A Guide To Achieving Accounts Payable ROI

Automating Accounts Payable (AP) can bring about significant savings and efficiencies.  However, before embarking on an automation strategy, it is important to understand the actual work that’s performed by your AP team and the daily challenges they face.

 

AP Department Manual Tasks

 

Documentation

The AP department handles a variety of manual tasks associated with documentation, such as opening envelopes, reviewing and responding to email correspondence, addressing electronic invoices and otherwise communicating with suppliers in an effort to capture and address invoices.  They also must print, sort and stack.

Validation and Error Checking

The AP team is responsible for identifying and addressing all discrepancies, such as price mismatches between an invoice line and a Purchase Order (PO) line.  Often, invoices must also be cross-checked with shipping, receiving, inbound data, previous invoices, POs and more.

Posting supplier invoices into ERP

Supplier invoices received through email or regular mail are manually keyed-in to the ERP system by the AP team. These invoices might have gone through a manual approval process prior to being posted in the ERP.

Forwarding and Approval

Some companies require an additional layer of authorization where documents are approved only after confirming relevant information.  If errors exist or if information is missing, the AP team is required to reach-out to the supplier’s relevant contact person to make the appropriate corrections.

Following up

The AP team is tasked with following up on invoice status, from receipt through payment, by communicating across internal business units and with suppliers.

Payment

Once the invoice is approved internally, the AP team sends a payment notification to the vendor.  After the invoice is paid a remittance advice is sent. These steps are time-consuming and follow multiple back and forth interactions with suppliers in order to check on invoice and payment status.

 

Calculating the ROI of AP Automation

Convincing your organization to embark on an AP automation strategy will require clarity around its ROI.  Experience shows that such automation strategies typically achieve an average of 80% in savings, and most companies achieve full ROI within one year.

 

The Hard ROI of Invoice Automation

Automating AP processes drives a cost reduction from $14-$17 per manually processes invoice down to $3 per automatically processed invoice.  The cycle time of invoice processing is reduced from 14 to 3 days, on average.

 

The Soft ROI of Invoice Automation

Invoice automation also generates positive ROI through softer indicators:

• Added control resulting from standardized processes
• More efficient use of the AP team’s time, shifting it from an expense to a profit center
• Greater productivity of smaller teams, now able to manager greater invoice volumes
• More efficient supplier payment mechanisms and greater compliance with payment terms
• Reduced money leakage by removing human errors
• Eliminated discrepancies and fraud opportunities

KPI’s Worth Tracking

• Average cost per invoice: including IT support, cost of hardware, staff overhead, anything that impacts invoice processing
• Number of invoices received and processed: number of invoices received by AP department within specified timeframe, compared with the time and effort required to process them through ERP data entry.
• Invoice cycle time: an important KPI that helps identify time consuming tasks, which take place from receipt of invoice through supplier payment.
• Incorrect payment and typing errors: supplier-generated errors impact payment processing time and accuracy.

Parameters Worth Considering

1. Average monthly number of invoices received from suppliers
2. Average time spent on processing each invoice (on average, an AP practitioner manually processes five invoices per hour)
3. Average time spent on approving an invoice (on average, a manager manually approves ten invoices per hour)
4. Percentage of invoices that contain errors (typically, 10% of invoices contain errors)
5. Average time spent on correcting one invoice (an employee manually corrects 3 invoices per hour)
6. Average hourly salary of an AP practitioner (industry average loaded cost is approx. $40/hour)

Benefits of Accounts Payable Automation

• Decreases processing time by 70%
• Shortens turnaround from days to minutes
• 97% fewer errors
• AP accessible from anywhere
• Cost savings of 70%+

 

 

Originally published on Nipendo’s blog