Accounts Payable automation - does it make sense for your business?
Are there sufficient benefits to justify a small business automating their accounts payable process? As you can imagine, the answer to this question is not simple. Let's look at a few of the factors that come into play
One of the first things that might come to mind is - what exactly do you mean by Accounts Payable automation? For the purposes of this discussion, we're going to look at one of the primary automation components – document management.
Accounts Payable is a paper intensive business process. Depending upon which survey you choose to believe, the estimates for the percentage of invoices in paper format run from 65% to 90%. Regardless of the exact figure, that's a lot of paper.
The foundation of document management is to capture paper based information and turn it into digital files. It would be a rare person in today's business world that doesn't understand at least some of the benefits of digital versus paper based information.
Many document management systems also offer significant benefits in the efficiency of the AP workflow. I'll examine the workflow process in a future post. In the meantime let's focus on the dollars and cents.
Using technology to automate any business process necessarily involves an investment in software, and often hardware. In today's economy, it is imperative that such an investment is justifiable. So how do you go about determining if an investment in Accounts Payable automation makes sense for your company? Obviously, every business is different, but let's examine some industry data on that issue.
AP automation is a hot topic, and there's no shortage of data to draw from. Organizations like the Hackett group and the Aberdeen group are examples of companies that study business process efficiencies and costs. The Hackett group has stated that “organizations can cut the cost of Accounts Payable by up to 90% simply by reducing the use of paper-based processes.”
A 2011 whitepaper by the Aberdeen group examines the best versus the worst performers in accounts payable performance. They gathered data from 130 different companies and found that the cost to process a single invoice for the best in class (top 20%) companies was $3.09. The cost per invoice for the worst performers (bottom 30%) was $38.77.
The data above represents a difference of $35.68 per invoice. For purposes of this discussion, let's assume that only half of that difference was because of automation. That would leave us with a $17.84 per invoice difference. If you process 100 invoices per month that amounts to $1784 savings per month. Your mileage may vary:)
Looking at the example above gives you an idea of the potential improvement in invoice processing costs. To determine the ROI on an investment of Accounts Payable automation, you also need to understand the costs of that automation. Stay tuned, I'll discuss that in my next post.
Here's a short (2.5 minute) video that will give you an overview on how document management software can improve your accounts payable workflow - just click here.
I look forward to your feedback on this information. Please give me your thoughts in the comments section below. Talk to you soon.