Is there an ROI in AP Automation?
Businesses around the world are obsessed with ROI. ROI payment or Return on Investment is a measure of the profit from an investment a company makes. It evaluates the efficiency of your investment by comparing the amount invested v/s the profit you have made from that investment. A characteristic feature of an ROI account is that it only measures money.
ROI accounting measures the gains a business makes by investing in its operation, and accounts payable is one process that requires investments. Today, ROI pay invoice is attracting huge audiences. Accounts Payable analysis can give you a deeper understanding of ROI. Accounts payable generally increase in value when expenditures grow, especially when rising costs compel a small firm to purchase essential things on credit. Unless revenue increases quickly, more expense through accounts payable results in a poorer return on investment rates.
Although undoubtedly accounts payable is a spend aspect of finance, it is a time-consuming process, if performed manually, resulting in significant inefficiencies. To clearly understand if there is an ROI in AP Automation, let’s first look at the impact of automation on accounts payable calculation.
Benefits of accounts payable automation
Seamless invoice organization
When using the traditional account payable method, you will need to open mailers, faxes, and other ways of communication to obtain an invoice. Then you must separate and arrange them to send them to the next stage of processing, which would be verification, authorization, clarification, and eventually payment.
Most businesses will have to devote a significant percentage of their accounting staff to guarantee the proper organization of invoices. Accounts payable automation saves you from this. The software identifies the invoices and arranges them seamlessly without human intervention.
Efficient invoice checking
It only takes milliseconds for 1000 to change to 10000. The next step of invoice processing involves checking and entering the invoice details like quantity, date, vendor name, due date, etc., in the system. Manually, the employee will have to type the data and fetch additional documents like purchase orders, delivery receipts, or any other receipt the verify the details. This is to avoid any overpayment or fraud. The long paper trail in manual invoice checking reduces the efficiency, increasing the time and effort required to complete the process.
In contrast, automation software stores everything in a single place, reducing the chances of losing or misplacing any documents. It zeros down any errors because these softwares employ artificial intelligence and machine learning techniques. If it finds any error in the invoices, it immediately notifies the employee. It is essentially time-saving because the employee does not have to sit for hours to input the data and cross-check them.
Faster invoice approval
Once the employees have checked the invoices for any errors, they send it along with the supporting documents to the approving authority. Furthermore, if the approving authority demands more information on the invoice, they will send back the invoice. Though you dont lose money directly, you lose time. Sending the invoice back and forth can delay the payment, and it may so happen that you may surpass the due date.
In many circumstances, once you’ve sent the invoice for clearance, you’ll need to stay in touch with the authorizer to ensure that they review the invoice and approve it on schedule. If not completed on time, this might lead to errors that have a rippling effect. Automation software saves you from running around the office from approvals and missing your due dates. After checking the invoice, the system directly notifies the approval authority. Since the software performs the task almost error-free, the authorizing individual has to see and approve it.
Scheduling the payment
Once the invoice the approve, the next step is to schedule it for payment. Here automation plays a vital role. It schedules the invoice after considering the possible discounts (if any) in a way that ensures optimal cash flow. Secondly, it stores the receipts (if any) in a single place.
Manually, the employees might not know about the current cash flow and may schedule the invoice without considering it. Furthermore, this step increases the paper trail.
How to calculate accounts payable ROI
The question is how to calculate Account Payable expenses for accounting ROI?
If you were to calculate accounts payable expenses on the above-mentioned points, let us tell you that this is not it. Accounts payable also calls for overhead expenditures like printing the invoices, organizing them, and employees. Manual account payable requires more employees as compared to automated softwares. Automation ROI calculation has to take all of this into consideration. Let’s look at the investment expenditure and the ROI.
To automate the accounts payable process, you need an AP automation software license. Next, you will have to setup up and install the software. If the software is complex, you might need to hold training sessions. You will also need additional hardware like scanning equipment to support the software. Lastly, you will also need additional IT support to fix the bugs. Most of it is a one-time investment with endless returns.
To calculate your ROI in percentage, use the following formula: Divide your net savings by your total investment and multiply the number by 100.
Let’s look at a few numbers to understand the disadvantages of manual processing.
According to reports, companies that employ automation spend nearly $3 per invoice; those without automation spend $14-$17 per invoice. Furthermore, correcting a paper invoice statement costs approximately $53.50. Late fees cost some businesses nearly 3 trillion dollars annually.
The Bottom Line
AP automation can reduce these costs, thereby increasing the ROI on AP. It also makes Automation ROI calculation easier and faster for the accounts payable calculator since all the data is available in a single place. There are nearly zero chances of losing an invoice or committing an error. Furthermore, when you integrate your automated AP software with your ERP, all the data becomes available in real-time. Lastly, though ROI only takes into consideration money, AP automation has multiple non-monetary benefits (like enhanced communication, better cooperation, full visibility, immediate reports, etc.) that will increase the monetary benefits.
1. How to calculate ROI in percentage?
To get your ROI percentage, divide your net savings by the investment cost (software and installation) and multiply by 100.
2. Can you automate your AP completely?
Going for 100% automation is practically impossible because some places will necessitate human intervention and scrutiny to minimize potential inefficiencies in the software’s delivery.
3. Why is ROI important?
ROI is a key performance indicator (KPI) that organizations frequently use to measure the profitability of an investment. It’s vital for tracking progress over time and removing uncertainty from the company’s future choices.
4. What are a few limitations of ROI?
One downside of ROI is that it does not account for the holding duration of an investment. This might be a difficulty when comparing investing options. ROI does not account for risk and the ROI statistics might be overstated if all predicted expenditures are not factored in.