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Why Making Room for AP Automation is Critical

Why Making Room for AP Automation is Critical

Authors: Vice President of Treasury Services Product Strategy Jason Hagan & Matt Carrico, Director, Product Management

Every year, businesses of all shapes and sizes review their budgets. For most organizations, this kind of budgeting is a standard occurrence and typically follows a certain template:

  • Calculating the cost of standard operations.
  • Considering the bottom line impact of recent market and consumer trends.
  • Writing line items for needed upgrades and improvements.
  • Identifying budgetary metrics and goals like cash flow breakeven, anticipated increase in headcount and support needs.

With that in mind, businesses that still rely on manual accounts payable (AP) processes need to dedicate a line item in annual budgets for AP automation. This may seem like a bold move, particularly if past years’ budgets have proven successful without it. Yet the truth is, AP automation doesn’t just provide marginal benefits, instead it can serve as a key driver for success in the year to come, offsetting its own cost and redefining the way your company conceptualizes its operating budget.

Visible and Invisible Costs

Perhaps the most direct area where AP automation delivers value is time and labor savings. The adage “time is money” comes to mind, and it certainly applies here. Any comprehensive annual budget factors in the cost of labor — yet for many companies, manual AP processes carry “invisible expenses” that inflate this cost unnecessarily. These expenses include:

  • Manually entering data into accounting software.
  • Checking and rechecking that information is accurate.
  • Authorizing, scheduling and executing payments with different processes per payment method (check, ACH, credit card and wire).
  • Closing out invoices and filing paperwork.

By itself, the manual AP process is costly, even when performed perfectly. When there are adjustments and errors, however, even the soundest budgeting in the world won’t save you from additional expenses. Taking the time to track down and rectify potential entry errors with hard-copy invoices both has its own labor and resource costs and diverts resources away from standard operations. These costs can pile up even further if your CFOs’ daily activities are disrupted by being pulled into AP management.

Per-Invoice Expenses Pile Up

Beyond the abstractions, this labor and time cost has a definite impact on a company’s budgetary bottom line. Each manually processed invoice is an expense. This may not seem like it will make or break a budget, but consider it this way - if a company processes an average of 1,000 invoices a month, at a cost of $15 per invoice, by the end of the year manual AP adds up to $180,000. Even for businesses regularly processing less than that, just the invoice process alone is no minor expense.

Some companies assume this $180,000 would simply be the “cost of doing business.” But AP automation effectively slashes the cost per invoice by rendering the entire process far less labor-intensive. Additional profit comes from the ability of full-time AP employees to turn their attention to value-added efforts such as long-term planning, as well as saving on paper itself, thereby rendering the cost of invoice processing essentially null. Imagine having access to funds you didn’t know you had, simply by automating what you’d previously assumed was a static expense.

Visibility, Rewards and Fraud Prevention

Aside from reducing operational expenses, AP automation provides ancillary benefits that accrue value and help craft leaner, more profitable budgets. For instance, by reducing the need for manual entry, verifications, approvals and filing, companies quickly gain more actionable insight into their finances and are able to make more informed decisions about spending going forward.

AP transactions are completed more quickly on a set schedule, making cash flow more predictable and reliable. This visibility comes from having a true general ledger, made possible by AP integrations with banks and credit cards. Payments are never in a state of flux while they’re in the mail or waiting to be processed and cleared. AP automation seamlessly integrates with card-based payments, bringing with it the chance to earn cash-back rewards and other benefits to further add ROI opportunities for businesses.

Finally, if you have relied on manual AP, part of your annual budget probably included some level of fraud protection/mitigation. AP automation may reduce the risk of payment fraud because of the layers of protection and oversight built into these systems. Multiple people will have to sign off on any given transaction, and missing money is far more likely to be spotted and rectified quickly.

Now is the Time for AP Automation

As we’ve outlined, companies can often see dividends from abandoning manual AP for automation by reducing invoice costs, reallocating resources to value-added activities, improving visibility into cash flow and enhancing fraud protection.

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About the Authors

Jason Hagan leads Wholesale payments strategy and product development for First National Bank of Omaha. He joined the bank in 2013 to develop and implement the bank’s payments and partnership strategy. Jason also leads the Wholesale Bank Investment process.

Matt Carrico leads First National Bank of Omaha’s effort to help business owners improve their cash flow, as well as their accounts payable and receivable efficiency. Matt has 15 years of sales and strategy experience.