What Does AP Automation Cost?
If you’re asking “what does AP automation cost?” you’re asking the wrong question.
Some companies may have held off on investing in new AP technologies, viewing these initiatives as adding to the overall cost of doing business, but the cost of doing nothing can be far greater. Legacy AP accounting systems are costing companies serious money in terms of processing costs, labor, talent recruitment and retention, and missed opportunities.
The full cost of processing invoices includes everything from labor, systems, outsourcing, overhead and various miscellaneous expenses. Though stats vary by industry sector, costs run from as high as $10 per invoice or more for the worst performers, to as low as $2.07 per invoice — with some even lower — for best-in-class companies.
The difference between the two extremes comes down to one key factor — automation. Best-in-class companies — those who enjoy the lowest invoice processing costs — tend to be those that were early adopters of automation and updated processes and systems as the technology matured. With more efficiency engendered by the system, the greater the cost savings. Automated AP systems process invoices more quickly than humans and eliminate the human error inherent anytime invoices or related data need to be manually entered into a system.
Along with simple data entry errors such as the transposition of numbers that make invoices and payments extremely difficult to reconcile, human errors also can lead to overpayments, duplicated payments, unused credit notes and unclaimed discounts – all of which can amount to significant sums — particularly for companies with active businesses and supply chains.
People with strong financial and accounting backgrounds are essential for an efficient AP operation because they know how to quickly and efficiently work with those exceptions that cannot be automated, work with suppliers to ensure any outstanding payable issues are addressed and help add value to organizations’ AP operations in numerous other ways.
Today’s next-gen workforce who grew up as “digital natives” expect/demand the same type of information access and digital ease throughout all areas of their life, including the workplace. Not having modern technology systems to support employees can hurt companies in two ways. For one, not having the latest AP technology can influence an applicant’s decision in selecting an employer. Additionally, older technology tools can erode productivity – mitigating the advantages of having top accounting talent.
Unemployment is at historic lows, and the competition for skilled workers is particularly keen, with many jobs going unfilled. Since the job market is hot and opportunities abound; a poor workplace experience where staffers struggle with clunky systems is a solid way to run talent out the door, if employers can even get them in the door in the first place.
The cost of attracting and retaining top talent is a very high cost that needs to be factored into not modernizing and automating AP.
Today an inordinate amount of time is spent working directly with suppliers to fix invoice, processing or payment errors – many of which can be detected — with the right/modern technology in place — before an invoice moves further downstream. Without this “early warning and detection system,” companies must rely on inefficient, expensive manual processes to root out and resolve issues.
In its report “Accounts Payable without Borders,” Aberdeen Group notes that 88 percent of best-in-class companies have automated notification of errors, exceptions, or other items requiring management review, compared to 62 percent of all others.
Exceptions that require manual intervention before approval delay the entire process. As a result, exceptions needing human intervention typically lead to late payments, higher operating costs, and unhappy suppliers that in today’s growing economy can decide to prioritize other customers. To this end, exceptions can be a huge source of friction between accounting and procurement.
Modern AP processing systems can eliminate a vast percentage of human intervention needed for exceptions processing – yielding more resources to deal with the inevitable remaining exceptions (there will still be some).
Manual exception processing is yet another element that can contribute to higher invoice processing costs, while triggering additional costs, including lost discounts and late payment charges/penalties.
While older AP guidelines advised holding onto cash for as long as possible and delaying payments to suppliers, this thinking is now being replaced by more progressive approach to finance. This proactive approach revolves around achieving improved returns and adding to the bottom line via expense reduction by reaping the benefits of volume discounts, early pay discounts (and/or dynamic discounting).
However, without modern technology in place to support AP, organizations can’t take advantage of volume discounts, early pay discounts and/or dynamic discounting. Late payments have been trending higher for years. According an Atradius research study, nearly half of all invoices were past due in 2018, up from 48.8 percent in 2017. Additionally, the days outstanding of payments continues to ratchet higher, moving from 53.3 days in 2016, to 56.7 days in 2017 days (2018 figures weren’t available, but were likely higher again) – the highest amount in a decade.
Missed opportunities to take advantage of discounts are another disadvantage stemming from a lack of AP automation.
Organizations can and will grow – organically and through acquisitions. A legacy AP system can become a real “problem child” when its mettle is tested and the organization realizes it not only can’t evolve with the company, but also can be a major stumbling block throttling the organization’s future growth.
With the rise of globalization, most businesses have experienced rapid international growth. This has created new stress for AP departments, which now must consider different currencies, time zone differences, and various tax and other regulations as well as multiple languages, currencies, formats and integration to multiple ERP systems – all requisites for global advancement.
According to the Aberdeen report, best-in-class organizations are 130 percent more likely to have a global accounts payable solution in place than the industry average. Aberdeen recommends that companies who want to improve their global AP process follow the best-in-class firms to implement a global payments solution that integrates all the separate payment processes into a simple, standardized process.
The stunting of global growth is yet another cost of not modernizing and automation AP.
As you can see, the cost of doing nothing can be very expensive indeed.
Rather than spending time calculating losses from the lack of AP modernization and automation, organizations can invest in their futures by upgrading to world-class, future-oriented invoice automation solutions. Today, these solutions are easily integrated with existing ERP solutions and/or accounting systems, providing fast return on investment.
The cost of AP automation can pay off significantly in streamlining the day-to-day mission-critical hand-offs to transform AP operations by extracting data from printed/typed documents, eliminating duplicate data entry and making it easy to retrieve data, review invoices, and push them along the AP workflow-automatically. Process efficiencies speed turnaround and ease the pressure on staffing levels, enabling AP departments to handle greater volume and save money.
Modern, automated AP operations improve the employee experience by reducing the need to focus on mundane tasks, giving employees the opportunity to contribute in more meaningful, value-added ways.
Moreover, improved speed and accuracy in invoice processing opens the door to a world of new opportunities to better the bottom line by capturing invoice discounts – enabling organizations to drive new ancillary profits from payables.