Data needed to create an AP automation business case and ROI calculation
- 27 Jul 2018
- AP Automation
Accounts payable is often (incorrectly) thought of as a back office function—a bogged-down team that is continually putting out fires. However, if you’ve spent any part of your career working with AP, you know that the value the accounts payable team contributes goes far beyond an endless backlog of vendor payments. The information processed by AP forms the center of a company’s reporting and forecasting. And ultimately, its financial success.
That’s why accounts payable automation solutions are valuable in the quest for efficiency in accounts payable. AP automation streamlines operations and reduces or eliminates costly errors, saving the company time and money. However, because of the miscategorization of AP as a secondary business function, the path to an investment from the C-suite is often an uphill climb. The champions for an AP automation project need to have the facts and data to establish a case to adopt new innovative technologies. Determine the ROI calculation to demonstrate this is a necessary investment for modern accounting and not just a luxury.
Determine Current AP Costs
As you begin to build the case for your accounts payable automation solutions investment appeal, start with the here and now. Do the math and determine current AP expenditure, which includes costs such as employees salaries and benefits, outsourcing, paper, postage, printing equipment, maintenance and support of required equipment.
If you think of the AP costs like an iceberg, those are the figures that show above the water’s edge. Take a deeper dive into some of the hidden costs, such as resulting loss from errors in AP and losses for the past two years. Time is another cost often left out of cost mapping for AP. In the 2020 State of ePayables Report from Ardent Partners, the average time to process an invoice was 10 days, which is still surprisingly slow for the readily available market of technology aimed to shorten that time. Further alarming in the same report, the invoice exception rate was 24.6%, as the report states, “And the time of the AP team is just one critical stressor here. Factor in the time it takes from business users to produce and approve invoices, then compare that to the time it would take to reach the same result when everything is automated, and all data is at the fingertips of the end users.”
Select an Accounts Payable Automation Solution
Before beginning the process of perusing vendors’ websites and narrowing down the list of solutions, it’s important to scope the project. This one may seem obvious, but the parameters of your research are what’s important to stress here. There are several different types of accounts payable automation solutions, and the impact on your business varies between each type. While all solutions have their unique benefits, you must select the right tool that the company will benefit from under the current circumstances. Implementing a supplier portal or dynamic discounting platform may seem like it’ll help you save money down the road, but if your internal AP processes are still a mess, you will not realize the benefits..
Once you know the type of solution you’re pursuing a project for, you need to assess the various providers available on the market. Before reaching out to any, do a thorough “background check” on the vendors. What is their history and focus? Does the solution fulfill the needs you’ve outlined in your project scope? What is their reputation like in the industry? And, when you do engage with the vendors that match your criteria, don’t be afraid to ask tough questions. What is their speed of deployment like? What is the depth of the solution’s effectiveness?
Since ROI will be a significant component of your presentation to the C-suite, fully understand the costs associated with implementing the solution, including the after-the-fact expenses that creep in months or years after go-live. Find out the requirements for ongoing maintenance or upgrades and the associated costs of time and labor and factor the total cost of ownership in comparison to the savings that the solution will bring to your organization.
Start Building Your Case
The point of investing in accounts payable automation solutions is to prove that your investment will break even with the original cost and eventually save the company money over time. With the right numbers to crunch, you’ll know exactly how to calculate an accounts payable project ROI that will stand up under intense scrutiny.
Start with calculating the total costs of the project and ongoing ownership that you ascertained in the vendor selection process. That includes subscription/license costs, upgrades, maintenance, and support from any third parties involved.
Next, quantify the unknown costs; this could include product limitations and on-premise upgrades. You might not be able to predict the future, but a potential vendor should be willing to help fill in the gaps of costs not defined in a contract.
Next, quantify the savings, which includes both hard, quantifiable savings, as well as soft, yet substantial savings. Hard savings, such as headcount, removal of old systems, and early payment discounts, are the easiest to summarize. For the soft savings, your assessment of your current state of AP and the areas you’re looking to focus on as a priority will be crucial. Take into account more than just your total invoice volume. Break down what percentage of your invoices are PO-based and how many are indirect. Incorporate your invoice exception rate, or the number of invoices requiring analysis of deviations, then ask your vendor to share a real benchmark they estimate you will reach with your newfound efficiency.
Once you have the data figures you need, organize and demonstrate the math of your ROI calculation in a clear and tangible method. Clearly outline the costs, savings, and timelines based on research. Whenever possible, seek out an ROI template used in other AP automation projects that delivered proven, credible ROIs. Demonstrate an ROI you can stand by and show your math so that any of the stakeholders could go through the same calculation and come up with the same results.
Be A Top Performer
Every business wants to be at the top of their game. When it comes to being a top performer in finance, it essential to recognize the role AP plays in the overall control and visibility for the organization. With that understanding backed by the organization, AP can embrace and adopt the latest technologies that drive increased efficiency and improve buyer-seller relationships through automation.
Surveyed best-in-class AP performers are more than twice as fast than their average peers and have 50% lower invoice exception rates. The strong emphasis is on “straight-through processing” enabled by AP automation technology. And the adoption of that emphasis is growing; 52% of surveyed companies view AP as very or exceptionally valuable to their organization, compared to just 33% in 2016.
Be an Industry Innovator - Stay Ahead of the Curve
Industry innovators recognize the future of payments is digital and data-driven. Cement your spot as a leader in your industry. Stay ahead of the curve and see the differences between being digital and data-driven, as well as how the two work together seamlessly.
New technologies seem to emerge in the market every week, and while it can be hard to keep the complex terminology straight, but it helps you stay aware of what’s on the leading front of technological innovation. Subscribe to technology digests or RSS streams in the industry, set Google alerts for technology you want to understand better. Strike up the conversation with other professionals in the industry, as well as with suppliers to take the pulse of your peers. What are their expectations for the future impact of these technologies? Do they have experiences to share of successful implementations of accounts payable automation solutions and other technologies in the procure-to-pay space?
Once you feel prepared enough to engage with solution vendors, find software that integrates into your current operations and improves them. If your primary focus is getting your AP process under control so that you can close the books on time and get an accurate picture of your outstanding expenses at any given moment, don’t get sidetracked by the exciting new software with a focus on supplier on-boarding. And as a fail-safe, rely on your customer experience (and the experience of other customers) to guide you to a trustworthy vendor that has your company’s best interests in mind.
AP in the Cloud - Anytime and Anywhere
In an ever-increasing mobile workforce, solutions are more often moving their hosting platform from on-premise to a cloud-based model. It’s no secret why; cloud-based systems give access to data in real-time and are quicker to implement with far less on-going maintenance needed from your IT team. But there isn’t just one general cloud out there, you have options to choose from, and the type of cloud on which your AP automation solution is hosted is essential.
Public cloud is when the services and infrastructure are provided offsite over the internet. Some vendors refer to this as “true cloud,” as it is the only type that brings you all of the benefits of a cloud community and the shared resources typically associated with a cloud platform.
Hosted or private cloud is when the service is maintained on a private network. Here you will still need to purchase and maintain the software along with the infrastructure, and often miss out on the benefits of sharing resources on a public cloud.
Hybrid cloud includes a variety of public and private options with multiple providers. Users must keep track of multiple platforms and make sure different business solutions can communicate with each other, so there’s extra work involved for the IT team during and after implementation.
The benefits of adopting cloud-based technology for AP are numerous, but there are three main reasons that will impress the C-suite most.
First, you’ll never have to deal with costly or tedious upgrades to your AP automation solution again, as you’ll always have access to the latest and greatest version of the solution. And innovation is a guarantee - new functionality and improvements are regularly made available to the entire cloud community.
Second, the total cost of ownership is significantly lower with a cloud-based solution. You often pay a monthly subscription fee, which is both predictable and cost-efficient, and implementation costs lower than an on-site on-premise installation.
Third, the solution and the insights it provides through reporting and analytics are available anywhere the end user is at any given time on any device. Accounts payable automation solutions in the cloud are platform-independent and flexible, improving efficiency and user experience for faster lead times and on-time payments.
Maximize the Benefits
The business case presentation shouldn’t center solely on the immediate stages of implementation and go live. Let the C-suite know there is a thoughtful, strategic plan to employ best practices and maximize the benefits from the investment into AP automation.
You’ll want to communicate plans for digitizing supplier data and optimizing poor quality data to support the automation workflows better. Now that you’ve automated the matching and deviation management, take advantage of configuring needs to further improve upon initial automation levels. Set up templates for suppliers with a high volume of invoices and add tolerance settings for anticipated special charges that don’t need a human to approve manually. Continually monitor, analyze and improve the KPIs you set up during the implementation by performing regular assessments of bottlenecks in the invoice workflow or problems stemming from your supplier.
Building a business case may seem daunting, but don’t let the effort keep you from making this significant proposal. Once you do your research, you’ll have the confidence that the facts and figures are at your fingertips and supporting a strong AP automation business case. Once you include ROI calculations to demonstrate how the system will continue to pay for itself for years to come, you’ll know you’re ready to make the case to the C-suite.