For any finance professional working within Accounts Payable, it will come as no surprise to hear that manual accounts payable processes can be both costly and inefficient. This is why many organizations have moved to or are strongly considering the move to accounts payable automation.
Manual Accounts Payable Pain Points
A recent report by Paystream Advisors listed the top challenges experienced by professionals in accounts payable.
The manual routing of invoices for approval is a major inefficiency in the AP process. By having a slow approval process, organizations may be missing out on early payment discounts, or worse, making late payments which affects your relationship with suppliers. In a recent blog, we discussed the ways to enhance supplier relationship management.
Other manual processes such as scanning paper invoices, manually keying data and printing and signing paper checks are also listed as major pain points. These tasks are both inefficient and lacking in value.
Manual processes can also cause many challenges. Invoices arriving in paper format can go missing and a lack of visibility over them can cause panic and frustration within the supply chain. There are also storage issues attached to receiving invoices in paper format. The manual element to the processes can also lead to incorrect data being included on invoices or duplicate invoices being created.
It’s clear to see that manual accounts payable processes have their issues and it is no surprise that more and more organizations are choosing to switch to accounts payable automation, given the benefits associated with it.
Benefits of Accounts Payable Automation
The following are amongst the main benefits experienced from a switch to accounts payable automation:
Quicker approval of invoices:
Through accounts payable automation, invoice lifecycles are dramatically reduced. Invoices can be approved anytime, anywhere on any device, leading to improved supplier relations and cost savings for the organization.
Employee productivity also increases as a result of automation. Staff are no longer bogged down with low-value, tedious tasks like scanning of paper invoices and manual keying of information, and instead, switch to more strategic roles which offer greater benefits to the business.
Increased visibility over the entire AP process:
One of the biggest pain points of operating under a manual accounts payable process is a lack of visibility. Through accounts payable automation, however, finance leaders can track outstanding liabilities and audit the entire AP process in real-time.
Lower Processing Costs:
Organizations also experience lower processing costs from a switch to automation. Paper is instantly eliminated from the process, meaning storage and printing costs are reduced. Outsourcing of manual data entries is also no longer required due to electronic invoicing and online data capture taking on the role.
However, despite the benefits associated with accounts payable automation, acquiring investment in such software can often be difficult.
Barriers to Accounts Payable Automation Buy-In
In spite of the benefits associated with accounts payable automation and the important role the AP function plays in an organization’s financial success, buy-in can often be difficult. This can be due to the perceived position of the function – as a back office function that deals with issues as they arise, rather than being a strategic leader.
Often, CFOs are also of the opinion that current processes are working just fine and that there will be no return on investment. After all, there are costs attached to implement accounts payable software.
Therefore, it’s critical that when preparing to pitch the idea of investing in accounts payable automation software, that you create a detailed business case and return on investment calculation.
Creating a Business Case
Calculate Current Costs Vs Potential Cost Savings
Lay out all of the existing costs attached to your organization’s current manual accounts payable process. Include costs like employee salaries and benefits, outsourcing costs material costs like paper, postage and printing and the cost and maintenance of equipment used in the process.
There may also be some costs associated with your current process that are not so obvious. Analyze all of the losses resulting from errors, high invoice processing costs and the cost of your current invoice lifecycle times, which may include late payments and missed early payment discounts.
Each individual that processes invoices and makes payments on a daily basis should also be audited. The objective is to assess the total and individual time spent on accounts payable tasks.
Once you have gathered the necessary information, you can start presenting the potential cost savings from accounts payable automation.
Labour costs are optimized through the removal of manual, low-value tasks. This enables the reduction of headcount and reallocation to more strategic roles. When manual data entry is removed, organizations also save on the cost of equipment used in the process, such as scanners.
Further value is gained from the removal of issues that staff would usually have spent a considerable amount of time on. The below graph from Paystream Advisors highlights how big a problem this can be without accounts payable automation.
Additionally, automation optimizes the invoice approval process. Faster approval times mean invoices are paid earlier and early payment discounts are captured, which may previously have been missed.
Consider Your Circumstances and Choose the Correct Software
It is extremely important when choosing an accounts payable automation solution that the correct platform is selected to suit your organization’s current circumstances.
Firstly, with regards to your circumstances, there are both advantages and disadvantages to automating completely from scratch or with an existing ERP or legacy AP system, which should all be taken into account.
Automating from Scratch:
If automating completely from scratch, where all previous processes were manual, your organization may be lacking an established relationship with your IT department. As a result, this may increase the time taken to implement the solution and additional IT resources may need to be hired. However, a major advantage is that it allows you to design and customize a completely new automation process without impacting any existing solutions and hardware.
Integrating with an existing ERP:
If integrating a new accounts payable automation platform with an existing ERP system, consider that you may have to break an existing software contract and also re-allocate IT staff who are familiar with the previous solution. There will also be the potentially tricky situation of integrating the new solution with existing processes. However, the benefits are that established IT personnel will be at the ready to manage the implementation and also a backup solution will be in place if there are any issues with the implementation.
Once you have weighed up the above advantages and disadvantages, consider whether or not cloud-based accounts payable automation software will be of benefit.
Cloud-based systems give access to data in real-time and are quicker to implement than on-premise solutions. Implementation costs are also much lower and you pay a pre-determined monthly subscription fee.
Show Effect on Current Invoice Processing
Invoice processing has a major impact on overall efficiency, productivity and cash flow. If invoices are processed manually, each invoice must be sorted, entered, verified and matched against the purchase order. Such tasks are time-consuming, lacking in real value and can also lead to mistakes, which means further delays and in some cases, duplicate payments.
By investing in accounts payable automation, the invoice lifecycle is reduced dramatically, which ultimately improves cash flow. Additionally, organizations make all payments on time and realize the benefits of early payment discounts. Through a central repository for all invoices, POs and approval routes, finance employees gain more visibility over the process, allowing them to identify and act on errors and discrepancies in real-time. Automated invoice approval workflows also shorten the procure-to-pay process, reducing the invoice lifecycle by removing paper and notifying approvers of outstanding invoices on-the-go. Automated PO matching removes the need for manual data entry and subsequent potential errors and discrepancies, which would then need to be manually investigated.
Show Timeline to Recoup Cost of Automation
While a switch to accounts payable automation will yield many benefits and cost savings, ROI will not be instant, which is often a blocker to acquiring investment. Therefore, it’s important when drawing up a business case, that you outline a specific timeframe for which you’ll see a return on investment. The below table from Paystream Advisors is a good example of the type of metrics and timeframes that should be included in any investment pitch.
There will be initial implementation costs for the software that you choose. You should contact a few different providers in order to predict implementation costs. There will also be costs associated with system downtimes. If replacing an existing system, you should consider the time in which the current system will be offline.
In terms of cutting costs, full-time employees and outsourcing will still be needed initially but phased out over time. Determine whether employees can be reassigned to more strategic roles where they may be able to add value. Will investment in automation software allow the business to scale more quickly as employees re-focus their attention on new areas of growth?
There are, quite clearly, a number of pain points associated with manual accounts payable processes and also several benefits to be obtained from switching to accounts payable automation. However, the switch can often be a harder sell than it may seem. Drawing up a business case may feel like a daunting, time-consuming task but with some detailed research of your organization’s accounts payable processes, you’ll find the facts to support your argument right in front of you and ready to present.