustration.
Improve Business Relationships: AP automation can also help you improve relationships with vendors by making communication easier. For example, with Stampli, all the communications are kept in one location, making it easier to see and respond to questions and requests. In addition, anyone with access can see past conversations, which keeps everyone in the loop.
How to Calculate Your AP Automation ROI
The numbers above sound good, but how do they apply to your actual business?
Calculating the true ROI requires considering factors such as your location, the average salary of AP staff, and the amount of time and resources your company spends processing each invoice.
Here is how to calculate the financial ROI of AP automation for your company.
Reduce The Need To Hire More Staff
One of the greatest benefits of AP automation is reducing the amount of time employees spend processing invoices. As your company grows, so does the number of invoices you pay.
However, if you switch to AP automation, you will not need to add new employees as quickly. Use this equation to calculate the long-term savings:
While the onboarding costs are just one year, the salary and benefits savings are annual. Instead, you could hire quality assurance staff, pay more competitive rates, or invest in new products or service lines.
Savings For Early-Payment Discounts
Do your vendors offer early savings discounts? Most do, and with AP automation you will be in a better position to take advantage of those savings.
That is the potential you have to save on early payment discounts for one year. Now calculate how much you can save in five or even 10 years. That cash could go towards expansion, marketing, or better equipment.
Calculate Savings on Shipping & Document Storage
AP automation can also help save money on shipping and storing of documents. Tally up the total dollars spent each year on the shipping, shredding, and storing documents on your expense sheet.
That number could be reduced to $0 with an advanced AP automation solution — and the savings go straight to your bottom line.
Savings on Per Invoice Costs
How much you save per invoice might vary from the average cost, so your first step is to calculate how much it currently costs to process one invoice.
This, of course, assumes your AP department does nothing but process invoices, which is likely not the case. Divide the salary of staff members that do more than invoice processing. For example, if a manager spends 60% of their time overseeing AP staff, only include 60% of their salary in this equation.
Once AP automation has been in place for a few months, it is time to calculate your savings per invoice. Use the same equation above to calculate your new cost per invoice, then plug that number into the equation below:
That is how much the company will save every year on invoicing alone. What tasks could those employees be focusing on now that they are spending less time chasing down invoice approvals? Negotiating better terms? Looking for other cost savings?
Measure Long-Term ROI
If you like playing around with numbers, this part will be exciting. How much money can your business save long term by making the shift to AP automation?
Here is how to calculate the first year and the next five years’ worth of savings.
First Year ROI:
Sum of Annual Savings – Total Cost of Implementation (including onboarding, training, and cost of the software)
5-Year ROI for Implementing AP Automation:
(Annual AP Savings X 5) – ( Cost of Implementation + 5 Year Maintenance Costs)
While moving to an automated AP process might feel overwhelming, the proof is in the numbers. You can save thousands — or even hundreds of thousands of dollars — a year by moving to an automated AP solution.
What could you do with those savings? Scale your business? Focus on R&D? Buy more efficient equipment?
Ready to get started? Stampli makes switching to AP automation easy with our no sweat setup that integrates with your current systems.