Your 3 Steps to Best-in-Class AP
As anyone responsible for accounts payable (AP) knows, manual processes can be inefficient and costly, requiring lots of time and effort to complete. The inefficiencies stem in large part from processing thousands of invoices, which involves manually:
- Routing invoices for approval
- Scanning paper invoices
- Entering data, a process that is also error-prone
- Printing and signing paper checks
By having an inefficient, slow process, organizations may be missing out on early payment discounts, or worse, making late payments that affect relationships with suppliers. One could build a business case for moving to intelligent automation around the transactional cost of processing a single invoice alone. It’s almost that simple. According to Billentis, if you process 100,000 invoices per year and paper invoices cost around $20, imagine how much you could save with automation even if you are able to cut the costs down by 40%.
The business case for automation is also about optimizing processes. An effective process opens the door for early payment programs and other supply chain finance options that can strengthen your supply chain and lower purchasing costs. Think about this: If 25% of your suppliers offer you early payment discounts, and your process is efficient enough to allow you to pay early, you could, in theory, lower your costs by ~2% on all invoices.
Here are the three steps for making your business case for automation.
1. Start by putting together a scorecard for your organization
- Time for processing a single invoice
- Cost for processing a single invoice
- Percentage of invoices processed straight through
- Percentage of invoices that come in electronically
- Percentage of late payments to vendors
Where do you fall in your scorecard?
2. Benchmark your process efficiency against others
Ardent Partners produces a survey report every year that determines the performance of best-in-class businesses. Those with top-performing AP save in a variety of ways. For example,
- The cost to process a single invoice—Best in class: $2.56. All others: $12.88.
- Time to process a single invoice—Best in class: 3.1 days. All others: 11.7 days.
How do you compare?
3. Make your case for automation
When you build your case for return on investment (ROI) to show the value of automated invoice processing, make sure to focus on the following benefits:
Cost savings: Reducing manual labor and not having to re-work error-prone invoices will account for big savings.
Increased productivity: With automation handling invoice processing, AP staff can focus on higher-value work such as strategic tasks and exception handling.
On-time payments: With predictable processing times and automation taking care of approval routing, on-time payments to suppliers becomes a regular occurrence. Your business can not only receive better payment terms due to better cycle time but also improve supplier relationships.
Early payment discounts: Increased visibility into your invoices means you can optimize processes and payments to take advantage of early payment discounts to improve your bottom line.
Meeting benchmarks: Automation will help you move closer to best-in-class benchmarks.
The next step
Automating AP offers many benefits. Once you make a case for automation, you can start the discussion about what tools to use to achieve your success with automation. While tooling is a key part of the discussion, it involves another set of considerations to make sure you choose the right tool that will future-proof your function along with the ROI that it will bring today. That is a topic for another blog article. Stay tuned.