Implementing an accounts payable (AP) automation solution can help optimize the cost structure of your financial accounting activities and produce lasting changes to your business processes. But how can you quantify the ROI of these changes?Â
AP departments increasingly turn to automation to turn paper and PDF invoices into digital interactions and reduce manual invoicing processes. However, like any technology migration, AP automation requires significant investment upfront for implementation costs, training, licensing fees, consulting costs, and other factors.Â
To justify these investments, it helps to demonstrate the technology’s potential return on investment (ROI), its impact on common expenses, and potential for cost savings, starting with your personnel.Â
Automation is often thought of as a replacement for people. But most businesses that automate their AP processes keep the same number of employees, making them more efficient or reassigning them to other more value-added tasks.Â
Identify the Common Cost Drivers
Through automation, your financial accounting team can transform their operations from a cost center to a profit center that delivers business insights and creates a path to cost-optimization. But to do this, you must identify the common areas that rack up costs and show how AP automation can address them. Common cost drivers include processing cycle times, processing costs, and labor costs.. According to Business InsiderOpens a new window , AP automation can reduce these costs by 81 percent and improve efficiency by 74 percent.Â
1. Poor information management
In a manual AP environment, information can be easily lost. Without a central database keeping track of the process, it’s difficult and time-consuming to monitor how departments exchange and share documents. Lost efficiencies and a lack of transparency slow processing times and drive unnecessary costs.Â
As companies expand and acquire more assets, the need for necessary products or services will increase. Similarly, so will the need for more invoices and suppliers who require direction. If the same supplier doesn’t govern a company’s vendor services, teams can drown in an influx of documents. Not to mention, archiving and cataloging these documents can take time. If teams are in a rush and cause errors down the road due to missing information, this will cost more money in the long run.Â
2. Manual errors
Human beings are fallible, and it’s not often manually inputting data or completing clerical tasks doesn’t result in a simple yet frustrating error. Transferring invoice data between paper and IT systems can be complicated. Manually transferring these data points can lead to clerical errors that never seem to end, making it more trouble than it’s worth. Sometimes, doing something yourself isn’t the right solution. If invoice intake is high, a significant amount of incorrect information can enter the ERP system. Manually transferring invoice data generally assumes a one percent error rate. Even that marginal room for error can become a huge issue when it comes to invoicing.Â
3. Missed discounts
Many companies offer invoice discounts in exchange for faster payment. This is also known as dynamic discounting, where terms are adapted dynamically to each supplier-customer relationship. For a business, the faster they pay invoices, the more likely they will receive a discount. If speedy turnaround is a problem, either due to error margins or a simple lack of processing speed, businesses can delay invoices to the point where those discounts are no longer viable.Â
4. Inability to scaleÂ
Manual labor is one of the most difficult resources to manage and scale. Depending on your ability to hire and retain employees to manually process invoices, you might not be able to grow quickly enough to cover increased workloads, and revenues may stagnate.
As an added blow, manual processes can already be slow to complete. Even with appropriate employee numbers, manual AP processes can take anywhere from 30 to 90 daysOpens a new window to cycle through beginning to end.Â
See More: Mind the Debt: Cautions for Managing RPA Implementations – Part I
OCR and AI Impact Long-term Cost StructuresÂ
These cost drivers can be minimized by automating AP processes with technologies like optical character recognition (OCR) and artificial intelligence (AI).Â
OCR can digitally capture invoice data by recognizing text in digital images. AI then makes subsequent processing sequences more efficient and accurate.Â
For example, consider this scenario. A company that receives 100,000 vendor invoices a year typically employs seven to 10 analysts in its AP department, some assigned to entering incoming invoices into the ERP system. If each invoice contains 10 fields to be completed, that equals 1 million fields of data. An OCR solution with an average recognition rate of 80 percent, would automatically fill 800,000 of those fields.Â
On the downstream steps, AI can help accelerate the process of preparing invoices for approval and forward them to the right employee based on an analysis of historical data.
The AI technology enables faster processing by facilitating digital document exchanges and automatically verifying invoice data via a three-way match. This match includes purchase orders (PO) and goods receipts corresponding to each order’s invoice. To be approved, every document must correlate and match each other’s key data points. Otherwise, an AP clerk will be notified of the issue to resolve the issue.
AI can optimize more than this, however. Creating cost center recordings and GL accounts can be achieved through automation, too. AI will use historical data to suggest the appropriate coding to achieve the best results. The task of recording cost centers and GL accounts can also be optimized through AI, using historical data to suggest the correct coding. Utilizing the correct information through the AI’s support, employees are empowered to make decisions instead of taking more time to consult with the AP department.Â
In addition, intelligent archiving solutions simplify the long-term storage of inbound documents such as invoices, ERP data, e-mails, and purchase-related information. Employees search and access the data with just a few clicks by storing and retrieving documents in a digital archive.
Automated AP workflows with technologies like OCR and AI provide faster processing speed, fewer errors and queries, dynamic discount offers, better scalability, and higher employee satisfaction. With these benefits, AP automation can quickly produce positive company-wide ROI. Â
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