The Cost Benefits v Cost Savings of Automation
Managing the costs of back office administration such as accounts payable and purchasing is a top priority for Finance leaders. Making these departments more efficient is a key area to consider when controlling costs. Automation can help turn the finance department from a cost centre to a profit centre. But it’s not just about the cost savings, it’s about the cost benefits too.
When researching automation, there are endless posts and articles about the cost savings of automation, but what about the cost benefits? What are you ‘not’ spending if you implement automation?
The adoption of automation offers a compelling solution, not just in terms of operational efficiency but also through measurable cost benefits. For example Automation in accounts payable can become a strategic investment – here’s why;
The Cost of Manual AP Processes
According to the Institute of Finance and Management (IOFM), the average cost to process a single invoice manually is between £9 and £16. For large enterprises processing thousands of invoices each month, this quickly adds up.
These costs arise from:
⦁ Labour-intensive data entry and validation
⦁ Printing, mailing, and storing physical invoices
⦁ Error correction, which can take up to 20% of an AP team’s time
⦁ Delays in approvals leading to missed early payment discounts
⦁ Lack of visibility means teams spend time chasing invoices around the wider the business, for receipting and approvals.
⦁ Delayed payments lead to suppliers calling the AP Team to chase payments, taking up more time in an already busy day
⦁ Fraudsters love an overworked team, and rogue invoices slip through the net.
The Cost Benefits of AP Automation
With AP automation, businesses can streamline their invoice processing workflow and significantly reduce costs. The cost benefits of AP automation extend beyond cost savings to what is not being spent unnecessarily, cost benefits such as:
⦁ Reduced audit fees due to faster and more accurate data processing
⦁ Avoidance of duplicate payments through automated checks
⦁ Empowerment of the AP team with upskilled roles, reducing turnover and recruitment costs
Breaking Down Cost Benefits
⦁ Lower Audit Costs: With a clear and auditable trail automatically generated by AP automation systems, auditors spend less time reviewing records. This efficiency directly translates to lower audit fees. When auditors request an invoice for checking it can be retrieved immediately from the stored system archive, meaning less time spent with Auditors on site and therefore lower bills.
⦁ Avoiding Duplicate Payments: Manual processes are susceptible to human errors like duplicate payments, which can cost businesses thousands annually. Invoice verification at source means a duplicate invoice will be rejected before it reaches the AP team. No processing time is wasted and no duplicate payments made.
⦁ Upskilling AP Teams: Automation reduces repetitive tasks, allowing AP teams to focus on higher-value work .This transition not only enhances employee satisfaction but also reduces costs associated with staff turnover and the need for additional hiring.
⦁ Supplier Relations: Better supplier relationship management through a supplier portal means both suppliers and the AP team have full visibility of the invoice status at all times. This reduces time spent by AP team responding to supplier queries.
⦁ Data Analysis: Detailed data analysis is simple with the real time reporting that AP automation offers. Bottlenecks are identified and can be resolved quickly further increasing processing timelines and early payments, often resulting in discounts.
⦁ Fraud Prevention: Automated systems detect unusual patterns or inconsistencies in invoices, reducing the risk of fraudulent payments. This proactive approach saves businesses from the significant financial and reputational damage of fraud incidents.
⦁ Sustainability and Storage: By reducing reliance on paper and physical storage, AP automation lowers costs tied to document handling and aligns with environmental goals, avoiding future penalties associated with non-compliance in sustainability regulations.
ROI and Strategic Value
Implementing AP automation often requires upfront investment, however many software providers now offer a managed service agreement over 3 or 5 years allowing the cost to be taken from the operating costs rather than the businesses capital expenditure with the setup costs split over the term. According to a Levvel Research report, businesses see an average ROI of 120% within the first year.
Key cost benefits include:
⦁ Reduced audit preparation and execution costs
⦁ Improved supplier relationships through consistent and accurate payments
⦁ Scalable processing operations with fixed costs ridding the business of required proportional staffing increases as it grows.
⦁ Simplified compliance processes, minimising penalties or fines and tapping into early payment discounts offered by some suppliers.
Beyond Costs: Strategic Advantages
While the cost benefits of AP automation are substantial, the strategic advantages are equally significant:
⦁ Scalability: Automated systems can handle increased invoice volumes seamlessly, enabling growth without additional operational costs.
⦁ Enhanced Decision-Making: Real-time analytics provide actionable insights, enabling better financial planning and decision-making.
⦁ Increased Employee Value: By shifting focus from mundane tasks to strategic activities, AP teams become a more integral part of the organisation’s financial strategy. They become the ‘backbone’ of a business not just the ‘back office’.
⦁ Regulatory Compliance: Automation solutions maintain a comprehensive and accurate audit trail, simplifying adherence to regulatory requirements and organisation’s business rules.
Conclusion
For UK-based medium and large enterprises, the cost benefits of automation are undeniable. By preventing unnecessary expenses, mitigating risks, and enhancing operational efficiency, automation empowers finance leaders to unlock greater value from their finance processes. The transition to automated processes isn’t just a financial decision—it’s a move towards smarter, more resilient, and future-proof financial operations.
In an economic climate where optimising costs is as important as achieving savings, automation provides a transformative solution for forward-thinking CFOs and Finance Leaders.
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