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Making a business case for automated invoice processing

Creating a Business Case for Automated Invoice Processing

Accounts payable departments experience significant workflow disruptions due to an unmanageable amount of paperwork.

Much of the paperwork comes from manually processing thousands of invoices. However, as technologies like artificial intelligence, robotic process automation, and machine learning have made headway in improving many of today’s existing business processes, organizations are now looking to adopt those technologies to achieve accounts payable automation.  

In order to bring the accounts payable department closer to touchless automation, you might be looking at automating your current workflow. This initiative enables your team to get more production from your clerks and increase the likelihood of receiving early payment discounts.

Invoice processing is a crucial step in managing cashflow of an organization. Accounts payable professionals are responsible for preventing invoice fraud, inaccuracies and missed payment deadlines. When invoices are accurately processed, companies can maximize cash flow by getting more favorable payment terms, better pricing, or even better discounts. 

Yet funding this initiative will likely create challenges in any organization as purchasing a state-of-the-art automation system will raise concerns over cost and resources required for implementation. This creates a significant need for conducting a thorough use case on how automation can impact your business.

Below are a few steps needed to get buy-in from your Controller or CFO.

Analyze the current state of business

Before making the case to a senior manager, understand the real cost of processing invoices. This can be challenging as there are several variable and fixed costs associated with calculating the cost per invoice. In general, the cost per invoice can be significantly more complex. However, we have provided a simplified formula to find an estimated cost.

Cost per invoice = (Salaries of full-time employees + postage costs + storage costs) / annual invoice volume

In this calculation, be sure to include both full-time accounts payable employees and part-time staff responsible for keying in invoices. If you’re unable to plug in each variable, our research indicates that companies processing between 30-60,000 invoices per year generally spend $30 to process each invoice. This puts the yearly cost at a minimum of $900,000. 

Factor potential benefits of automated invoice processing
There are a number of ways to find potential benefits from automated invoice processing. Here are a few metrics to review:

  • Cost savings: This is the reduction in manual labor plus storage costs in addition to additional hours that would be spent verifying the costs between the invoice and purchase order.
  • Processing time: Think of this as the time between receipt of invoice to payment, allowing you to increase the number of on-time payments and increase supplier confidence. This enables your company to receive better payment terms due to better cycle time.
  • Employee utilization: Instead of performing repetitive tasks such as “stare and compare,” where an employee verifies that the purchase order matches the invoice, he or she can focus on more strategic activities for the organization. For example, this may include cash flow optimization or budget forecasting. In addition, your automation software may help you facilitate 3-way invoice matching.
  • Early payment discounts: The savings from increasing the likelihood that your company can capitalize on early payment discounts to improve your bottom line. Typical examples of early payment discounts are either one or two percent off if the payment is made in 10 days or less. 

Looking at these considerations can greatly help make your case to your financial lead. And most importantly, it can help the accounts payable department move closer to digital transformation. 

Review investment costs
The last step in conducting your business case involves an accounting of all upfront and recurring costs related to the implementation of your invoice processing solution. 

First, understand whether subscription or a perpetual license makes sense for your business. Advocating for a subscription license flattens your costs over a longer period to account for an increase in page volume in addition to a standard amount of professional services work. 

Then consider the amount of professional services work required to configure the solutions to the invoices your business receives. This will ensure the software extracts with the highest amount of accuracy required with little work from your internal support team.

In addition, understand the amount of support your provider will include as part of their service agreement. Are there a certain number of hours included or is support an additional cost? Grasping a complete view of all costs that are part of an invoice processing solution will help you better make the case to your manager.

Purchasing an automated invoice processing solution can take up to two-months from the initial discovery call to deployment. Change isn’t easy for most businesses, but with a well-written business case, your accounts payable department could well be on its way towards digital transformation.

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