If you’re here, you’re likely a finance pro interested in cost savings for your business. The good news? Automating your accounts payable (AP) processes can have a big impact on your bottom line. But how much can you save?
There are several ways to measure the cost savings of AP automation. These savings vary depending on how they’re calculated.
While the costs can vary, Goldman Sachs estimates total costs (processing and labor costs) for AP staff involved in manually processing a single invoice equaled $16.00 for medium-size businesses and $22.26 for small businesses. In an automated system, these numbers fell to $5.89 and $6.89, respectively, for roughly 60-70 percent in net savings.
Why the cost savings? Let’s go deeper into the numbers to help you better understand the savings you can achieve.
In its research of 1,485 organizations, the American Productivity & Quality Center found “top performers” – the top 25 percent of businesses evaluated – spent an average of $2.07 per invoice. The lowest 25 percent spent nearly five times as much ($10). The key difference between the two groups was automation; top performers typically use it while lower performers don’t.
These cost differences are especially significant considering the more invoices you process the more money you can save.
In shifting from manual to automated AP, one of the best ways to measure your cost savings is to calculate the cost per invoice. It’s one of the most accurate and widely used measures of how much savings are possible.
Focused on that metric, the Institute of Finance & Management reports companies using limited or no automation spend, on average, $8.78 to process one invoice. If they use a high level of automation, it costs $1.77. And that’s before considering labor costs.
As you assess how much you can save with AP automation, factor in the cost of labor, physical goods (paper checks, envelopes, stamps), transaction fees and credit card fees.
You’ll also want to know about various costs to complete AP invoicing tasks. Goldman Sachs breaks these down:
When calculating AP automation cost savings, pay especially close attention to labor costs. They’ll be one of your biggest expenses. This includes how long it takes employees to process invoices.
For a single employee, for instance, figure out their hourly pay rates and multiply by the number of hours they spend on invoice processing each month. And figure out how many people are involved and add up those costs.
Also, calculate your infrastructure costs, which include accounting software and ERP systems and fraud detection tools.
And don’t forget all the other hidden costs in processing an invoice. One of the most expensive is using paper-based regular “snail mail” to send invoices and payments.
If you’re relying on manual processes and traditional snail mail for sending invoices and processing payments, you’re spending time and money that could be leveraged elsewhere.
Challenging economic times or not, business owners often stress over managing their cash flow, and it’s for good reason. Without cash in hand at the end of the month, it’s tough to pay expenses, purchase supplies for new jobs or invest in growing the business.
Think about the time and effort it takes to invoice your customers, keep track of expected payments, follow up for payment, collect checks from the mail, reconcile them with invoices, and drive them to the bank for deposit. And, that’s just on the receivables side.
Goldman Sachs explains the pitfalls of slow processes for both buyers and suppliers:
Going electronic with your AP and payments processes removes paper and stores important financial data in the cloud for easy access, from anywhere, at any time. It also offers faster payment options, like enhanced ACH and virtual cards, so payments simply land in your account after approval, without hassle, and remittance data is delivered electronically.
To calculate your cost savings using AP automation, focus on the cost to process one invoice.
The total costs to process your company’s invoices in a given time period (usually a month) divided by the total number of invoices you processed a month equals your cost per invoice.
Include the labor costs of people processing the invoices, the technology used, payment processing fees, paper and mailing costs and any other costs you believe should be added.
The cost savings you’ll achieve by automating AP vary by industry. To show this, a SSON report shared average costs per invoices in the advanced technologies, banking and healthcare and professional services industries:
Industry | Average cost per manual invoice | Average cost per automated invoice |
---|---|---|
Advanced technologies | $11.83 | $6.18 |
Banking and healthcare | $11.13 | $5.81 |
Professional services | $11.30 | $5.90 |
Knowing the savings associated with AP automation, what should your next steps be?
We have a few tips to get your business moving in this money-saving direction.
Sold on accounts payable automation as the right remedy for your processing pains but not quite sure where to begin when it comes to assessing solution providers, building a business case and actually implementing? Don’t worry, Avidxchange have you covered.