Automating accounts payable (AP) processes can result in many benefits for busy finance and accounting departments. Determining the return on investment (ROI) of implementing an AP automation solution involves comparing the tangible and intangible benefits against the costs.
Consider several important elements when calculating accounts payable automation ROI, or use our AP automation ROI calculator below for an estimate of how much your company can save by automating accounts payable.
AP Automation ROI Calculator
* Savings based on potential materials and labor cost reductions. Savings estimate is solely a good faith approximation and does not constitute a guarantee or representation of actual savings. Such estimate is based on information provided and based on current market trends.
Factors for Calculating Accounts Payable Automation ROI
Calculating AP automation ROI involves several key factors. Below is a breakdown of the elements to consider.
Costs of Implementing AP Automation
Software
Determine whether your AP automation provider offers its software for a one-time fee or an ongoing subscription cost. Software-as-a-service models may charge monthly based on the number of licenses, invoices, or payments processed.
Some AP automation companies may charge additional fees for customizing the system or integrating it with your enterprise resource planning (ERP) and accounting software. Some may also offer a service contract at an additional expense for ongoing system maintenance and support.
Implementation and Transition
Calculate the expenses associated with implementing AP automation and transitioning to your new system. Things like installing and configuring the system, hiring external experts to help with the process, integrating the software with other internal systems (including procurement and accounting software) will fall into this category.
Training
Training employees on the new system will require time and resources. Include this in your AP automation ROI calculation in addition to the resources needed to create user manuals and instructional documentation.
Infrastructure
This includes cloud storage fees for keeping records of digital invoices, approvals, and audit trails. Hardware like scanners for capturing paper invoices may also be included in this category.
Savings from AP Automation
Administrative Labor
Measure the work hours each administrative task in your AP process takes. This can incorporate data entry, circulating invoices for approval, and issuing payments. Note the wages of your AP staff, including overtime if applicable.
AP automation can free up time for your existing team and help them scale without adding headcount. Team members can process invoices and payments faster and spend less time on repetitive administrative tasks (like invoice matching) and more time on strategic projects that benefit the business (like negotiating supplier discounts).
Processing
Determine the cost your company incurs for invoice and payment processing. This can include things like wire transfer and check fees. AP automation allows you to take advantage of electronic payment methods like virtual credit cards (VCCs), which often offer lower processing fees.
Additionally, electronic payment processing can require fewer work hours from your team than traditional methods like printing and mailing paper checks.
Error Handling
Manual processes naturally involve some level of human error. Fixing those issues takes time. Additionally, errors may result in duplicate payments or late fees, which have associated expenses.
AP automation can help reduce human error and also catch mistakes like duplicate invoices or overpayments. This can help save your business money and time.
Paper-Related Expenses
Paper-based AP processes involve hard costs like paper, ink, envelopes, check stock, and postage in addition to potential file storage fees. It may also involve equipment like printers and scanners.
AP automation reduces the need for paper and related expenses.
Missed Discounts
Some suppliers offer early payment or volume discounts that businesses with manual AP processes may be missing.
Since automated AP is generally faster, it helps businesses score discount opportunities while reducing late payments and the associated fees, which can ultimately improve AP automation ROI.
Fraud
Dealing with payment fraud can be time-consuming and expensive. Using less secure AP processes can lead to financial loss and reputational damage for the business.
Some AP automation systems can detect potentially fraudulent invoices with artificial intelligence (AI) to help bolster financial security and mitigate associated costs.
Audit- and Compliance-Related Expenses
Traditional AP systems may make it difficult for teams to locate requested records in an audit, leading to wasted work hours. Additionally, non-compliance with regulations like a failure to maintain records or misreporting payments can result in fines and operational disruptions.
AP automation can help solve both these issues by creating audit trails automatically and making it easy to store and retrieve documents at the click of a button, saving time and resources.
How to Calculate AP Automation ROI
To calculate AP automation ROI, subtract the total cost of implementing and using AP automation from the total savings from AP automation. Divide that figure by the total costs and multiply it by 100 to achieve an AP automation ROI percentage.
For example, if your total costs are $6,000 and your total savings are $10,000:
• $10,000 – $6,000 = $4,000
• $4,000 / $6,000 = 0.66
• 0.66 x 100 = 66
• ROI = 66%
If you’re not sure about the figures involved in your specific calculation, you can use our AP automation ROI calculator to estimate your potential ROI based on the number of monthly invoices you process.
Intangible Benefits of AP Automation
While the financial savings from AP automation can be significant, the intangible benefits can be just as impactful.
Employee Satisfaction
One of the most significant advantages is increased employee satisfaction and reduced burnout. Our 2024 AP Career Satisfaction Report conducted with the Institute of Finance & Management found that automating AP leads to higher job satisfaction and improved work-life balance.
Manual AP tasks like data entry, invoice matching, and chasing approvals are repetitive and time-consuming. By automating these processes, employees can focus on more strategic, rewarding activities. This not only boosts morale but can also lower turnover rates and recruitment costs.
Improved Vendor Relationships
AP automation also helps foster stronger vendor relationships. Automated systems promote timely payments, reducing delays that can strain vendor trust. Prompt payments not only improve collaboration but may also lead to better contract terms, discounts, or prioritized service.
Flexibility
Another key intangible benefit is scalability. As businesses grow, invoice volumes typically increase. AP automation enables organizations to handle this growth usually without hiring additional staff or compromising efficiency.
Tips for Maximizing Accounts Payable Automation ROI
Maximizing AP automation ROI requires strategic planning and selecting the right solution for your business needs. Below are some tips to help you get the most from your investment.
ERP Integration
Choose a provider with API integration capabilities. Effortless integration with your existing ERP system or accounting software is crucial for easy setup and smooth data flow. An API-enabled solution reduces manual data entry, supports timely updates, and eliminates other hurdles during implementation.
Training and Education
Make sure your AP automation provider offers robust education and training options for employees. The success of any automation solution depends on how well your team can use it. Comprehensive training ensures your staff can quickly adapt to the new system and take full advantage of its features.
Supplier Onboarding
Select a provider that assists with supplier onboarding. A significant part of AP automation involves digitizing interactions with your suppliers. Providers that support supplier enablement help streamline this process, ensuring quicker adoption and a smoother transition.
Ability to Scale
Look for a solution that is scalable to meet your future needs. As your business grows, your invoice volume will increase. Ensure your software can handle additional workflows, users, and complexities without requiring a complete overhaul.
Customer Support
Finally, prioritize a provider that offers a high level of support. Expert assistance during implementation and ongoing optimization ensures you’re using the software to its fullest potential, maximizing efficiency and cost savings. Quick troubleshooting of issues is also important.
These factors can help you improve ROI and set the foundation for long-term AP efficiency and success.
Take the Guesswork Out of Accounts Payable Automation ROI
Calculating accounts payable automation ROI can seem complex, with numerous factors to consider, from costs and savings to intangible benefits. However, understanding the financial and operational impact is essential to making an informed decision.
At AvidXchange, we can simplify the process by providing seasoned guidance and tools to help you measure your potential ROI. Our free AP automation ROI calculator is designed to give an idea of how automation can transform your AP process.
To learn more and explore the savings, efficiency, and scalability AP automation can offer, book a demo with one of our experts now.
The information found in this article is intended for illustrative purposes only. Anyone seeking to follow the information contained herein should consult their own advisors and conduct their own research prior to doing so. AvidXchange, Inc. and its affiliates, disclaim any and all liability resulting from reliance on the information contained herein. When using the ROI calculation or calculator, savings are based on potential materials and labor cost reductions. Savings estimate is solely a good faith approximation and does not constitute a guarantee or representation of actual savings. Such estimate is based on information provided and based on current market trends.