The Highs and Lows of AP Automation

In a recent report on ePayables, with a spotlight on Yooz, Ardent | Partners research firm has a nice way of describing how companies can benefit from moving towards automation: “AP departments can establish a clear view into the current state of operations—what is happening today—and then take the opportunity to clearly define new AP processes—what should happen tomorrow.”

Unfortunately, “what is happening today” is many companies are still struggling with manual payables processes, preventing them from realizing how much time and money they can save, not to mention the dramatic increase in efficiencies, by automating their systems. There is plenty of information out there on stating features and benefits of AP Automation, but I thought it would be helpful to lay out a side-by-side comparison of Low Automation companies versus High Automation companies, and more importantly, the financial and business impact of “what should happen to tomorrow.”

Low Automation Companies are organizations that receive the majority of their invoices in the mail or email, with a payables process that is manual. These companies must hand-key data into their ERP and then physically walk invoices around the office (or send emails) to get documents approved. It goes without saying that this process leaves a lot of room for error, invoices get lost or hidden on someone’s desk, or get pushed so far down in an Inbox they are left unread or unanswered. There is also no efficient way of keeping track of where invoices might be in the approval process.

High Automation Companies are organizations that receive the majority of their invoices via EDI (electronic data interchange)—computer-to-computer exchange of business documents—with very little if any human interaction needed to process. This is the “holy-grail” of AP automation, but for mid-sized organizations full AP automation is an impossibility, according to the Institute of Financial Management.  It’s costly and ineffective for both suppliers and customers to commit IT resources for processing invoices alone. It seems simpler and easier to send paper, which creates the original problem. But for most firms the move to automation means the ability for a single payables clerk to process almost 3,000 additional invoices per month compared to a completely manual process. Staggering! All this with virtually no margin of error.

The Cost of Low Automation: When considering all of the costs of a manual payments process—facility, salaries, paper, storage, time—the average cost of an invoice is around $15.55.

The Savings with High Automation: In addition to saving money—the average cost of processing is reduced to $3.20—there is a combined benefit of avoiding late payment fees and being able to take advantage of early payment discounts. Not to mention the significant cost savings on consumables that most companies don’t factor into the cost of processing an invoice.

  • Processing Time with Low Automation is about 33 days per invoice on average.
  • Processing Time with High Automation is reduced to 3 days.

There is also another important positive consequence. When a company is able to process a higher volume of invoices in a much shorter amount of time it allows for a greater degree of growth while maintaining existing staffing levels. It also allows AP staff to perform more strategic –oriented and value-added tasks, such as negotiating supplier pricing, setting standard processes, and developing best practices.

So, what’s the solution? With the high cost of manual AP and the near impossibility of pure EDI feeds, organizations can find themselves in a difficult situation. Finance leaders need to find solutions that:

  • Leverage technology and still allow for maximum flexibility 
  • Allow suppliers to submit invoices in the format they choose
  • Use technology to help bridge the gap and free up the AP staff

Cleared of mundane, inefficient and cost-causing AP processes, an organization’s leaders now gain valuable insight into utilized resources, systems, and financials. And AP departments are actually turned into profit centers.

This content was originally posted here.

[ Published: November 29, 2017 ]