AP Automation – The Myth Of Expensive Software

A number of entrepreneurs will raise their eyebrows when they are asked to integrate AP automation feature in their businesses. They believe electronic invoicing software is an expensive tool because it offers a wide range of services from one central point. But they tend to forget the fact that accounts payable when implemented manually becomes an extremely expensive process, especially when errors are involved while paying off the vendors. Added to that is the lengthy process, which further delays the entire transaction cycle, bringing late payment penalties to the company. If all these cost of manual accounting is calculated, then the notion of AP automation as an expensive tool can be considered as nothing more than a myth.

A Typical Paper Process

Nine in ten organizations still deal with paper invoices. So, if the workflow of such companies is monitored then it will be something like this:

  • Paper invoices received, opened and routed to the correct department

  • Next, it is booked and then coded

  • An invoice is studied, and if accepted according to pre-set business rules, it is authenticated, else rejected

  • After accepting, the bill is routed to accounts payable department

  • It is then entered into the accounting or ERP system

  • The billed is closed after being paid

  • The bills are filed for future reference with necessary supporting material

This is an error-free cycle on the surface, but can soon become complex. For instance, the packing slip fails to match, invoices coming via multiple channels create confusion, a new vendor needs to be included in the list, and so on. This means, you need to sort out all these changes individually.

How Much Does This Cost?

By now, you have to accept that manual accounts payable through paper invoices is elongated proloned process (with a number of flaws, due to data entry error). But how much does this cost to a company?

The cost for processing invoices varies greatly from one company to another. It can be less than $2 per invoice to more than $25. According to the Institute of Financial Operations’ 2014 AP Automation Study, more than 5,000 invoices are processed every month by 60 percent of the organizations. The cost bracket mostly lies in between $6 and $10 per invoice. So if we take the lowest cost and calculate the expenses of a typical company then $30,000 a month is gone for processing invoices (remember this is calculated without including manual errors). On the other hand, if the higher-end is taken into account, the processing cost is almost six figures (and that is again without adding the manual processing errors).

How Can AP Automation Help?

Let’s take a look at the magic of AP automation! There are many organizations that have enjoyed a cut down of 50 percent in their AP processing costs. So, if you are spending $30,000 per month, this software can bring it down to $15,000 (or more) every month and guarantee an error-free process.

Of course, companies have to bear a price to avail this service. In case your company is buying the automation software, then it is a one-time payment with additional license cost ensuring you a guaranteed ROI. Otherwise, you have to pay a rent for monthly usages along with the partnership cost. However, if both of these costs are compared, manual processing of accounts payable is way more expensive than the automation feature.

Availing this service of electronic invoicing software is a boon even for a small organization because there are solution packages for every budget. Companies can qualify for early payment discounts by reducing invoice approval timeframe. Plus, there is no chance of manual error in data entry or misplacement of paper invoices. Finally, there is no need to spend resources at different segments of processing because your accounting system is auto-controlled from the beginning to the end.

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