If you’re reading this article, you’re likely a business owner interested in saving costs for your business.
What is the good news? Accounts payable (AP) automation tools can have a big impact on your cash flow and ultimately savings.
How much can you actually save?
There are more than one ways to estimate the magnitude of cost savings facilitated by AP automation tools. This figure varies based on the calculation method adopted.
Automated invoice processing saves costs
In a research conducted on 1485 organizations, the Productivity & Quality Center found the top performing companies spent an average of INR 164 processing each invoice. The lower performing companies spent as much as INR 792 for processing each invoice. This is five times as much. The key differentiating factor between both these sets of companies was that the top performing companies had adopted AP automation tools while the lower performers hadn’t.
These cost savings multiply as you scale up the number of invoices processed. The logic is simple. The more invoices you process, the more money you can save.
Cost savings per invoice
When you shift from a manually accounts payable process to an automated one, the best way to measure the amount of money you have saved by your AP automation tools is to measure the cost per invoice. It is the most accurate and also the most widely used method of measuring the possibility of savings.
Based on this very metric, Institute of Finance & Management found that companies that were reliant on limited or no automation, on average, spent INR 695 to process one invoice. If a high level of automation is used, it costs only INR 140. Also know that it is before accounting for labor costs.
Added cost savings
During the process of assessment of the amount of savings that can be achieved with AP automation, you need to also consider the cost of labor, physical liabilities (paper cheques, stamps etc), processing fee & all other fee.
You might also want to learn about the different types of costs related to AP invoicing. These are broken down into –
- Labor cost is the single most contributing factor to the overall cost. AP automation can save at least 70 to 80% of time savings for staff in the AP department.
- Automated costs as less as only 33% of manual costs. This is mainly due to the great reduction in labor costs.
- Costly paper cheques make up for 65 to 80% of all B2B payments towards SMEs. If transition is made to AP automation, cheques will only make up for 15 to 25% of the payments.
Labor costs need to be considered
When you’re trying to calculate the amount of savings coming in from AP automation, you need to keep a close eyes on labor costs. They are one of the biggest expenses, as highlighted above. This is inclusive of the time taken by employees to process invoices.
How you can go about calculating this labor cost is simple. Calculate an employee’s hourly pay and multiply it by the amount of hours spent by them on processing invoices each month. Find out the number of people involved and simply add those numbers up.
Additional costs that need to be considered include infrastructure costs. This includes ERP systems, accounting software and fraud handling systems.
Another contributing factor is how expensive using paper based “snail-mail” or traditional post.
Traditional post can impact your cash flow negatively
If you have invested on manual systems and traditional post for transporting your invoices then you are spending time and money which is much better utilized elsewhere.
Regardless of economic conditions of the market, business owners usually have cash management at the top of their worries. Without cold hard cash in hand, it is difficult to pay for expenses, vendors or invest in growth for that matter.
If you just think about the time and effort taken to invoice a vendor, track payment due date, do a proper follow-up, collect cheques, match them with invoices and submit back to bank for encashing. The amount of costs involved is unimaginable.
If you go electronic, your AP payment and other important financial data will be moved to cloud and eliminate paper reliance. There are also faster alternatives offered like NACH, virtual cards and many more. This allows payments to simply reach your account after approval without any major hassle. Best part is that the remittance data is reported electronically.
Tips for saving cost using AP automation tools
Now that we know about the type of cost savings that come along with AP automation, the natural question is – what next?
Here are a few tips on what to do next and start saving money –
- Lower your cost of invoice processing by implementing AP automation. Research software to see what meets your unique requirements.
- “Cut” paper cheques out of your business. Cheques are a completely unwanted expense when it comes to the value this holds for doing the job of payment. Same thing can be done with electronic methods at a fraction of the cost.
- Reduce manual data entry processes. It costs time and money to enter invoice data manually.
- Evaluate which payment method costs you the lowest for processing vendor payment
If you want to know more about which exact technologies can help you implement AP automation, check out our article on AP automation technologies.
Karbon Payout is the ultimate cost saving AP automation tool
- Payout performs a lot of different functions – the most prominent one being vendor payment. Payout can be automated to process your vendor payments and free you from having to worry about the painful process of sending payments manually.
- Our user-friendly interface will let you spend less time processing and more time achieving business excellence and growth. This is the sole reason why startups & SMEs love us.
- No chance for error – high accuracy of payments saves a lot of time and ultimately money for the company in terms of paying transaction failure fees.
- Our advanced system automatically selects the best payment channel out of NEFT,RTGS,IMPS and highly reduces your payment failure chances.
- Payout links have changed the face of beneficiary addition. Just send one payout link to your vendor in a single click and let them add themselves into your system. The information is synced instantly and you can transfer payments to your vendors as soon as they submit their details.
Growth VP @ Karbon