The issues of deficits and debit provoked occasionally heated exchanges during Britain’s recent election campaign. One objective the rival manifestos all shared was in identifying areas ‘to reduce back office costs, waste and inefficiency’ – a common desire of all businesses. Despite numerous electronic procurement and invoicing initiatives, payables have remained a largely manual process within both public and private sector finances however. A paper-based process which, according to one recent study, incurs an otherwise avoidable cost of between £4-6bn annually for the UK taxpayer [i].

In these strained fiscal times, governments globally have intensified efforts to identify process and back office inefficiencies. In once such review, the US Treasury Department estimates that current manual Accounts Payable processing carries a cost to the Federal Government of $900m annually, or $3.6bn over a four-year Presidential term. It calculates that automating the AP process would reduce costs by over 50% - representing a $1.8bn tax saving [ii].

The persistence of paper…

This is certainly not an invitation to roll our collective eyes in the face of apparent public sector largess. Whisper this softly, but it could be argued that in many respects the public sector is a step ahead in identifying manual-processing inefficiencies and proposing new automated solutions.

A review of payment innovations over the past decade highlights interesting efficiency disparities – and provides lessons that even the most innovative of CFOs could possibly heed. The way we make payments in our daily lives has certainly changed irrevocably over the past 10 years. Banking is no longer a place we visit, but a friction-free transaction from a device in our pocket (or on our wrist). Payment is a gesture, a swipe, a thumbprint. Businesses have been quick to embrace many technologies that increase productivity, cash yield and improve accountability. Yet despite this transformation, 70% of companies continue to process more than half of their invoices, and in general pay most of their bills, the old-fashioned way, on paper. A process that carries with it significant – and sometimes hidden - costs each year in errors and wasted effort.

It’s time to get measured

Why does this outdated AP ‘analogue’ island so stubbornly persist in an otherwise digital ocean? Well the old adage that ‘if you can't measure it, you can't manage it' illuminates one key factor. Historically companies had little reason to accurately quantify the costs of their Accounts Payable process. Almost one-third of respondents (29%) to an Institute of Financial Operations (IFO) 2014 AP Automation Study said they did not know the per-invoice processing cost at their company.

Do you know the invoice processing cost at your organisation? The post-2008 fiscal squeeze forced a measuring stick to be deployed across public AP departments, often with alarming results. A sub-£1 per-invoice manual processing benchmark was missed by over 92% of UK local authorities, with a top per-invoice processing cost in excess of £30!

Without knowing the cost of current invoice processing systems, it is difficult to quantify the return on investment through AP automation. The respondents to the 2014 IFO study cited a processing cost of between £1.30 and £16 or more per invoice, with a separate UK public sector study identifying an average cost of £3.40. Taking this average, for a medium-sized company processing 10,000 invoices a month, the outlay is over £400,000 annually! With average invoice volumes on the increase, the cost trajectory is clearly heading in the wrong direction.

The identifiable costs of staff, postage, paper storage and infrastructure are relatively straightforward for companies to calibrate – though these fail to account for more difficult to quantify costs. For example, inefficiencies in a paper-based systems result in human data entry errors, duplicate payments and missed opportunities for early payment discounts – all of which can add up to significant and avoidable costs over the course of a year. Such an outdated paper-based process is almost by definition an environment of low visibility and accountability. The transparency benefits of automation ensure early detection of fraud or other anomalies, which would otherwise remain undetected.

Measuring the value of AP Automation

Even ignoring the more intangible benefits, the direct quantifiable cost savings alone can be hugely significant for organisations. Staff costs are often the largest single component of AP costs. Employee time is needlessly dominated by data entry, scanning and other cumbersome tasks tracing missing or mislaid invoices. One recent study estimates UK employees can waste over three hours a day working with inefficient systems [iii] - that could equate to 40% of your monthly AP employee bill. Would your organisation benefit from more profitably deploying 40% of the AP staff at no extra cost?

Recent data following AP implementations in US Federal organisations revealing yearly cost reductions of 46% for undisputed invoices and 54% for disputed invoices are indicative of realistic achievable savings. Could your organisation make even greater cost savings?

Significant though they are, these ‘hard’ cost savings form only part of the equation with which your organisation could assess the true return on investment (ROI) through AP automation.

Accounts Payable as a profit-centre

Automating Accounts Payable processes can provide total cash flow visibility to CFOs and finance controllers, with the ability to fully optimise working capital. These increased processing efficiencies open up additional ‘soft’ ROI benefits, such as early payment discounts. A standard 2% discount for 10-day settlement can translate into a risk-free return on cash of up to 36% - a rate that should be of interest to all CFOs and could well exceed automation costs.

Quantifying the true benefits of change can be concrete and measurable, and encompass:

• Savings. Significantly reduced invoice processing costs, infrastructure costs;

• Efficiencies. Faster, more efficient invoice processing;

• Profit. Increased returns on available cash;

• Risk Mitigation. Reduced fraud and human error, together with increased audit and compliance assurance;

• Optimisation. Best use of working capital;

• Productivity. Increased employee productivity, with the ability to more profitably deploy staff.

The ROI case for overhauling existing manual-processing inefficiencies and proposing efficient automated solutions is compelling and comprehensive. It also provides an opportunity to perhaps look more widely at your organisation’s entire payables processes.

From paper laggard, to automating vanguard

Many providers offer solutions that go beyond invoice processing to include complete payables automation, including integrated e-payments and online remittance delivery. AP automation solutions should utilise and extend a company’s existing IT infrastructure investments, including their ERP and ECM platforms, to support a lower total cost of ownership. For example, your existing Microsoft SharePoint environment can be leveraged to provide digital invoice capture and fully automated workflow functionality, driving down unnecessary expense.

An automation solution that integrates with your ERP can be a quantum leap in workflow efficiency, not just for AP but throughout an entire organization. An overhaul of the AP paper laggard in your organisation can indeed drive efficiencies along the payments chain. 

As economic signs continue to improve, the introduction of a more flexible, efficient and secure payments infrastructure can provide the end-to-end cash visibility that will be key in minimising risk, driving down costs and managing business expansion. Accounts Payable processes – for so long a resolute bastion of inefficient, paper-based routines – can play a central role in driving this change.

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[i] 2014 Study by the UK National e-Invoicing Forum.

[ii] The most recent Business Case submission by the US Treasury estimates an initial near-term saving of $121,200,000 which represents a short-term ROI of 238.32%. Department of Treasury, ‘Business Case: Capital Asset Summary’, 26 February 2015.

[iii] Access Group Survey, April 2015.