5 Factors to Measure ROI in AP Automation
Accounts Payable automation software helps in tracking, measurement, and analysis, identifying significant areas for improvement, and calculating the ROI of AP automation. It allows us to assess how efficient our current AP operations are and address underlying issues more effectively.
It is why, if we change any vital process in AP automation, we must monitor, analyze, and implement any changes in the workflow and the impact of those changes on the ROI.
Accounts Payable process tracking, measurement, and analysis assist us in identifying significant areas for improvement and calculating the ROI of AP automation. It allows us to assess how efficient our current AP operations are and address underlying issues more effectively.
If we change any vital process in AP automation, we must monitor, analyze, and implement any changes in the workflow and the impact of those changes on the ROI.
As a result, if a corporation needs to keep funds, the accounting system can manipulate accounts payable. As a result, the corporation will clear product payments over time.
What Are The Responsibilities Assigned to Accounts Payable?
Account payable activities are comparable to an accountant, except they are concerned with invoice clearance and cash flow. They can utilize administrative, economic, and clerical methods to keep all invoices in order and all payment data recorded. Specifically, the charge payable is essential to ensure the organization's financial stability. Some of an account payable's responsibilities are:
• Maintaining a record of all payments, invoices, payrolls, and purchases
• Ensuring that the record details and balances are in sync
• Keeping a record of every purchase
• Monthly financial report preparation
• Improving the payment procedure in any way possible.
What Are the Consequences of a Manual Accounts Payable Process?
Automation not only simplifies all operations but also reduces the possibility of errors. As a result, if you do not automate your accounts payable automation solutions, you may suffer the following disadvantages.
• Signature forgery
• There is no payment history.
• Data and check losses
• Increased workload resulting in decreased efficiency
• Difficulties with payments and invoice storage
• Having little or no knowledge of the company's financial situation.
What Are the Drawbacks of a Manual Accounts Payable Process?
Automation not only simplifies all activities but also decreases the potential for errors. As a result, if you do not automate your accounts payable software, you may suffer the following disadvantages.
• Signature forgery
• There is no payment history.
• Data and check losses
• Increased workload leads to decreasing efficiency
• Payment and invoice storage issues
• Having little or no knowledge of the company's financial status
5 Factors to Consider When Calculating AP Automation ROI:
1. Total Number of Bills
The total number of invoices received during a specific period should be the initial metric for measuring the ROI of AP automation.
Businesses that reduce manual invoice processing, for example, average 906 invoices per month, whereas organizations that rely entirely on paper invoices average 700 invoices per employee per month.
A company's overall number of invoices varies based on its size and the proportion of manual procedures involved. Larger companies, unsurprisingly, will receive more invoices. These invoices might be measured daily, weekly, monthly, or even yearly.
The overall number of invoices allows us to determine the typical volume of work and provide baselines for measuring other indicators. If your AP automation system increases the overall number of invoices delivered, it improves the output of your AP department.
2. Total Number of Invoices Handled
After understanding the overall number of invoices received in a given period, it's critical to know how quickly AP automation processes them. This process will allow you to learn the AP processing system's work rate.
For example, if your company received 1500 invoices in a single month, the "Total Number of Invoices Processed" column reveals how many of these invoices got processed during that month.
If your AP staff fails to process 90% of invoices despite AP automation, upgrading your AP workflow approach is time.
There could be various reasons why AP automation cannot maximize invoice processing. Your AP workflow may have unknown bottlenecks that stymie invoice processing, your personnel may still rely on manual processes, or invoice exceptions are causing inefficiencies.
Regardless of the reason, it is your responsibility to locate and remove the impediment. Adjustments in this area can help you maximize the efficiency and effectiveness of your staff.
3. Average Invoice Cost
The average invoice cost is critical for determining the ROI of AP Automation. It assists us in identifying aspects that increase our expenditures while decreasing our invoices and expenses.
When calculating average costs per invoice, we should consider factors such as the cost of hardware, paid IT assistance, employee wages and benefits, software fees, managerial overhead, and other charges. The type of invoice also has a significant impact on the average invoice cost. Non-PO process and exception invoices typically cost more than PO-based invoices.
Using AP automation capabilities such as intelligent invoice capture can save you money on laborious data entry. An AP automation system that reduces your average cost per invoice from $15 to $11 can save you $6000. Regardless, an Automated AP solution will be more expensive than a manual operation.
4. Cycle Time for Invoices
The typical receipt-to-pay time gets represented by invoice cycle time. It calculates the average time spent processing an invoice from receipt to archival. This metric informs customers about which tasks take the most time. If it takes your team 8 hours to finish the cycle for ten invoices, the invoice cycle time will be 48 minutes for each invoice.
Companies may learn how their AP team spends the majority of their time. Minimizing cycle time is an indication of effective AP automation.
Complete automation assists businesses in streamlining AP operations and speeding up payment processing. As a result, your organization will be exempt from late payment penalties and may be eligible for early payment discounts.
5. Incorrect Payments Rate
The rate of improper payments assists businesses in identifying erroneous prices in a given period compared to the total number of invoices paid in that time. For example, suppose you processed 500, but five of them got paid improperly owing to human error. The rate of improper payments will be 1% in this case.
Overpayments, duplicate payments, and other mistakes have a severe influence on the finances of any business. One of the most important aspects of AP automation is the reduction of improper payments. You can calculate the AP automation ROI by tracking faulty expenses and finding faults that cause errors. It appears straightforward, but it's easy to lose track of what number you're on, resulting in gaps or repeated invoices with the same number.
How to Measure Long-Term ROI?
This section will be fun if you enjoy toying with numbers. How much money can your company save in the long run by switching to AP automation?
Here is calculating the first year and the next five years' savings.
First-Year ROI: Total Cost of Implementation - Annual Savings (including onboarding, training, and cost of the software)
5-Year ROI for Implementing AP Automation - (Annual AP Savings X 5) – (Cost of Implementation + 5-Year Maintenance Costs)
While the transition to an Accounts payable automation software process may seem daunting, the proof is in the data. Moving to an automated AP system can save you thousands, if not hundreds of thousands, of dollars annually.
Ready to get started? Hermes - AP automation makes switching to AP automation easy with our no-sweat setup that integrates with your current systems.