How to calculate the ROI of AP Automation

Introduction

It is widely accepted that AP Automation accelerates invoice processing and makes it much less prone to error than manual operations. Such cost-saving benefits appeal to C-suite decision-makers, but they will want to know more. How much exactly can be saved by automating AP processes, and what are the initial and ongoing costs? The relationship between the two is the key metric known as Return-on-Investment (ROI). 

C-Suite is asked for budget all the time and has to make tough choices. The ROI of AP Automation illustrates “objectively” just how much of a good and even necessary investment it is.  

So how do you find the ROI of AP Automation? In some ways, this is straightforward. Manual invoice processing eats up a lot of manhours – AP Automation takes far fewer. You set the cost of manhours saved against your investment and do the sums. 

It is much harder to be specific about other arguably larger benefits of AP Automation: compliance, employee satisfaction or supplier relationships. You are being asked to prove a negative – that is to say, the fines and reputational damage, team turnover, missed discounts, among other potential consequences, as you avoid by investing in AP Automation software.  

These arguments all start from the same point: the benefits of AP Automation. So let’s recap those.

Understanding AP Automation with Cevinio

AP Automation, such as Cevinio, autonomously processes your incoming invoices, making it more efficient and compliant. It can transform the back-office function of AP into a strategic driver of growth across your business. 

Key features of our AP software include:  

• Hands-off invoice processing: The software automatically imports and processes invoices, extracting, validating and matching essential data and routing them for approval. 
• Intelligent matching: We leverage Artificial Intelligence (AI) to match data points on the invoice against ERP master data. 
• Predictive AI: Our platform automatically codes non-PO invoices, GL Account, Cost Center, Project Code, and other accounting dimensions. 
• Advanced approval workflows: It automatically routes invoices to the right approvers, supports the review processes, and enables escalations and delegations, ensuring timely invoice approval. 
• Streamlined exception handling via business process workflows: Efficiently handle discrepancies by automatically sending notifications and reminders to the relevant teams. GRN missing, PO missing, price, or quantity discrepancies, among others, can be handled effortlessly. 
• Integration with business systems: Integration with existing accounting and ERP systems ensures a seamless flow of data, reducing data entry redundancy and improving accuracy. 
• Productivity is transformed in two ways: Granular tasks take much less time, and the automation of AP processes reduces the workload even more. 

In essence, AP automation empowers your finance team to do more with less, boosting the financial well-being of your business.

Calculate your ROI: Focus on cost and time savings

Don’t lose sight of these tips for calculating ROI: 

• Be thorough. When estimating your annual savings, consider all of the potential benefits of AP Automation, including direct and indirect savings. 
• Use a conservative ROI calculation. It is better to underestimate your ROI than to overestimate it and be disappointed. 
• Consider the long-term ROI. The benefits of AP Automation often increase over time as your business grows and your Accounts Payable workload increases.

How to assess current AP processes and operational costs

The first step is to assess your existing processes. By estimating the total cost of your manual AP processes, you arrive at a baseline against which to measure improvements.  

Start collecting some high-level figures such as the number of invoices received annually, the number of days it takes to process a single invoice, and the size of your AP team. Include all the expenditures, not only employee salaries and benefits, but also outsourcing, maintenance and support, and administrative overheads.   

Estimating the costs and benefits of AP Automation involves assessing the direct and indirect ways that automation impacts your business. Below we explore aspects you should consider in more detail:

Accounts Payable staff salaries 

Manual invoice processing is labor-intensive, so think carefully about the resources it absorbs because it’ll be more than you had imagined. Another factor is that whereas automation scales, humans don’t. If your strategic ambition is to grow the business, you will probably need to hire more staff to keep up with invoice processing volumes. More staff means a higher wage bill eating into your profits. AP Automation can increase productivity by a factor of between 3 to 5. To rephrase this in terms of cost: with AP Automation, you would have two fewer salaries to pay to handle the same workload. And that’s the pessimistic scenario! 

Other important costs related to staff that are worth considering: 
In today's business environment, companies opting not to automate financial tasks encounter hurdles not just in hiring but also in retaining talent. As a result, they face challenges in sustaining and expanding their Accounts Payable (AP) operations. When evaluating the Return on Investment (ROI) of AP automation, it's vital to understand the expenses associated with recruiting or outsourcing and training new team members, as well as the consequences of staff shortages. 

We strongly recommend considering the negative impact when employees leave with valuable knowledge, particularly in the absence of a clearly outlined process or standardized training for efficient knowledge transfer.

Humans make mistakes: invoices with errors and duplicates 

A highly manual invoice processing system is vulnerable to human errors. This is understandable: if you spend your working day performing repetitive tasks, you are going to slip up. Correcting errors and revising invoices incurs additional expense and extends the overall processing time, adding layer upon layer of cost. No need for that – AP Automation reduces the error count substantially.  

Let's examine a couple of common scenarios in which an AP agent might be prone to making errors. 

• The AP agent inadvertently enters an invoice into the system twice. Detecting such duplicates post-payment drains even more time and effort from a hard-pressed AP team. AP Automation eliminates this issue because it immediately notifies users when duplicate invoices are entered into the system. 
• The AP agent needs to manually code a non-PO invoice and uses the wrong cost center. The invoice is rejected by the approver, and it is returned to the AP agent, therefore coding needs to be done again as well as the approval. Cevinio AP Automation uses AI to automatically code non-PO invoices against correct objects (GL, Cost Center, Project Code, etc) to avoid this common and time-consuming flow.  

The cost of manual data matching 

Manual data matching is a time-consuming process, which as above is also prone to mistakes. In cases where invoices contain multiple lines, retrieving the corresponding purchase order and a receipt for the goods or services can take quite a long time. Then the employee must meticulously compare the data points on the invoice with the corresponding items on the PO and GRN, looking for exact matches. 

Advanced AP automation technology can help automate the matching process and efficiently deal with discrepancies and exceptions, resulting in considerable savings and productivity.

Supplier queries 

How much time does an AP agent typically need to invest in responding to supplier emails inquiring about invoice statuses? And what about answering incoming calls? In situations where the AP team struggles with managing all queries, suppliers may seek out other contacts within your company. In the evaluation of the extensive benefits and ROI associated with implementing an AP supplier portal, we can't overlook the value of that time. 

Late payment fees 

Late payments happen for many different reasons, including lengthy invoice cycles or an unclear and manual approval process. AP Automation shortens the invoice cycle time and automatically routes the invoice to the right approvers. More speed means fewer late payments. Through an additional safety net of timely reminders, and delegation mechanisms triggered in cases of inactivity or holiday periods, the incidence of overdue payments is further reduced.  

Solutions such as Cevinio’s even make it possible to put in place autonomous invoice processing for your AP department. 

Collecting information about what you spent – and wasted – on late payment fees over a specific period will help you measure how much automation would save you. 

Fewer late payments are good for your balance sheet and also improve the relationships with your suppliers. Down the line, this can result in more favorable payment terms. 

Fraudulent invoices, assessing the vulnerability of your AP department

Invoice fraud is an ongoing menace as both external and internal criminals are agile in adapting their tactics. It is difficult to prevent fraud, and costly to recover funds from fraudulent invoices. As part of your exploration of ROI, you should assess how much your business spent on AP fraud in the past year.  

The adoption of AP automation plays a pivotal role in fortifying your defenses. By replacing manual data entry with automated processes it effectively removes the vulnerabilities that criminals love to exploit. Moreover, AP automation enforces internal controls and fosters transparency, creating another shield against potential fraud. 

Compliance fines and expensive internal and external audits 

AP Automation is fast but also vigilant. Invoices that lack essential and required details will be flagged, and not processed for payment. In this way, you stay compliant and avoid fines.  

Compliance is monitored and verified by the internal and external auditors that scrutinize your invoice processing procedures. Providing them with up-to-date audit trail information for all your AP invoices helps them perform their tasks more efficiently – and at less expense for you. 

As we said earlier, there is no hard and fast metric for this. However, by describing your current AP landscape from the viewpoint of compliance and showing how AP Automation protects the integrity of your reputation, you add another dimension to your business case.

How to assess the cost of an AP Automation solution

When presenting to C-suite, it is imperative to have a meticulous grasp of the expenses associated with implementing and using solutions. This extends not only to the initial implementation costs but also to ongoing expenses, including monthly or yearly subscriptions, support, maintenance, and potential upgrades. 

One of the advantages of Cevinio’s AP Automation solution is its minimal maintenance requirements. Our solution has been built from the ground up to give AP teams a high degree of autonomy. Permissions can be set for users to activate updates and enhancements with ease, further reducing their reliance on IT. Should you require assistance, our service portfolio encompasses consulting services to collaboratively drive initiatives forward. 

Another benefit of Cevinio lies in our commitment to be and to remain future proof. Our software never stands still but continually evolves to meet the current and future needs of our clients. These regular updates and improvements are an integral part of your subscription. 

To provide a comprehensive perspective, it is essential to set these costs against the potential direct and indirect savings you are likely to achieve. 

Tracking progress and continuous improvement  

ROI should not only focus on the immediate phases of implementation and go live but also on the long-term. It’s crucial to measure your progress continuously. Establish key performance indicators (KPIs) to track ROI as automation impacts your AP experience over time. This could include tracking cost reductions, time savings, and error rates. Regularly assess your processes and consider adjusting optimize your ROI even further. Remember, the journey does not end with implementation; it’s an ongoing process of improvement and refinement. 

Conclusion  

Embracing AP Automation is a game-changer. By streamlining your AP processes and leveraging the many benefits of automation, you can significantly improve your finances and operational efficiency. Calculating ROI is not just a box-ticking exercise; it’s a strategic move that empowers you to make informed decisions to drive your business forward. We encourage you to explore advanced AP Automation for your business, and by doing so, discover savings and efficiencies that make you forget about the particulars of ROI – or almost! 

AP Automation is not just an investment; it’s a pathway to sustainable growth and success.