5 Signs You Need to Switch to Automated Accounts Payable
Making significant process changes is rarely ever easy, but if you’re reading this post, there’s probably a reason you’re curious if switching to an automated accounts payable system is the right move to make in your company. Maybe you’ve heard colleagues at other companies have had success making the switch, or perhaps you just feel bogged down with endless paperwork and that there has to be a better way.
We work with people in finance every day to identify what process improvements they can make and if an accounts payable automation system is the right solution for them. Below we’ve outlined some key signs that your finance department is in the right place to start considering such a system.
It’s not uncommon for a company’s AP costs to reduce up to 50% by switching to an automated AP system. Automating tasks saves on labor costs, but it also means you can take advantage of early pay discounts, and spend less on missed or late payments. The Aberdeen Group found that businesses using a cloud-based AP system paid $5.13 per processed invoice, compared to businesses without that spent $10.55 per invoice.
An automated AP system typically goes beyond just automating tasks to provide financial reporting and analytics. Which means, not only does your AP department benefit, but executives can also gain insight into key financial data to make informed decisions, based on real-time information.
How much are you really spending on manual accounts payable? Use our custom ROI calculator to find out:
1. You need more than two people to run your AP department.
Most of the tasks in the accounts payable process are highly manual - scanning in invoices, data entry, gathering the necessary approvals, processing payment, etc. but an AP Automation system can automate all of these tasks, freeing up your employees to focus on more value-add activities like financial analysis and planning. We find that if it takes more than two people to handle accounts payable for a business this is usually due to inefficiency in the process, not the people.
For example, an AP Automation system uses Optical Character Recognition (OCR) to automate the entry of data. OCR can “read” your invoices and populate data fields with the pertinent information. Imagine how much time you would suddenly have if you never had to enter in the invoice number, due date, vendor or amounts on an invoice? OCR alone shifts the role of an AP clerk from data entry to more actionable reviewing and processing.
AP clerks are often tasked with ensuring that invoices receive the proper approval(s) before a payment is issued – and yet rarely are companies able to clearly state what their approval process is or what the rules are for different invoices and exceptions. So the AP department is left to do their best sorting out the approvals, getting the physical invoices to the proper set of eyes, and then following up to gain approval and retrieve the invoice.
An AP automation system automates the digital routing of invoices for approval and can send out automated reminders to approvers – eliminating ad hoc approvals, ensuring compliance, and perhaps most importantly, freeing the AP department from chasing down approvals and lost invoices.
An AP automation system doesn’t just make you more efficient, it cuts your overall processing time down - sometimes to just a third of what it once was. A study by the Aberdeen Group showed that the average processing time at a manual-based company was 18 days compared to just 6 for a company using an AP Automation system.
If you’re currently operating with one or two staff members in AP, consider if this is maintainable for the long term – as your business grows, will the additional workload still be manageable? If you’re going through an expansion right now, don’t worry, we expand on this point with sign #4.
2. Your employees spend more than 4 hours on document management per month.
Yes, you read that correctly. If you’re spending more than an hour a week looking for documents, organizing, filing, and retrieving them, you are simply wasting your time. Document management is a key part of an AP automation system and has the capacity to drastically reduce the amount of time spent managing documents.
The AP system becomes a centralized place for all your invoices and related documents, and robust search functionality makes it easy to file, store, and retrieve them whenever necessary. There’s a reason that your local library ditched the card catalogue system and that’s because it’s inefficient while the cost to digitize records is incredibly affordable.
3. You spend more than $6 to pay a bill.
A report by the Aberdeen Group, revealed that efficiency leaders spend less than $2 to pay a bill. The majority of companies, however, pay $6-$25 or more. Meaning, there is the potential to save more than $40,000 for every 10,000 invoices processed annually. If you fall into this range, the cost savings are clearly advantageous.
4. You’ve had employees make errors that shouldn’t have happened.
Employees are human and mistakes are bound to happen. Unfortunately a mistyped amount or date could cost your business thousands of dollars. An invoice mistakenly put in the wrong pile could mean missed payments, late payment fees, and a damaged vendor relationship. All of these scenarios are easily avoided with an AP automation system.
A centralized system makes it easy to see “where” invoices are and which ones need follow-up. OCR cuts out most of the manual data entry to employees can just quickly review an invoice and check for errors rather than manually keying in data.
The added controls that come with an AP automation system – such as an automated audit trail, digital approvals, and rule-based workflows ensure that mishaps, accidentally or otherwise, are hard to do and easy to prevent. Companies using an AP automation system average an error rate 6% lower than companies relying on manual processing, which can translate into massive savings for your business.
5. Your business is consistently growing year over year.
As you business grows, inevitably the workload for the AP department does as well. Are you prepared to scale as your business does? With your current operation, will you need to hire additional staff to keep up with the influx of invoices that need processing?
Are you confident that the additional workload won’t create additional errors and mishaps in with invoice handling? Implementing an AP automation system ensures that the increase in processing is manageable and controlled. Avoid additional labor costs and costly mistakes by implementing AP automation system today!
Still not sure if an AP automation system is right for you? Try using this ROI calculator (it’s free!) to see how much you could save by automating your accounts payable process. It’s quick and easy and you might be surprised how many thousands of dollars you’re losing by using manual processes.