In business, we often see a focus on growing the bottom line through direct acquisition of sales. But if you want squeeze maximum value from your company’s transactions while streamlining processes for optimal efficiency, avoiding needless expense can be as important as accumulating income—if not more so. This is particularly true for the Accounts Payable (AP) function, where accounts payable process costs—i.e., the total expense associated with processing an invoice and managing any related exceptions—can eat into profitability and bring your AP workflow to its knees.
Understanding how the AP process creates potential pain points is the first step to removing them—and with the right tools, you can transform that AP pain into profitability and productivity.
Lost Time, Lost Value: Accounts Payable Process Costs
For businesses around the world, the accounts payable department has long been a source of both frustration and rich opportunity for improvement. Combining a massive flow of documents —each one in need for swift and accurate processing—with manual processing creates a maelstrom of potential problems, driven by two distinct factors: human error and paper-based document management.
A 2018 report from Levvel (formerly PayStream Advisors) found that nearly 54% of companies surveyed still rely on time-consuming, paper-based invoice processing. Perhaps unsurprisingly, 48% of those same companies reported “Manual data entry and inefficient processes” as one of their biggest challenges.
To Err is Human
Whether you use old-fashioned spreadsheets or an accounting package inside of an Enterprise Resource Planning (ERP) suite, manual data entry means invoice data errors, purchase order problems, or shipping document mis-matches may not be caught until it’s far too late. And even when they are detected, your staff will spend time and money chasing down the problem and correcting it as the total expense per invoice climbs. The cherry on this sundae of consternation is the stress created by having to correct exceptions on paper invoices; stress lowers productivity and makes additional errors even more likely, creating a never-ending cycle that robs your bottom line of value instead of adding to it.
“From invoice approval times that stretch into days (or even weeks) to invoices that can’t be readily matched to a purchase order, paper makes it harder to pay on time. Late fees and the lost time and labor invested in chasing lost invoices (or correcting exceptions) only add to the problem.”
The Paper Chase
The other major villain in this drama probably doesn’t seem quite so menacing at first blush. Humans have managed our information using paper for thousands of years now—but the modern business environment is swiftly moving beyond its paper-driven past and into a digital future.
In addition to being unwieldy and susceptible to fire, flood, and the occasional spilled cup of tea, paper invoices generate needless accounts payable costs in five ways:
- Late Payments. The companies surveyed by Levvel reported that paper document management created serious drag in their AP workflow, resulting in late payments due to:
- Overly-long approval cycles
- Missing information
- Lost invoices
- Manual invoice routing
- Excessive invoice exceptions
- Decentralized invoice management
- Insufficient or inaccurate vendor information
From invoice approval times that stretch into days (or even weeks) to invoices that can’t be readily matched to a purchase order, paper makes it harder to pay on time. Late fees and the lost time and labor invested in chasing lost invoices (or correcting exceptions) only add to the problem.
- Duplicate Payments. As with late payments, companies without centralized, real-time, searchable AP management lose countless dollars every single month to invoices they’ve paid more than once.
These duplicate payments can also be a factor in another major source of lost value: fraud. Companies relying on paper are easier targets for scammers; for example, a 2018 study by the Association of Certified Fraud Examiners (ACFE) found that 22% of small businesses (who are less likely to use a centralized digital solution for AP) are victims of check fraud and payment tampering, while 29% were victims of billing fraud.
- Lost Discounts. The pokey pace of paper means your AP department probably won’t process invoices in time to take advantage of early payment discounts. Levvel found that businesses who haven’t gone paperless only manage to capture an average of 18% of available discounts.
- Paper Storage. A physical copy of a document needs a home. And when you’ve got thousands and thousands of documents to store securely, you’re gonna pay dearly. Depending on your volume of invoices, you may end up paying $20 or more per document in storage fees once you factor in physical space, disaster protection, security, and insurance. Ouch.
- Hobbled Analytics and Reporting. Paper copies of important documents make it difficult to achieve full transparency of spend—especially when some of that spend might be totally invisible to your accounts payable department. This, in turn, makes it harder to develop strategic spending models and generate accurate and timely financial reports that could help your company negotiate supplier discounts, lower prices, and better terms. It also increases your risk exposure by leaving holes in your audit trail.
Automation Boosts AP Efficiency and Lowers Costs
How much money could you be saving each month by giving paper documents and human error the old heave-ho? Set up a fully-featured, soup-to-nuts software solution for accounts payable, and you’ll start reaping the benefits immediately.
The arguments against AP automation are generally financial ones, but a thorough cost/benefit analysis will reveal that the cost savings generated by reduced human error, lower overhead, and increased productivity far outstrip the investment.
In the Levvel survey, companies who implemented AP automation reported a truly transformative range of benefits, including:
- Massive reduction in paper invoice volume
- Greater transparency for every transaction
- Streamlined invoice approval
- Higher employee productivity and morale
- Reduced AP processing costs, late fees, and interest
- Improved compliance
- Better vendor relationships
- Improved cash flow thanks to strategic payment agreements
Companies using AP automation can capture up to 75% of available discounts. Invoice management is simplified and streamlined thanks to digital creation, tracking, approval, and payment. Three-way verification reduces the risk of fraud and error further, and centralized digital document management means your team can access the information they need, when they need it, from any device.
Automation improves cost savings while simultaneously providing the transparency needed to eliminate rogue spend, forecast strategically, and create both accurate reports and a complete audit trail for every transaction.
Automation is addition by subtraction; every roadblock and error it removes creates more value and a better return on investment (ROI) for every dollar spent.
Transform AP Costs into AP Savings
Leave the paper and the problems behind. Reduce your total cost for accounts payable processes, eliminate human error and wasted time, and create an AP department that doesn’t just pay the bills, but saves you more on every dollar spent.
Take the Pain and Expense out of your Accounts Payable Process With PLANERGYFind Out How