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Chapter 7

Working Towards Automated AP Success

Major change doesn’t happen on its own.

In general, a major change requires one of two circumstances—either the problems you are dealing with are so bad you need to change, or the opportunity is so great that you want to change. With AP automation, you most likely experience a combination of the two.

Henry Ijams points out that upgrades in your personal life mirror upgrades in your professional life. The

reason you automate AP is “the same reason you don’t pay your own bills anymore with a check. You use online bill pay tools from your bank or pay your bills with your credit card.”

The same should happen with your accounts payable department.

As you begin working on AP upgrades, set clear goals and expectations, and ask questions along the way. How long will it take to choose a vendor and implement your new system? What percentage of invoices can realistically go electronic and on what schedule? How are you going to measure the cost savings and impact of AP automation? Do you have clear enough data to justify the expense of automating at all?

These are all important questions to answer.

Once everything is implemented, you need data and evidence to show that everything is working. Which specific goals has your system achieved so far? What else is possible that we have yet to automate or improve? These questions are likely not on everyone’s mind, but as a finance leader at your company, they should be on your mind.

If you only process around 20 to 50 invoices every month, you likely won’t see the big cost savings that larger organizations achieve through automation. Around the threshold of 100 invoices per month, then you can make an argument that automation is the best decision.

One worker can likely handle everything without automated systems up to that point, but once you break 100 invoices every month, putting systems in place can lead to meaningful improvement and results.

You and your team know your AP system better than anyone. Sit down as a group, including the clerks and staff members doing the day-to-day invoice processing and payments, to get a better understanding of their process flow, pain points, and suggestions.

You may just find that you have great knowledge and dedication from within the team that you didn’t know about. You might even find the next potential leader to promote or someone to put in charge of the automation project as a project manager overseeing the roll out.

If you find yourself overwhelmed with to-dos and tasks around the upgrade process, try implementing the Pareto Principle, also known as the 80/20 rule.

The 80/20 rule states that about 80 percent of your results come from 20 percent of your work, and that the remaining 80 percent of your time only leads to 20 percent of results. Look for the 80 percent of invoices that take the most time and effort and focus on those as the first vendors to shift to the new, automated process. As more suppliers get onboard with the new process, you will find a quick difference in how your team performs.

You might even find the next potential leader to promote or someone to put in charge of the automation project as a project manager overseeing the roll out.

Defining the ROI of AP Automation

Immediate gains aren’t the only gains.

While you will see some instant productivity gains from your new automated AP system, that is just scratching the surface on what is possible. Automated accounts payable, and its inclusion in a larger ERP, gives leaders much deeper knowledge and reporting abilities than paper and a few spreadsheets.

Ultimately all business decisions should be made with return on investment in mind. This focus on ROI is much easier to measure with solid systems in place. Getting your reporting in order is vital to achieving the best ROI from automating AP.

Costs Saved Through AP Automation

Because you are staring at costs and expenses all day already, cost reduction is the first thing that comes to mind for most finance leaders when looking at AP automation. Lucky for you, this is relatively easy to measure once your new systems are in place.

Based on the number of invoices you process each month, the size of your dedicated AP staff, and a few other inputs, you can quickly estimate your costs and potential cost savings from automated AP. The average cost per invoice at most companies is over $22. Even a small savings per invoice can add up if you have a lot of volume.

While the systems used for automation are not cheap, neither are workers.

According to data from Payscale, the median annual salary per worker is $37,075 for an accounts payable clerk, with 80 percent of workers getting anywhere from $28,000 per year up to $48,000 per year. Remember, that doesn’t include costly benefits like insurance or the cost of desks, computers, and real estate to give everyone a place to work.

Time Saved Through AP Automation

If you can dramatically cut the payroll hours involved in each invoice, then your company can perform well below the $22 per invoice average.

Automation cuts out labor-intensive, error-prone tasks like invoice entry, scanning, receipt and purchase order matching, coding, correcting errors, and the entire process of migrating data from AP into the main accounting system.

If your company processes 500 invoices per month, you could be spending $11,000 to process those invoices if you have average costs. That doesn’t include the actual cost of the invoice—it’s just the process to pay them.

There is huge ROI potential from upgrading to automated AP. If you could put those $11,000 dollars every month into cost saving analysis and revenue-generating activities, then you will be much better off.

Added Efficiencies from AP Automation

Most of our discussions in this guide focus on cost and time savings within the accounts payable department, but the ripple effect of a new ERP or AP automation solutions can be felt widely throughout the company.

For example, most businesses have a chain of approvals based on the dollar value of an invoice or transaction. Many companies use a manual approval process involving either paper or email where an AP clerk has to find and get approval from each signer. With AP automation, the approval workflow is established within the software.

When a relevant invoice comes in and goes into the accounting system, the approval requests go out automatically, and as each approval is received, the next email goes out automatically. It’s like magic.

Now that your staff is free from these types of worries, take a look at your to-do list, which has probably been growing with a backlog of tasks and projects for a while now. These types of analytical tasks that software can’t do can lead to more revenue and lower costs for your business. Think of projects like renegotiating payment terms and vendor contracts, introducing new payment options, and researching early-payment discounts.

This takes you beyond the basics of just reducing costs by transitioning to an automated process. This is turning your AP team into an even bigger contributor to the company’s success through a combination of cost savings and cash flow improvements.

Automation cuts out labor-intensive, error-prone tasks like invoice entry, scanning, receipt and purchase order matching, coding, correcting errors, and the entire process of migrating data from AP into the main accounting system.