Retailers require AP automation to remain profitable in a highly competitive and fast-paced industry. As a result, retail has amongst the highest rates of AP automation of all industries and the lowest invoice processing costs, averaging around $3.57 per invoice.
Heavy volumes of invoices
A retail business relies on an extensive vendor network to operate. Consequently, accounts payable departments need to process a heavy volume of invoices for their stock as well as non-stock procurement. As the business scales and new stores open, these requirements increase; if invoice processing is performed manually, more staff need to be employed to keep on top of the increased workload.
When managing a heavy volume of invoices, manual processes become very expensive, very quickly. If a retailer is paying $10 per invoice in processing costs, then tens of thousands of invoices a year would give rise to hundreds of thousands of dollars in annual processing costs. And, in addition to this spend, there is the opportunity cost of lost time that could have been better spent on value-generating activities.
Razor-thin margins in retail
Retail is an intensely competitive sector, which puts pressure on margins. Therefore, to increase profitability, retailers need to keep expenses low by streamlining processes as much as possible. Digitalisation and automation deliver fast, efficient workflows and dramatic cost savings.
Automating vendor onboarding as well as procure-to-pay means retailers can move swiftly in response to trends. Being quick to market with new products boosts sales and enables better overall service. This may help retain existing customers while also attracting new ones.
Late payments damage supplier relations
Manual processes are inherently slow and unreliable, which frequently result in late payments. This is particularly damaging in retail because late payments could lead to credit holds, which would interrupt supply and lead to lost sales. In an environment where margins are so thin, this scenario needs to be avoided. Further, by consistently making payments on time, buyers may be able to secure preferential rates or terms from suppliers.
AP automation supports profitability
Automation can turn an accounts payable department from a cost centre into a business unit that helps drive company growth and profitability. This is because AP automation not only significantly reduces costs but also enables better financial management.
Leaders have visibility across the invoice lifecycle and are equipped to make informed decisions that will help drive business growth. Staff can, for example, optimise working capital by scheduling supplier payments to capitalise on early-bird discounts, or use the full payment term if that works better for cashflow requirements.
AP automation also supports profitability by helping to reduce maverick spending. By requiring a purchase order in most cases for stock and non-stock procurement, goods are purchased via company systems and through preferred suppliers. This usually means preferential rates and service level agreements for the business, helping to reduce costs and improve efficiency.
Automated purchase order matching
Retailers need to cross-check their invoices against their respective purchase orders and goods receipts to avoid overpayment. If this matching process is done manually, this work is extremely laborious, time-consuming and error prone.
The AP automation product looks up the purchase order in the system and matches the invoice line item against this document for two-way matching, and against the goods receipt for three-way matching. If all details align, or are within a tolerated variance, the payable is processed straight through to the finance system without any human intervention required.
Exception management capabilities
Invoice exceptions create work for AP staff to manage. Therefore, the most sophisticated AP automation products offer automated exception management capabilities, such as:
- Rejecting an invoice if it recognises it is not compliant, such as if the purchase order number is missing.
- Coding a repeat, non-purchase order invoice from a regular supplier, based on its processing history.
- Notifying users of their procure-to-pay tasks, such as approving purchase requisitions, coding or approving non-purchase order invoices, and receipting goods.
This advanced functionality supports high rates of touchless processing, keeping AP costs as low as possible for the retailer.
AP automation health check
With the value of AP automation demonstrably clear, many medium and large-sized retailers have had solutions in place for several years already. The question for these retail businesses is, how well does their software perform?
An AP automation health check may be valuable to validate that their software solution keeps pace with the latest and greatest product and technology advancements. A software vendor such as EL can make recommendations on how to improve performance and drive the cost of processing down further.
Retailers process a heavy volume of invoices, which becomes very hard to manage manually. In an industry that is extremely competitive and has such narrow profit margins, AP automation keeps transaction costs down while assuring accurate, on-time payments and continued supply.
Automation also allows AP to operate more strategically as well as efficiently, which helps to create business value. With a best-of-breed AP automation product, retailers may be able to get their transaction costs to below industry averages of $3.57. If retailers are paying more than this amount, it’s worth finding out where improvements can be made to lower costs and ultimately benefit the bottom line.