The ROI of AP Automation: Costs and Benefits

We live in a time where the demands for operational efficiency are increasing exponentially. Technological advancements and intelligent tools have raised expectations. 

This drives organizations to constantly seek innovative solutions to optimize and streamline financial workflows, while maintaining positive relationships with human counterparts. It’s not an easy task and proves more of a balancing act, than anything else.

Luckily, transformative accounts payable automation platforms have emerged as a game-changer, promising streamlined processes and a tangible return on investment.

In this article, we take a peek into the world of AP automation and your return on investment. How does this solution yield significant financial benefits? Why is it a strategic imperative to explore more potential? What are the internal AP controls required to jumpstart this program?

What is the Value of AP Automation?

Much like any type of automation software these days, there is a strategic value derived from every corner. The value of AP automation software is realized through benefits like:

Time Efficiency

• Faster processing: Automation accelerates the invoice approval and payment process, vastly reducing the time it takes to process data, from receipt to payment.
• Improved visibility: Automated AP systems provide real-time visibility into the status of invoices and payments, reducing the time spent on monitoring and follow-up.

Cost Savings

• Fewer errors: Automation software helps to eliminate data entry errors, reducing costs associated with resolving payment issues and invoice discrepancies.
• Reduced manual process: AP automation reduces the need for paper invoices, manual data entry, and physical documentation, leading to cost savings associated with printing, mailing, and storage.

Improved Vendor Relationships

• Better communication: Automated systems will send notifications and reminders to vendors, reducing misunderstandings, improving communication, and minimizing vendor fraud.
• On-time payments: Automation ensures timely payments to vendors, which strengthens vendor relationships and can lead to early payment discounts.

Additional Value

• Greater strategic insights
• Enhanced accuracy

• Remote work capability
• Environmental benefits
• Increased scalability

The value of AP automation lies in its ability to reduce costs, streamline processes, eliminate human error, enhance compliance, and provide more strategic insights (to name a few).

In What Ways Will AP Automation Save Your Business Money?

What are some ways in which AP automation leads to cost savings?

Elimination of Paper

AP automation reduces the need for paper invoices, checks, envelopes, and other related supplies. This leads to savings in paper procurement, postage, and printing costs.

Reduction of Manual Labor

Invoice automation reduces the need for manual data entry, invoice handling, and extra paperwork. This leads to significant cost savings in terms of manual labor. The more invoices you process, the greater the potential savings.

Vendor Discounts

By making timely and efficient payments, companies may better position themselves to negotiate better contract terms and early payment discounts.

Avoiding Late Payments

Automated AP solutions ensure invoices are paid on time, helping to reduce the risk of late payment penalties and associated costs.

Reduced Storage Costs

Digital storage and archiving of invoices and payment records reduces the need for physical storage and associated costs.

Enhanced Compliance

AP automation helps a business avoid non-compliance issues that result in penalties and fines.

Additional Cost Savings Opportunities

• Improved accuracy reduces errors, duplicate payments, duplicate invoices, and resolves discrepancies
• Streamlined approval workflows slim down time spent on manual approvals and paperwork
• Automated systems lead to auditing efficiency, which is less costly and time-consuming
• AP workflows that grow with your business for optimal scalability, reducing administrative costs
• Tools for AP automation are designed for ERP integrations with top brands like SAP and NetSuite

It should be noted that while AP automation can yield significant cost savings, the initial investment in the technology, and subsequent implementation, should be taken into consideration. Especially when assessing the overall financial impact. 

Additionally, the intangible benefits of AP automation, like improved accuracy, strategic insights, and better vendor relationships, should not be overlooked.

Calculating AP Automation ROI

The amount of money a business can save from accounts payable automation depends on several factors:

• Size of an organization
• The volume of invoices processed
• Efficiency of existing AP processes

While it can be challenging to provide an exact figure, an invoice processing payment calculator helps to get a more accurate understanding. 

Consider it an ROI calculator that will paint a clearer picture of your bottom line and the average cost of validating and processing invoice data.

The Key Benefits of AP Automation

The full-cycle accounts payable process will increase in complexity as your business grows. Every competitor will be taking advantage of artificial intelligence and advanced automation. Don’t be left in the dust. To help you better understand the return on investment for smart software, it’s important to examine the benefits involved.

Here are a few of the top advantages of AP automation right now:

It Will Save Your Business Money

AP automation helps a business reduce paper costs, manual labor, and late payment penalties. Technology like optical character recognition (OCR) works to ensure more timely payments, lowering labor costs and the bottlenecks associated with human intervention.

It Will Improve Your Efficiency

Automation accelerates the invoice approval and payment process, reducing the time required for each transaction. It helps to reduce invoice costs, streamlines approval workflows, and increases real-time visibility into invoice status. This leads to better tracking, more effective management, and smarter decision-making.

It Will Create Better Vendor Relationships

When processes are streamlined and the strings are pulled tight, everything is more organized. Vendors will appreciate this and reward a business with better payment terms, volume pricing, streamlined purchase orders, and early payment discounts. In other words, when you pay people on time, they are grateful and reward you in turn.

Automated systems will also improve vendor communication. Certain solutions will send notifications and reminders to vendors, reducing misunderstanding and enhancing communication. AP automation decreases instances of disputes and the average time it takes to get paid.

It Will Enhance Compliance and Reduce Risk

AP automation tools help a business adhere to internal policies and external regulations. This works to reduce the risk of penalties and fines. It also prepares a business for audit readiness, making the entire process more straightforward, and leading to additional instances of cost savings.

It Will Help With Data-Based Decision-Making

AP teams will find that the right tools provide valuable data and insight into spending patterns, cash flow, vendor performance, and many more critical metrics. This helps organizations benchmark, make better financial decisions, and allocate resources more strategically. The time saved through automation can be redirected toward more value-based tasks.

Additional Benefits of AP Automation

• Remote work capability
• Scalability for increased invoice volume
• Competitive advantage

What is the Direct and Indirect ROI of AP Automation? 

An AP automation provider will yield both direct and indirect ROI for organizations. These ROI categories capture the tangible and intangible advantages associated with implementing an AP automation solution.

Direct ROI

Direct gain relates to cost savings you can directly tie back to an AP solution. This includes:

• Cost Savings
  • Labor cost reduction (no more manual data entry or invoice processing)
  • Savings for paper invoices and postage that are replaced by e-invoicing.
  • Avoidance of late payment penalties and fees
• Discount Capture
  • Timely payments made possible by AP automation allow the capture of early pay discounts
  • Directly impacts cost savings, with the earlier the payment, the greater the discount
• Productivity Gains
  • Automation speeds up processing and streamlines workflows. This allows employees to focus on more value-added tasks, leading to a higher level of productivity.
• Fewer Errors
  • Fewer errors and human mistakes reduces the costs associated with invoice discrepancies.

Indirect ROI

Indirect gain relates to cost savings that are indirectly related to the AP solution you choose. These gains can include:

• Improved Efficiency
  • Real-time visibility into invoice status enables faster decision-making, which impacts overall operations.
• Risk Mitigation
  • AP automation ensures compliance with regulations and laws, reducing the risk of errors and fraud.
  • Indirectly protects organizations from legal liabilities and potential financial losses.
• Competitive Advantage
  • Companies with efficient AP processes are more competitive by optimizing cash flow and reducing costs.
  • AP automation helps a business make more strategic decisions that lead to market advantages and increased profitability.
• Enhanced Accuracy
  • Fewer errors contribute to better data quality, which indirectly affects processes like reporting and compliance.

Additional Indirect Gains

• AP automation supports scalability and growth
• Access to more data and analytics allows for better resource allocation
• Improved vendor relationships lead to negotiated discounts

It’s critical to note that the magnitude of both direct and indirect return on investment will vary depending on a company’s industry, size, existing processes, and the extent to which an AP automation solution is implemented (and used).

Calculating the ROI of AP automation sometimes requires a cost-benefit analysis that takes into account all the direct and indirect gains associated with implementing the technology. This analysis helps to determine the financial viability of the automation tool and provides a much clearer picture of the potential ROI.

Examples of Successful AP Automation ROI

It’s one thing to talk about the cost benefits of implementing an AP automation solution, but it’s another thing to see it in action. Here are a few real-life examples of how AP fintech has transformed operations for Tipalti customers:

#1) Jumio

• Challenge: Jumio needed to automate as many processes as possible to focus their efforts on strategic work that directly impacts their customers.
• Solution: The brand was able to fight fraud by delivering a smarter identity verification experience.
• Outcome: Jumio automated the management of 300 invoices per month across multiple subsidiaries, achieved an 80% reduction in procurement and AP workload, and accelerated monthly accounting close reconciliation time by 25%. 

Read the full Jumio case study here. 

#2) Create Music Group

• Challenge: As Create Music Group increased its reach, they needed to make royalty payouts to thousands of artists. They were also bombarded with an influx of manual work as they onboarded and managed new suppliers.
• Solution: Tipalti helped CMG centralize operations into a single platform, removing manual processing and eliminating duplicate payments. They also implemented a self-service supplier portal that improved artist communications.
• Outcome: With the elimination of manual work and increased operational accuracy, managing payments only takes one hour instead of several days. Additionally, artists receive their payouts on time, without error.  

Read the full Create Music Group case study here.

#3) International Center for Journalists

• Challenge: To manage increasing international requirements, ICFJ wanted to eliminate its highly manual finance operations while improving its environmental footprint. Removing paper was the first step. The second was automating all critical finance workflows.
• Solution: With Tipalti, ICFJ can manage the steady increase of journalists joining its network. Via the self-service portal, they can automatically collect banking details, tax information, and payment methods while maintaining compliance. Plus, ICFJ has benefited from Tipalti’s secure cloud infrastructure.
• Outcome: Now, ICFJ can serve its growing community without the hassle of manual finance operations. New team members can work directly in Tipalti, saving time, allowing for more strategic initiatives across levels, and reducing overall employee turnover.

Read the full ICFJ case study here.

These examples demonstrate that AP automation can deliver incredible ROI by reducing processing costs, enhancing accuracy, improving efficiency, and strengthening vendor relationships.

Is It Time to Explore AP Automation for Your Business?

Deciding to explore AP automation for your business is a good move. However, whether or not it’s the right time to do so depends on several factors.

Here are a few considerations to help you determine if it’s time to explore AP automation for your business:

Cost Analysis

Conduct a cost-benefit analysis to better understand the financial impact of AP automation. Calculate the current costs associated with your AP processes, including:

• Manual data entry and labor
• Paper costs
• Late payment penalties
• Any other related expenses

Then, estimate the costs of implementing and managing an AP automation solution. Compare these two final figures to better determine ROI and any potential savings.

Invoice Volume

Consider the volume of invoices your company handles on average. The greater the number of invoices, the higher the ROI with AP automation. If your business processes invoices infrequently, the benefits will be less pronounced.

Current Challenges

Assess your current AP workflows and identify any challenges or pain points the AP department faces. What are the issues? Is it a high volume of paper invoices, slow approval processes, frequent errors, or something else? Consider which areas AP automation will help.

Efficiency Gains

A business should assess how much time AP spends on tasks and how long it takes to process invoices. AP automation will significantly reduce processing times and free up team members for more value-based activities.

Compliance Requirements

Consider any compliance or regulatory requirements that affect your AP workflows. Automation can help with compliance by enforcing rules and providing detailed audit trails.

Technology Infrastructure

A business should ensure they have the necessary technology infrastructure to support AP automation. This might include a strong internet connection, compatible accounting tools, and IT resources for implementation and maintenance.

Employee Buy-In

Assess the willingness of team members to embrace the new technology. Change management is crucial, and it’s important to have the training and support necessary for employees to adapt to new processes.

Additional Considerations

• Vendor relationships
• Scalability
• ROI expectations
• Industry trends

Summing it Up

When studying AP automation ROI, it becomes abundantly clear that the technology is not merely a trend, but a strategic necessity for modern businesses. The examples of tangible cost savings and enhanced accuracy, paint a compelling picture of the value AP automation can bring organizations of all sizes and industries.

AP automation offers significant benefits to a business in terms of cost savings, accuracy, efficiency, and vendor relationships. The technology is worth exploring if your current AP processes are creating challenges or are primed for improvement. 

Conducting a thorough assessment includes addressing your business challenges, creating a cost-benefit analysis, using ROI calculators, and more. This will help you make an informed decision about whether it’s the right time to implement AP automation in your organization.

In an increasingly competitive landscape, where every dollar counts, embracing AP automation is imperative for growth and financial resilience. If we look at the ROI, the message is clear. The time to act is now. 

Download The Ultimate Accounts Payable Survival Guide to get started with your AP automation journey today.