When developing the business case for accounts payable (AP) automation, it’s important to clearly articulate why AP automation is required, why it is needed now, and address some of the questions around how it delivers value. Here is some language that you can use, as relevant, in your business case:
Benefits of AP automation
There are numerous benefits AP automation delivers, and they broadly fall into the following categories:
- Lower operating costs – Automation lightens the workload for accounts payable. This means that fewer personnel need to be employed in accounts payable, representing a significant saving on invoice processing costs. Automation handles data entry and directs the invoice through the appropriate workflow so accounts payable officers can concentrate on higher value and more rewarding responsibilities, like spend analysis, supplier relations, and exception management.
- Better risk management – Automating data capture and processing results in faster approval times and lower operating costs. Suppliers are paid on time, which builds strong relationships and helps to ensure continuity of supply. This helps a business to deliver optimal customer service. In contrast, long payment terms and late payments cause brand damage, particularly for large entities that are now required to publicly report on their payment times to small businesses.
Automating accounts payable means the business unit and its data are digitised and accessible online, with minimal manual intervention required for invoice capture and processing. This facilitates off-site work, collaboration and decision making, supporting business continuity in times of disruption.
- Stronger financial control –AP automation puts numerous controls in place to protect against invoice fraud, prevent duplicate payments, ensure accuracy in billing practices, and restrict unauthorised spending.
These measures help to bring the overall payables balance down. With an impeccable track record of on-time payment, the buyer can also often secure better rates and more favourable terms from suppliers, such as discounts, rebates, or longer payment terms.
With automation bringing together all payables in one place, the Finance team has increased oversight of company spend with visibility of each stage of the invoice lifecycle. This transparency enables better financial control and cash flow management to inform decision making and help the business invest and grow.
In recent times, socio-economic and political factors have converged, presenting a new urgency for companies to operate more efficiently, bring down costs, and achieve better financial outcomes. Some of these major drivers are as follows:
The pandemic has forced change to the ways companies operate, accelerating digitisation to ensure business continuity and improve efficiency and productivity. It has also become increasingly important for companies to strip out unnecessary costs to maintain profitability during these turbulent times.
On the other side of the ledger, suppliers need to be paid quicker to maintain their commercial viability. During a period in which many small and medium-sized businesses are experiencing reduced demand because of the pandemic, they rely on timely payments to sustain cash flow. The financial health of the supplier is ultimately relevant to the buyer as disruption in the supply chain can affect customer service. Therefore, it’s more important than ever for the buyer to pay on time!
In recent years, the Federal Government has sought to address the issue of late payments stifling economic growth. In 2019, Australia adopted PEPPOL (Pan European Public Procurement Online), which is an electronic invoicing standard and is promoting its widespread adoption. PEPPOL enables the direct digital exchange of invoices between finance systems. This means no manual data entry is required on the buyer’s side to process an invoice, which speeds up approvals and prevents delays caused by human error.
Payment Times Reporting
In 2021, the Government enacted the Payment Times Reporting Act 2020. This legislation forces large businesses to report publicly and biannually on their payment times to small businesses. The Payment Times Reports Registrar will expose entities with long payment times and sub-standard accounts payable performance. This presents the risk of reputational damage to businesses, as well as the prospect of losing quality suppliers to competitors that have shorter payment terms.
To attract and retain the best talent, companies need to move with the times. Now because of the pandemic, employees across industries expect to work in a modern, technology-enabled workplace. The value of technology has been proven in facilitating offsite work, delivering efficiency gains, generating data for business intelligence, and increasing productivity.
Technology supports staff to perform at their best, so also helps build employee satisfaction and engagement. Equally, it’s extremely demoralising and demotivating to work with ineffective systems and processes. Therefore, if companies maintain outdated, inefficient workflows this lack of investment will impact the bottom line: productivity will be low, costs high, and staff turnover frequent. The business will become less and less competitive relative to their technology-enabled counterparts.
How does AP automation bring processing costs down?
When companies rely on people to process invoices, staff members need to manually enter invoice information into company systems. This is a slow process and data entry errors happen frequently. Mistakes create invoice exceptions, which can be time-consuming (and therefore expensive) to identify and rectify.
Accounts payable automation reduces costs by streamlining and speeding up the approval process, and by reducing the number of invoices that accounts payable staff need to get involved with. This means that less people need to be employed in a firm’s accounts payable department, enabling significant savings. Automation reduces the workload for accounts payable staff in the following ways:
Accurate data capture
End-to-end accounts payable automation solutions use Optical Character Recognition (OCR) technology to read accounts payable mailboxes and extract data from emailed invoices. Alternatively, staff can scan paper documents and email them to the dedicated mailbox for the OCR to handle. This means staff do not need to key invoice information into the finance system.
OCR can capture data continuously, faster, and more accurately than a person can. It flags any fields that require validation and can learn from an operator’s actions to become more efficient with each extraction. With OCR, accurate invoice information is recorded in the system ready for processing.
Many accounts payable solutions incorporate a buyer’s PEPPOL access point. This means that the automation solution can process electronic invoices. This increases efficiency and the rate of straight-through processing as the buyer does not need to validate the data before processing it.
Exception management is where the bulk of invoice processing time and cost is incurred. In non-automated accounts payable departments, 20-30% of invoices have to be treated as exceptions. This rate can be reduced through accurate data capture, and through working with suppliers to issue invoices that meet the buyer’s requirements. With clear accounts payable procedures in place, staff can head off exceptions and achieve a more streamlined workflow and a higher rate of straight-through processing.
In-built compliance checks
AP automation enforces compliance checks to ensure fraudulent invoices are not accidentally paid. It does this by performing automatic lookups with the ATO to cross-check vendor ABNs and GST status on each invoice. It also validates that payment details match what is recorded in the vendor master data. If discrepancies are found, the solution triggers an exception for accounts payable staff to investigate and resolve.
Likewise, the solution will search for duplicate invoices and line items in its workflows and in the Enterprise Resource Planning (ERP) system and stop any duplicates from being paid. Recouping such payments can often be difficult and time-consuming, leading to additional unwanted spend by the business.
Clear roles and responsibilities
AP automation brings processing costs down by forcing companies to allocate roles and responsibilities to managing and authorising payments. Companies need to set their business rules, map out workflows, determine who can do what, and decide how to manage specific exceptions.
With clear accountability and timeframes assigned for approval, coding and exception management duties, managers action their invoice processing tasks promptly. This keeps the workflow moving and invoice processing times as short as possible.
Increased rate of straight-through processing
An AP automation solution is fully integrated with the company’s Enterprise Resource Planning system, allowing payments to be made after the automation software has administered the data capture and invoice approval process.
For every deployment, specific business rules are configured to ensure the approval workflows align with the business’ structure and compliance requirements. This means that if an invoice meets certain criteria set by the firm, then it will be automatically approved and paid. Reducing the number of invoices that accounts payable staff and business managers need to get involved with decreases a company’s cost of processing.
What companies can achieve with AP automation?
Automation brings accounts payable costs down by limiting manual intervention and shortening payment times, but it also reduces the overall payables balance through ensuring accurate and on-time payment. As a result, by automating accounts payable you can:
· Reduce accounts payable department spend
· Access early-payment discounts
· Stop paying duplicate invoices
· Accrue no penalty fees for late payments
· Pay no fraudulent invoices
· Safeguard against overpayments
· Secure better deals from suppliers
This has a direct and positive impact on the company’s bottom line.
The next step is to work out your current cost of processing. For a rough idea, you could use the following calculation:
Annual AP salaries + annual operating costs
Number of annual invoices
Or you can use our calculator for a more informed estimate. Through AP automation you may be able to achieve six times lower invoice processing costs. Naturally, you will want to validate this, so we can help you quantify for your business:
· where these additional savings may come from,
· what these savings may realistically amount to, and
· how these savings impact on your cost to process.
We can also advise on the cost of implementation and ownership of an AP automation solution so you can calculate your payback period and return on investment. We can also provide guidance on timeframe, risks, and anything else that you want covered in your business case.
Contact us today on +61 2 8004 5446 and let’s get your digital transformation underway!