I’ve been involved in many AP automation initiatives over the course of my career, all of them involved some type of formal (or informal) ROI calculation and cost/benefit analysis. Most organizations when looking to justify a project invariably take a very tactical approach that places increased importance on hard dollar savings for project justification. This is especially true when budget is limited (isn’t it always?) and an ePayables automation project has to compete against worthy automation and investment proposals put forth by other parts of the organization. I am not saying that other factors aren’t considered when AP automation projects are considered and justified, they most definitely are, but traditionally, ROI calculations for AP automation project tend to put a higher emphasis on the impact of more tangible/ direct cost saving inputs such as the four shown below:
- Processing costs – In an unautomated environment, the current AP process is highly manual and largely paper-based. This results in an invoice processing cost that is between 50% – 90% higher than market averages.
- Processing times – The highly manual nature of an invoice approval process means that it can take weeks to find and route an invoice through an approval and payment process. Lengthy approval cycle times translates into the next two items on this list
- Early payment discounts – In most cases, suppliers include or offer early payment discount terms with their invoices. The overwhelming paper flow and generally manual nature of unautomated processes makes it difficult and all but impossible to realize any of these early-pay discounts. The potential return on these discounts can be significant.
- Late payments and late payment fees – Late payments are costly and over time can erode relationships with your trading partners.
Recent events have shown us that while hard dollar savings are an important consideration in any ROI calculation, so, too, are the softer benefits that can be more difficult to place an exact dollar value on, for instance, business continuity – aka being able to continue operations and stay in business. If your enterprise cannot function for a period of time or worse yet, goes out of business, how exactly do you include a dollar amount of this possibility in your ROI calculation? The AP function, as we all know plays a critical role in business continuity but may not always get the credit it deserves. If AP is unable to operate, the ramifications are huge – outstanding invoices don’t get paid, supply chains are impacted, needed goods and services might not get delivered or performed, the financial stability of suppliers can be impacted, the ramifications go on and on.
Unfortunately, the AP operations of many organizations were unable to perform ‘business as usual’ due to the pandemic, and, work-from-home restrictions put in place state and federal governments could not be followed. What happened all too frequently was AP departments that didn’t have automation already in place, were left to ‘figure it out’. This meant in most cases requiring AP employees to continue to go to the office and pick up, sort, and open the mail to find invoices that were mailed to them. Then the invoices had to be somehow routed around for approval before being input into the G/L, ERP or other system of record. When it came to paying the invoices, organizations still using paper checks, had to print them (almost always at an office location) and then get them signed by an authorized company signature which created more challenges in getting the checks to the right person and location. And, finally, once signed, they still needed to be mailed which had challenges if its own.
When looking at the benefits and ROI of ePayables automation, organizations are doing themselves an injustice if they are only taking into account the tactical benefits that can be achieved. Yes, manual, labor-intensive, costly, and error-prone processes must first be automated but by doing this they position themselves to achieve strategic benefits such as improved visibility, spend management, cash flow, working capital management, supplier relationships, compliance, fraud prevention, etc. And what about business continuity? While most of us had not until recently thought of the business continuity of AP operations in terms of being a strategic advantage, that is what it amounted to for those organizations who had already automated and were able to continue to function with little or no impact when forced to work remotely.
The AP department is one of the last groups within many enterprise to operate using what are largely or fully manual processes. When we measure the ROI that ePayables automation projects provide to organizations both tactical and strategic benefits must be taken into account. AP departments can no longer afford to operate the way they do today. The challenges and problems with manual procedures have never been more visible and apparent for all to see. There has never been a better time or justification to automate AP and B2B payments than right now.
RELATED RESEARCH:
“This Week In Procurement” – Subscribe to Ardent’s Weekly Newsletter
Procurement’s Impact on Cash Management
The CFO and the CPO: One World, Two Worldviews
Tagged in: Accounts Payable, automation, ePayables, payments, Process, Strategy, supply chain finance, Technology
