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How Much Money Will Accounts Payable Automation Actually Save My Company In The Future?
One of the first questions people ask when considering a new purchase is, “What will this cost?” Buying new business process software for accounts payable is no exception. Before you invest company resources in AP automation you’ll want to know how much money it’s going to cost and what kind of return you’re going to see on your investment.
But when you’re trying to decide whether or not to automate accounts payable, “How much will this cost?” isn’t the best question to ask. In fact, a more useful question is, “How much is this going to save?”
There is an expense involved in setting up accounts payable. That includes the initial cost of transitioning to automation as well as the ongoing cost of using automation software. But in the long-run, AP automation is going to save your company a lot more money than it costs.
Comparing Numbers
There have been several studies comparing the different amounts of money that companies spend to process an invoice in accounts payable. They’ve found that automation plays a key role in lowering the cost-per-invoice. Here are a few statistics:
- A 2010 study by the Institute of Management & Administration (IOMA) reported that companies with AP automation had a median cost of $6.31 per invoice. Companies with little or no automation spent $15.70 per invoice.
- A 2015 survey by APQC showed “bottom performers” are spending an average of $12.44 per invoice. Top performers, on the other hand, spend an average of $4.98. The main difference between the two is how much time employees spend per invoice, which is largely determined by automation.
- Here at NextProcess, we’ve found that organizations using fully automated accounts payable processing save an average of $14.93 per invoice processed over organizations that manually process invoices. The more invoices you process, the greater your savings will be.
Reasons For The Savings
It’s clear that transitioning from manual processing to a highly automated process saves money. But where do these savings come from?
Much of the high cost-per-invoice found in manual departments comes from slow processing and employee wages. The longer it takes to process invoices and the more employees are involved in AP processing, the higher the cost gets.
Automation speeds up invoice processing. And because it takes less time to process each invoice, costs go down. Most AP departments that automate also find that they need fewer employees working in accounts payable now. That cuts down on labor costs in the department.
That said, automation shouldn’t put people out of a job. It’s meant to make employees’ lives easier – not to replace them entirely. You will still need people working in the AP department. And even if you cut back on the number of employees working in accounts payable, moving the good employees to more valuable jobs in other departments can ensure your company avoids layoffs.
Hidden Savings and Discounts
The savings we mentioned already don’t take into account all the ways AP automation helps you save money. Since automation speeds up processing, you can eliminate the expense of late fees. That’ll stop your company from losing any extra money with each invoice.
Automation also opens up the possibility of negotiating better pricing with your vendors. Being able to pay early and/or on time gives you bargaining power. Some vendors are open to offering discounts to companies who can commit to paying early. If you do negotiate early payment discounts, your automation system will make sure you’re able to follow-up on that commitment.
Actual Cost of Automation
Of course, there are costs associated with an accounts payable automation system. There’s an implementation cost and the cost of using the software each month. Sometimes there’s also maintenance/update costs. Depending on what type of system you chose, these costs can vary widely.
If you want your own IT department to build an in-house system for AP automation, that would command a high price tag. Some third-party systems can also involve large implementation costs. On the other hand, the Software as a Service (SaaS) model that NextProcess uses is easy and low-cost to implement and doesn’t carry any hidden fees. We work hard to make sure implementing our software at your company goes smoothly and keeps costs down.
At NextProcess, we base accounts payable pricing on the number of documents processed. That means you’ll only be paying for what you use each month. The software and our pricing system scales to your company’s exact needs. Other companies have different pricing models for their services. And if you set up an in-house system, the cost for that will vary as well.
You’ll also need to figure in the cost of maintaining and updating the system if you set it up yourself or your provider doesn’t cover the cost. Here at NextProcess, we take care of the cost of maintaining and updating the system so you don’t have to worry about that.
Figuring Actual Costs
When you’re figuring up the actual cost of accounts payable automation for your company, you’ll need to take all the facts we’ve talked about in this article into consideration. The price your automation supplier will charge per-invoice is only part of the equation. You’ll also want to keep in mind how much money faster processing will save in labor costs.
In addition, hidden savings that you reap by eliminating late payment fees and leveraging early-payment discounts also play a role in determining the final cost savings that AP automation delivers. And if you go with an SaaS module like the one from NextProcess, you’ll be eliminating any costs that would go into maintaining and updating in-house software.
If you’re ready to see first-hand how accounts payable automation will work for your company, get in touch with us. We’ll schedule a free demonstration so you can see what our software looks like and how it works. We can also work with you to come up with a more specific number for how much money AP automation can save your company.