Despite the clear advantages of accounts payable (AP) automation, many companies have yet to embrace this transformative technology. Those still navigating the inefficiencies of manual, paper-based processes may believe their organization is too small to reap the financial benefits of automating AP.
In reality, businesses of all sizes can potentially gain from the efficiencies and cost savings that automation delivers.
The Magic Number
For businesses managing 10, 20, or even 75 invoices per month, the ROI of AP automation software may not be immediately compelling. We find that 100 is the magic number for AP automation. Adopting AP automation can be a highly strategic and cost-effective decision for companies processing 100 or more invoices monthly.
The logic is straightforward: the higher the volume of invoices you process with automation, the greater the potential for time and cost savings.
According to PYMNTS, the cost of manually processing a single invoice is $8.78 on average. PYMNTS says with high levels of automation, this cost drops significantly to $1.77 per invoice, a savings of nearly 80%.
In addition to lowering processing costs, AP automation enhances efficiency. PYMNTS research indicates that automating AP processes can save finance teams an average of 9.9 hours per week.
In most cases, the savings in time and expenses will outweigh the cost of implementing and maintaining the software, making automation a valuable investment for companies with higher invoice volumes.
AP Automation for Small Businesses
Though AP automation is a clear win for large and mid-size businesses, there are some cases where it may be worth the investment for small businesses as well. In addition to those that process more than 100 invoices a month, small businesses in the following situations can likely benefit from AP automation.
Overwhelmed by Paper-Based Processes
PYMNTS found that 89% of small and medium-sized businesses (SMBs) still process paper-based or PDF invoices. The same study found that a majority of AP workers spend at least 25% of their workday handling clerical tasks that could easily be automated.
According to another PYMNTS report, 75% of organizations still use paper checks, despite their high cost and inefficiency. The same report states that the manual processing involved with checks results in slower transactions, increased potential for errors and longer days sales outstanding, adversely impacting a company’s cash flow and financial stability.
Transitioning from paper checks to electronic payments can yield significant cost savings for these businesses. The U.S. Treasury Department notes that electronic payments are faster than paper checks and 16 times less likely to encounter post-payment issues. The Association for Finance Professionals reports that electronic payments are significantly less expensive – paper check payments cost $2.01 to $4.00 and an ACH transaction typically costs about $0.40.
Small businesses ready to experience enhanced security and meaningful time- and cost-saving benefits may want to consider AP automation.
Tight Cash Flow
Unlike larger businesses, smaller ones tend to have a lot less cash available, creating operational difficulties. A report in PYMNTS found that 60% of SMBs agreed that ineffective cash flow management is a “major challenge,” exacerbating the risk of business failure.
The good news is AP automation is designed to improve cash flow by helping to improve visibility, mitigate fraud, and support early payment discounts. PYMNTS found the adoption of digital tools like AP automation software presents an opportunity for better cash flow management and a strategic shift toward streamlined processes.
With timely access to financial and operational information with the click of a button, businesses can more easily track payables, identify money-saving opportunities, and make informed financial decisions.
Vulnerable to Disasters
Research by the Harvard Business Review notes that small and young businesses are particularly vulnerable to natural disasters, including extreme weather events like Hurricane Helene and the Southern California Wildfires. Similarly, business disruptions resulting from criminal attacks or other unexpected events like the COVID-19 pandemic can devastate small businesses.
Market demand is growing for cloud-based solutions that enable small businesses to work effectively away from the office. Research by MIT associates cloud adoption with higher survival rates and more business growth.
Cloud-based AP automation software can help businesses of all sizes digitize invoice processing and payments so these vital functions can continue if employees cannot physically be in the office. Additionally, digital storage of invoices and related payment documentation helps keep records safe and accessible in the case of a natural disaster.
Over-Reliant on One Employee
Relying on a single employee to handle all AP tasks poses significant risks for an organization, especially in small businesses where manual processes dominate. If that individual is unavailable due to illness or vacation, or if they decide to leave permanently for retirement or a career change, the AP process may grind to a halt, causing delays in payments, strained vendor relationships, and potential late fees.
This over-reliance may disrupt cash flow and create vulnerabilities in maintaining compliance and financial oversight. A lack of visibility into historical payment data and communications may compound the problem, making it harder for someone else to step in.
AP automation offers a practical solution by centralizing communications and storing payment histories in a system designed to be secure and accessible. This promotes continuity, helps reduce the risk of errors, and allows other team members to access the information necessary to keep AP moving along. Also, some AP automation software allows for the creation of rules and proxy approvers to keep things progressing even when employees are out sick or on PTO.
Deciding if Your Business is Ready for AP Automation
While our rule of thumb is that processing more than 100 invoices each month means your business can benefit from AP automation, other factors may influence your decision. For small businesses in particular, an overwhelming workload, tight cash flow, business continuity planning, and a heavy dependence on one AP employee may warrant an investment in AP automation.
If you have questions about adopting AP automation in your organization, reach out to one of our experts today.
