The evidence in favor of switching to automated invoice processing is pretty overwhelming. As well as being faster and more efficient, automating the process of capturing invoices can save your company money at every stage. But persuading your company to make the switch can be daunting; not only does it involve changing the established system, but there are significant upfront and ongoing costs involved.
Convincing your company to start automating its invoice processing depends on successfully demonstrating that the return on investment for accounts payable automation is worth the cost, and for that, it is important to have a strategy to support that case. You can build this strategy by answering four basic questions.
QUESTION #1: WHAT IS PAPER PROCESS REALLY COSTING MY COMPANY?
No matter how skilled your accounting department may be, any system that relies on manually inputting data from paper is slow and subject to human error. Every time a piece of paper changes hands, the opportunity to misread, misplace or misunderstand something is introduced. For a company that handles tens of thousands of invoices per month, even a small margin of error can result in huge losses (For some companies, these losses could be in the millions).
An electronic invoice system almost completely eliminates the potential for human error and there is no longer a need for lengthy data capture. Authorization can be done with the click of a button rather than by funneling paper from department to department. Automating your accounts payable process not only reduces error rate but also increases visibility and control.
QUESTION #2: HOW MUCH MONEY COULD WE SAVE IF BETTER APPROPRIATED OUR SKILLED LABOR FORCE?
Once the lengthy data capture process has been eliminated from the invoice processing system, the burden on the accounting staff decreases dramatically. Employee hours – often hundreds per month – that were once dedicated to efforts such as manual entry, routing, and filing can be used more efficiently, either by reducing the accounting staff and lowering the overhead, or by reallocating them to tasks that are of more profitable use to the business such as creating an audit team.
By automating the AP process, your company can produce large amounts of easily accessible data about the operations of the business; analyzing this data for trends and patterns that could benefit the company is a far more profitable use of employee time than the arduous task of processing paper invoices by hand.
QUESTION #3: HOW MUCH MONEY ARE WE MISSING OUT ON WITH LOST DISCOUNT OPPORTUNITIES?
It is not uncommon for suppliers to offer discounts for early payment – after all, the sooner a supplier is paid the better their own cash flow situation will be. Typically, the discounts apply to payments made within ten days of receipt of invoice, but with a paper system it is almost impossible to process an invoice in fewer than ten days (the average processing time is closer to thirty). Switching to an automated AP process that includes e-Invoicing, workflow, PO Match/Flip like iPayables INVOICEWORKS, drops the average processing time down to three days, which is well within the window for any supplier’s discounts. Even small discounts make a difference when multiplied by thousands of invoices, and the ability to capture those discounts consistently can save huge amounts of money.
For those contractual discounts that are still not captured in time, iPayables offers Auto Slopping which offers suppliers early payment on a sloped discount rate based on a predetermined APR. For example: a 32% APR a supplier could be offered a 1.89% discount for missing the contract date by a day. Lastly, Dynamic Discounting comes in to play by offering all of the suppliers that don’t offer discounts an opportunity for early payment. By using advanced algorithms in real time to determine justifiable discount terms for the supplier, iPayables helps you capture discounts that normally wouldn’t have been available to you.
QUESTION #4: DOES THE GAINS OF IMPLEMENTING AN APAUTOMATION SOLUTION OUTWEIGH THE COST?
Between losses in efficiency due to over staffing and misuse of human capital, a high error rate because of manual entry, and lost discounts, along with other miscellanea, a company’s per invoice average cost can be as high as $15-$20 per invoice. In a large company handling tens of thousands of invoices per month, this equates to millions of dollars of loss.
By reducing the potential for human error and automating the authorization process by switching to an automated accounts payable process, you can lower your cost by more than 70% or more. In the latest Aberdeen Report, analysts have determined three key performance indicators that define the “Best-in-Class” AP departments and these are:
1) 4.1% days to process and invoice from receipt to approval.
2) $3.34 average cost to process an invoice from receipt to approval
3) 90% capture rate for available early-payment discounts
These same analysts have determined that these “Best-in-Class” companies have achieved these through automating. Start-up costs and monthly fees of even the most expensive invoice automation systems start to look like a drop in the ocean next to the millions of dollars that can be saved each month. At IPAYABLES, in most cases the return of investment is in the triple digits. And that is a business case no department head can ignore.