Before you decide to invest in Accounts Payable Automation for your organization, you need to know how much it will pay off in the long run. AP Automation can help you save time and money by streamlining your operations, but it also involves some upfront costs to set up. That’s why you need a solid business case for automation with a detailed and realistic ROI analysis.
In this article, we show you how to calculate the ROI of Accounts Payable Automation using SmartUi Intelligent Automation Cloud. We’ll cover what factors to take into account and how to present the benefits of automation to persuade stakeholders and secure the budget for the project.
What is the return on investment for accounts payable automation?
Accounts Payable Automation can generate a 130% to 300% ROI on average. These savings are not only consistent, but also scalable, as they grow with the company’s expansion.
The Gartner Accounts Payable Benchmark Report (an annual report that measures the productivity of AP operations in more than 800 organisations), demonstrates how valuable Accounts Payable Automation is to the bottom line of any organisation, no matter the size or scale.
Impact of automation on invoice processing costs:
- No automation = $6.60 – $30 per invoice
- Semi-automation = $2 – $4 per invoice (i.e. request a PO or job number from a manager from AP automation software)
- Full automation = $1.24 per invoice (straight through processing to the financial system)
Impact of automation on statement processing costs:
- No statement automation = $10 – $50 per statement
- Semi-automation = $5 – $15 per statement (depending on the number of missing invoices)
- Full automation = 1.24 – $8.00 per statement (depending on the number of invoices contained)
What are the costs of not automating your accounts payable process?
In a recent study by SmartUi across our own clients, top pains in the customer’s AP process include manual data entry, chasing managers for PO’s or job numbers, vendors sending incorrect information on invoices, hours lost reconciling vendor statements, and high volumes of lost/mis-keyed invoices. These issues and many others, such as a high number of invoice discrepancies and exceptions, are all common symptoms across manual AP teams.
Unfortunately, there isn’t an exact number for invoice processing costs, mainly due to the variances in wage and processing times. Research firms, like the Everest Group, have found that the average cost of manually processing a single invoice can range from $6.60 to $30. Other firms have been able to narrow this gap to between $13 and $15. Companies with a more complex AP process can expect costs to peak at nearly $40 per invoice. When you consider that, in some cases, the cost of processing the invoice easily transcends the actual invoice amount itself. Multiply this number with hundreds or thousands of invoices monthly and you start to see how it’s a costly operation for your business.
It’s slow and time-consuming
Invoice processing in the construction industry is slow and time-consuming for staff due to the complex nature of construction projects. Each project involves multiple vendors, subcontractors, and suppliers, resulting in a high volume of invoices, credit notes, and statements that need to be processed accurately and in a timely manner. Manual data entry processes are prone to errors, and the sheer volume of invoices requires significant time and resources. Additionally, invoices often require manual validation and reconciliation, which further adds to the processing time.
As a result, invoice processing is a significant challenge for the construction industry, and the implementation of automation solutions like SmartUi’s can streamline this process and save valuable time and resources. With a manual AP process, it may take days or even weeks to key and pay an invoice. Such a slow process can lead to delays in invoice payments, which can, in turn, result in late payment penalties, poor payment terms and, in some instances, quality suppliers refusing to work with your company.
It’s prone to human error
As the age-old truth says, “mistakes make us human”. When processes are carried out by humans, mistakes are inevitable. The problem with errors in AP is that a small mistake can lead to bigger issues, such as costly delays and extra, unnecessary time spent on reconciliation. Human error can occur at various stages of the process, such as data entry, validation, and reconciliation. Errors can result from typos, incorrect data entry, missing information, or incorrect validation of invoices.
These errors can have severe consequences, such as incorrect payments, overpayments, or underpayments, which can damage vendor relationships and lead to financial losses. Additionally, manual invoice processing can result in delays, which can impact the timely completion of projects and lead to additional costs. By automating invoice processing, construction firms can reduce the risk of human error and improve accuracy, ultimately improving their bottom line.
It can cause leakage
AP errors can be costly and hurt your company’s bottom line. It can lead to mismanaged taxes, duplicate payments and overpayments. Issues of late payment penalties, fraud, missed discounts and forgotten credit notes are also very common with manual AP processing. Whenever this happens, money leaks from your process, which can be very tricky to detect within existing operations. In companies with larger volumes of transactions, this can add up to significant amounts each year.
By automating the process, construction firms can reduce the risk of human error and avoid unnecessary leakage, ultimately improving their bottom line. Automating the data extraction, validation, and reconciliation of invoices, credit notes, and statements can help construction companies avoid costly mistakes, improve accuracy, and ensure timely payments, ultimately saving time and money.
Nobody wants to sit at the same old desk and enter mind-numbing data for hours. But unfortunately, that’s what manual invoice processing entails. It consists of tedious and repetitive tasks that, most likely, lead to a bored, inefficient, and detached team. The manual nature of the process requires staff to spend long hours processing invoices, which can be repetitive and unengaging.
Additionally, manual data entry and reconciliation processes are prone to errors, which can lead to rework and further add to the tedium. The repetitive nature of the task can also lead to staff burnout and high turnover rates, which can result in additional costs for construction companies. By automating invoice processing with SmartUi, construction firms can free up their staff from these tedious and repetitive tasks, allowing them to focus on higher-value activities that require their skills and expertise. This can lead to improved job satisfaction, lower turnover rates, and ultimately, a more productive workforce.
Independent research from organizations such as The Aberdeen Group, IOMA, and PayStream Advisors has shown productivity gains as much as 82% in companies that automate document management and workflow. Many of our customers experience these types of productivity gains.
As invoice volumes grow, so do labour costs when processing invoices manually. The more invoices a construction firm receives, the more staff is needed to process them. This leads to a significant increase in labour costs, as additional staff must be hired, or overtime hours must be paid to handle the workload. This not only affects the bottom line of the company, but it also creates a strain on existing staff, leading to burnout and high turnover rates. Moreover, manual processing of invoices is prone to human error, leading to additional costs associated with correcting mistakes and resolving discrepancies.
Significant cost savings can be realized by avoiding losing valuable staff, most companies offset the cost of a technology investment through natural attrition and by postponing the hiring of new staff. The bottom line is that you will be able to accomplish more with fewer people, giving you the opportunity to redeploy your most valuable asset (your people) to other areas of the business.
Implementing SmartUi Intelligent Automation Cloud can alleviate the strain on staff, reduce the need for additional personnel, and improve the accuracy of invoice processing. This can ultimately lead to significant cost savings for the construction firm, allowing them to invest in other areas of the business.
Purchase Order and Subcontract Mismatches
Not matching the unit price on an invoice to the purchase order or subcontract can have a significant impact on the bottom line of a construction firm. When invoices are not matched correctly, overpayments can occur, resulting in financial losses for the firm. For example, if a supplier charges a higher unit price than agreed upon in the purchase order, and the invoice is not matched correctly, the construction firm will be overcharged for the products or services received. Over time, these overpayments can add up, impacting the financial health of the company. Furthermore, the incorrect matching of unit prices can lead to discrepancies in inventory and financial records, creating additional challenges for the firm.
For example, let’s say a construction firm orders 100 units of a particular material at a unit price of $20 per unit, as agreed upon in the purchase order. However, when the supplier sends the invoice with a partial delivery, the unit price is $22, which is $2 more than the agreed-upon price but the invoice falls within the balance of the PO and is paid without a unit price check. If the invoice is not matched correctly to the purchase order, the construction firm will end up paying $2 more per unit, resulting in an overpayment of $200 ($2 x 100 units). This is a very common scenario that can easily end up costing a fortune which the situation is repeated in a manual environment.
Automating the purchase order matching process with SmartUi can help construction firms avoid these costly mistakes, ensuring that unit prices are accurately matched and minimizing the risk of financial losses.
Improve Payment Times
Process efficiency gains from a good document management system translate to more than just headcount reductions. Processing faster gives you the flexibility to pay on your terms when you are ready. In a study by the Aberdeen Group, respondents with workflow systems averaged 4.4 days to process an invoice compared to the average of 14.4 days and the bottom tier companies at 34.4 days.
ROI from process efficiencies comes from capturing early pay discounts, eliminating late payment fees, and better cash management to optimize working capital. Many times, inefficient processing leads to paying invoices too early. If people scramble to process invoices, they are in the habit of just paying the invoice to “get it out of the way”. A good workflow system can process the documents in 4 days, schedule the optimum pay date, and remind you on the day it needs to be paid.
Workflow efficiency and automated checking can reduce errors associated with duplicate invoices, duplicate payments, and incorrect amounts. The more people feel rushed, the more likely an error to occur. Workflow audit trails and procedures reduce the errors associated with fraud.
There are companies that make a living by auditing payables to retrieve lost costs associated with these types of problems. If you’re using one of these companies, why not put your money towards a system that prevents this from happening in the first place? If you’re not using one of these companies, how much do you think you are losing and don’t know it? Remember it costs an average of $120.00 to repair an incorrectly keyed invoice.
Improve Vendor Payment Terms
In a busy environment, we are so focused on keeping our heads above water that we don’t have the time to proactively manage to improve our position. A good AP Automation Solution generates reports that allow you to audit vendor performance. This helps buyers transfer purchases to those vendors with better terms or fewer billing errors. It can also help them negotiate with vendors to improve terms.
Reduce Operating Costs
Manual processing leads to high costs associated with following up on issues, keying data, matching to reference data, phoning managers for issues, validating statements, and uploading documents to the correct locations.
What About Soft ROI?
There are many other soft costs to consider. These savings can be substantial but are often more difficult to quantify. SmartUi Intelligent Automation Cloud can lead to other soft cost savings and benefits. These include; improved compliance with regulations and internal policies, enhanced data accuracy and integrity, increased efficiency and productivity, and improved vendor relationships.
By automating the accounts payable process, construction firms can ensure that all invoices, credit notes, and statements are processed in compliance with regulations and internal policies, reducing the risk of fines and penalties. Additionally, automated data extraction, validation, and reconciliation ensure that all data is accurate and up to date.
Furthermore, automating the AP process can improve vendor relationships by ensuring timely payments, reducing the risk of disputes and late fees. Overall, the ROI of Accounts Payable Automation using SmartUi Intelligent Automation Cloud goes beyond direct cost savings, providing a range of soft cost savings and benefits that can contribute to the growth and success of a construction firm.
Soft costs can include but are not limited to:
- Improving visibility into spending
- Decreasing dispute resolution time
- Promoting compliance with existing contracts, thereby reducing savings leakage
- Filtering out maverick spending
- Reporting supply financial performance issues and identifying bottlenecks in the receipt-to-payment process
- Reducing regulatory compliance risks
- Letting managers manage and spend less time with the busy work of getting involved in the AP process
- Reducing the impact of a lost document in terms of cost and liability
- Ensuring statements are reconciled and no invoices are missing.
In conclusion, Accounts Payable Automation using SmartUi Intelligent Automation Cloud offers numerous benefits to Premier customers. The manual nature of invoice processing is a significant challenge for construction firms, leading to errors, delays, and unnecessary leakage.
Automating the data extraction, validation, and reconciliation of invoices, credit notes, and statements streamlines the process, reduces the risk of human error, and improves accuracy. By implementing SmartUi, construction firms can save valuable time and resources, reduce processing costs, and improve compliance. Furthermore, the ability to automate purchase order and subcontract matching can significantly reduce the risks associated with manual matching which cause unnecessary budget adjustments.
Finally, by freeing up staff from tedious and repetitive tasks, construction firms can improve job satisfaction and reduce turnover rates. The return on investment from implementing SmartUi is significant, allowing construction firms to grow their business without the increased cost of human labour. Ultimately, Accounts Payable Automation with SmartUi is a game-changer for the construction industry, enabling firms to optimize their processes, save time and money, and focus on what they do best.