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Is Your Business Big Enough For AP Automation?

June 11, 2021
A business owner checks his bills against his online bank account

Despite the benefits of accounts payable automation, plenty of companies haven’t made the investment. The biggest blocker for many of those still laboring through piles of paperwork the old-fashioned way is the belief they’re not big enough to enjoy the financial rewards of AP software.

However, these companies (regardless of size) should take a closer look at how AP automation can facilitate long-term success. Allow us to explain:

Does your company process 100 or more invoices each month?

If your company processes 10, 20 or even 75 invoices a month, you may not see overwhelming return on your investment in AP automation software. But if it processes 100 invoices or more, shifting to automation could be a smart business decision.

Simply, the more invoices you process per month using automation, the more money and time you’ll save.

While the costs can vary, Goldman Sachs estimates total costs (processing and labor costs) for AP staff involved in manually processing a single invoice equaled $16.00 for medium-size businesses and $22.26 for small businesses. In an automated system, these numbers fell to $5.89 and $6.89, respectively, for roughly 60-70 percent in net savings.

The cost- and time-savings will probably surpass the money you spend using the software.

So, is your business big enough for AP automation?

The answer to this question is a resounding “yes” for medium and large businesses.

However, smaller businesses face a number of challenges that should be factored into their decisions on whether to invest in AP automation. Four stand out:

  • they tend to do more manual input of invoice data than larger companies
  • they have limited cash flows
  • they’re more vulnerable to disasters such as a pandemic, and
  • they tend to rely heavily on one or two people.

Let’s dive into each of these challenges to help you think through whether AP automation makes sense for your business.

Challenge 1: 86 percent of small businesses do AP manually

Small to mid-market enterprises (SMEs) are far more likely to have fully manual AP processes than large companies, according to a Levvel Research study.

To be exact, 86 percent of SMEs enter their data manually compared to only 22 percent of enterprises.

“With precious time and money being wasted by not investing in automation, SMEs are likely to lag behind their more advanced counterparts,” Levvel said.

Fortunately, automating AP drastically cuts down the time it takes to collect and access that data. Rather than relying on rows of file cabinets, a cloud-based AP automation application stores all your invoice and payment related information in one central and secure digital repository.

Goldman Sachs recently estimated AP automation can drive 70-80 percent time-savings for SMBs.

Challenge 2: Tight cash flow

Unlike larger businesses, smaller ones tend to have a lot less cash available – and that’s a big issue. A U.S. Bank report revealed 82 percent of small businesses don’t survive because of cash flow problems.

The good news is AP automation helps improve cash flows by reducing mistakes, mitigating fraud and taking advantage of early payment discounts.

With direct access to financial and operational information, you can more easily track, identify money-saving opportunities and make informed financial decisions to guide your business.

This both makes your job easier and gives you back time to be more strategically valuable.

“With precious time and money being wasted by not investing in automation, SMEs are likely to lag behind their more advanced counterparts.”

Challenge 3: More vulnerable to disasters

With relatively low amounts of cash on hand and minimal automation in use, small businesses become more vulnerable to disasters. The COVID-19 pandemic is a prime example.

Especially now, with so many AP departments working from home, manual processing of paper invoices is slow and risky.

Since the pandemic began, these attacks have been on the rise. Payment fraud is also up 20 percent and credit card fraud has increased by more than one-third. All of this is putting more strain on AP teams.

Fortunately, use of a cloud-based automation solution minimizes that risk and makes it possible for the AP team to do their jobs at home.

“For businesses to efficiently and effectively operate remotely, they’ll have to invest in technology – and they are,” states a joint report by IOFM and AvidXchange. “Two-thirds of those who have not successfully shifted their processes to enable 24/7 access to AP are now considering use of work-from-home processes and technology improvements as quickly as possible. The goal is to help teams still working remotely and those headed back to the office in their preparations for future potential business disruptions.”

Challenge 4: High reliance on one person

In small businesses, often one person runs the whole AP show — especially if the process is entirely manual. 

Having just one, or even a few, AP specialist puts a company in a pinch when that person is sick, leaves for a new role or retires. The department can be brought to a standstill.

AP automation can ensure continuity. The software stores communications and historical payment information in a single, accessible location.

Small businesses can absolutely benefit from AP automation

To overcome all these small business challenges, some companies have made partial investments in AP automation. Usually these have been attempts to fix a specific pain point such as reducing manual data entry. But these investments haven’t gone especially well. Companies often end up paying high AP processing costs.

“Historically the tools needed to optimize and automate AP have been designed for the challenges and goals of larger enterprises, leaving small to mid-sized enterprises with limited options — often reducing them to patching together a series of disparate tools to address their problems,” according to Levvel.

With limited resources, the report notes, small companies can only focus on their largest and most pressing tactical pain points such as manual data entry and routing.

Frequently, these small companies keep using manual processes because they feel they can’t afford software. While many use their existing accounting systems to integrate some automation in their AP process. But these tools don’t address their main problems: high paper volumes and manual workflows.

So, partial investments in AP automation are not effective at generating attractive investment returns. But full investments in AP automation are likely to deliver those benefits.

Final thoughts

We started out with one overarching point: If your company processes more than 100 invoices per month, it’s a smart business decision to invest in AP automation.

But the go/no-go decision should also be based on market realities. Small businesses face different challenges than larger businesses. Cash flows are lower. So are resources to handle AP processes. But they still need to operate efficiently and keep customers happy with on-time, mistake-free payments facilitated by AP automation.

This doesn’t have to be an all-or-nothing decision from the start. You can start small and process 25 percent of your invoices to see how the process works and the cost- and time-savings you gain.

Then, as you witness the benefits and see how easy it is to use, you can take advantage of automation for all your invoice and payment processing.

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