Justifying Accounts Payable Automation

Your enterprise, like many, is likely under a lot of pressures these days. Here are some common challenges organizations with whom we speak are facing on the Procure to Pay side of their businesses:

• Cost of capital, material costs, and cost of processing accounts payables are all too high
• There is a lack of visibility as to what invoices have been received and overall financial liability
• There is a lack of control over the time-to-payment and use of cash discounts is low
• People are spending over 50% of their time responding to suppliers requesting payment status or complaining about late payment

Zeroing in on the accounts payable department, the main obstacle to gaining efficiencies is all that paper! Depending on whose study you subscribe to, some 75-90% of invoices are still received on paper.

Addressing Common Accounts Payable Challenges

So what are the main challenges faced across accounts payable organizations? According to an IAPP-TAWPI survey from 2010, the top three challenges are:

• Manual Data Entry
• Routing for Approval
• Resolving Errors/Exceptions

Let’s take a look at what these circumstances all mean from a time and money perspective. The Aberdeen Group published the results of a survey they conducted with their membership that involved those members’ performance regarding accounts payable processing (Aberdeen Group, May 2011, “Invoice and Workflow: Integrating Process Automation to Enhance Operational Performance.” This study focused on three key metrics:

• The cost to process a single invoice
• The cycle time from receipt to scheduling of payment for an invoice
• The rate at which organizations can increase its capture of prompt payment discounts as measured in year-to-year improvement

Aberdeen segmented the respondents through their survey results with the top 20% of the performers being termed as “Best in Class,” the middle 50% as “Industry Average,” and the bottom 30% as “Laggards.” As shown in the table below, there was widely varying performance across the three metrics for these organizations.

Comparison of Performance Indicators by Maturity Class

Justify an Accounts Payable Automation Initiative

Next, let’s look at a company looking to justify an accounts payable automation initiative with the following data:

• Processing 10,000 invoices per month
• Have an average cost to process a single invoice of $15.00 (fitting in alignment with the “Industry Average” category)
• Average amount per invoice of $1,000
• 10% of the invoices they receive offer prompt payment discounts
• The average prompt payment discount is 1%
• Capturing only 10% of those prompt payment discounts being offered by its suppliers

For purposes of this example, let’s assume the company is able to achieve the following improvements through implementation of an accounts payable solution:

• A nominal improvement of 25% relative to reducing its cost to process a single invoice
• Are able to improve its ability to capture prompt payment discounts by a factor of 5, meaning they can now capture 50% of prompt payment discounts being offered

Projected Cost Savings at Invoices Per Month of 10,000

As shown in the table above, this sample company would be able to achieve annual savings of $450,000 based on improvements in its cost to process a single invoice, while also achieving a $48,000 annual benefit from increased prompt payment discounts – yielding a total annual benefit of $498,000.

It has been our experience that it is common for companies to be able to justify an accounts payable automation solution achieving a payback of roughly 12 months or less.

For assistance with calculating your cost to process a single invoice, please refer to the article, “The Starting Point for Justifying an Accounts Payable Automation Initiative: Knowing Your Current Cost to Process a Single Invoice.”

Could you use some additional assistance with your justification process or want to take a look at our DocuSphere solution? We commonly hold Webinars focused on Justifying Accounts Payable Automation while others include demonstrations of some portions of our DocuSphere software, which you can view and register for via our Events page. Alternatively, we would be pleased to assist you with your business case or scheduling a one-on-one demo, by reaching out to us via our Contact Us page.