Back-office efficiency means more during turbulent times.
- Sixty-two percent of businesses are experiencing lower revenues.
- One-quarter of businesses are struggling to reign in expenses.
- Two-thirds of businesses plan to reduce spending.
These statistics, gathered during a recent virtual town hall meeting organized by the Institute of Finance and Management (IOFM), illustrate the urgency for businesses to reduce overhead.
Automating accounts payable is a proven strategy for accomplishing that. High costs, low employee productivity, late payment penalties, errors, and missed supplier discounts can waste a lot of money.
Here are six ways that accounts payable automation helps organizations reduce overhead.
1. Lower processing costs.
- Compared to their peers with little or no automation, highly automated accounts payable departments spend one-fourth the cost to process an invoice, per IOFM benchmarks. Automation eliminates the things that drive up invoice processing costs:
- Keying invoice information
- Matching invoices with POs and proof-of-delivery documents
- Tracking down purchasers
- Physically routing invoices for approval
- Back-and-forth phone calls to resolve exceptions
- Searching for lost or misplaced invoices
- Filing and retrieving invoices
- Setting up payments
- Reconciling payments
- Resolving payment issues
- Preparing reports
- Gathering information for auditors
Based on benchmarks from IOFM and the Association for Intelligent Information Management (AIIM) for invoice processing costs, an accounts payable department that processes 5,000 invoices per month stands to save $55,650 per month ($64,500 per month versus $8,850 per month) and $667,800 annually through accounts payable automation.
2. Higher staff productivity.
- Highly automated accounts payable departments process 175 percent more invoices per FTE than their peers, per The Hackett Group. Automation improves productivity by eliminating the data entry, matching, paper handling and routing, and physical document storage required in a manual or semi-automated environment. Invoice data is automatically extracted and validated, matched with POs and proof-of-delivery receipts, and posted directly into any ERP. Any invoices that require review, approval or exceptions resolution are electronically routed to specific individuals based on preconfigured rules. Dashboards automatically alert managers to bottlenecks and users to invoices approaching their due date. The technology also tracks key productivity metrics.
3. Fewer late payment penalties.
Slow invoice approval cycles are a major contributor to late payment penalties. Highly automated accounts payable departments pay more than 90 percent of the invoices they receive on time, per IOFM benchmarks. Automation eliminates many of the time-consuming tasks associated with processing PO-based and non-PO based invoices. Invoices from any delivery channel, in any format, are received, digitized, and aggregated onto a single platform. Intelligent data capture technology automatically extracts supplier, header, and line-item data (such as amounts) from invoices. Invoices then are matched with POs and/or proof of delivery receipts. Invoices that require approval (such as non-PO-based invoices) or exceptions handling are digitally routed based on preconfigured business workflows. And automation ensures that invoices requiring review are always sent to the appropriate person. Automation eliminates the possibility that invoices will become lost, misfiled or “stuck” on the desk of an approver who is busy or out of the office.
4. Higher invoice matching rates.
Automation provides two-way and three-way matching of invoices and POs and/or goods receipts. The technology automatically captures invoice data, checking for duplicate invoices, validating supplier information and calculating the line-item data on invoices. Extracted data is automatically matched with POs and proof of delivery documents. Information can be validated against data sources such as an ERP platform, business rules, and applications. Matching rules are defined based on business tolerances. Any unmatched invoices are electronically routed to a queue for inspection and data correction or electronically routed to stakeholders based on preconfigured rules.
5. Fewer wrong payments.
- Automation improves accuracy by validating invoice data early in the process against information in an ERP or accounting system, eliminating the manual processes and paper handoffs that often result in errors, providing fast online access to supporting data, flagging duplicate invoices, facilitating collaboration between suppliers and internal stakeholders, and using business intelligence to identify problem suppliers. Some solutions providers guarantee the accuracy that their technology will deliver. Moreover, collaborating electronically with suppliers and internal stakeholders enables accounts payable departments to resolve errors in a more structured and efficient manner than manual environments that typically rely on back-and-forth e-mails and phone calls with no tracking.
6. More early payment discounts captured.
Early payment discounts help businesses lower their cost of goods purchased. But most accounts payable departments capture less than 21 percent of all early-payment discount offers and 12 percent of departments are unable to capture any early-payment discounts, per IOFM benchmarks. Moving to higher levels of automation clears the way for businesses to pay more of the invoices they receive within the discount period by eliminating friction in the invoice approval cycle. Once an invoice is approved for payment, the buyer presents the supplier with options for early payment via e-mail or an online portal. The earlier the payment before the invoice due date, the bigger the discount; the shorter the time before the invoice due date, the smaller the discount. Businesses that take advantage of just a discount term of 1/10 net 30 earn an annualized 18 percent return – a lot more than they can earn from a typical interest-bearing bank account.
Department leaders across the business are being asked to find ways to reduce costs.
An accounts payable automation platform can deliver a significant impact to the bottom line.
Contact us to arrange a no-obligation consultation with one of our experts and learn how IPS can help your organization reduce its overhead.
Access our complimentary Power Index and identify parts of your accounts payable process that may be under-powered.