How much is it?
If you’re anything like me then these are four words that can make or break the moment when you are talking about whatever the item is in question…..a car you’re thinking about buying, a planned vacation, a piece of clothing...whatever. However, the same question needs to be asked of AP automation because while it’s a great concept and certainly a needful one for most businesses, answering this question will by and large determine whether a business can make the decision for or against automation. The good news is that depending on your version or approach to AP automation, the costs vary greatly.
Scan & Archive: While this is admittedly a bit of a tame approach to automation, some businesses cut their teeth on process improvement through this approach. While it does help with archival and retrieval, it does little to improve the process and some could argue that it actually encumbers the process more by requiring an additional post-process step of scanning and indexing. Now, this can be achieved on the most basic of levels through some kind of a shared drive / folder-based storage approach, but this is typically not the best solution for finding things unless you’re a very small business. The moment your transactional levels jump into the hundreds or thousands per month, you’ll find this to be a less than adequate solution. Still, it can be done for mere hundreds of dollars on the micro scale. If you’re looking at layering in an electronic document management system, you’ll be looking at anywhere between $10,000-$100,000 depending on how robust it is plus annual license fees and any technical support required to maintain it.
Front End Invoice Processing, Auto Matching, Approval Workflow, and Archival: This has been a tried and true approach for many businesses but in a deployed setting the costs can run amok quickly as the systems necessary to power this approach (OCR, bi-directional integration, business intelligence, workflow, audit trail, and storage) are all complex and costly. These types of deployments are typically taken on by businesses running upwards of 10,000 invoice transactions a month and the associated spend can easily range from $100,000-$500,000 for deployment plus annual software license fees and related personnel support costs. For this reason many businesses shy away from the model because the costs outstrip the benefits and the return on investment is beyond a 12 month period and thus becomes seemingly unfavorable.
Cloud-Based AP Automation: Essentially this approach is similar to the above, but because the infrastructure investments are in the cloud and generally deployed across multiple tenants, the cost is shared. Further, hardware requirements are obviated, especially if data center elements are hosted and therefore the point of entry costs for businesses are vastly reduced. In many cases, the providers of this approach charge transactionally instead of software license model. Implementation fees are typically proportional to the number of invoices processed per month, but piggybacking off the scenario above at 10,000 invoice transactions per month, it’s not uncommon to see an implementation fee of $20,000-$35,000 and transactional costs ranging from $.65-$.95 depending on the scope of services / automation provided.
AP automation & ePayments: This is where things get interesting. In all the above cases the typical play for a CFO, Controller, or Treasurer is to look at AP automation as a means to cost cutting and process improvement, which it certainly is. However, when we start to consider the vital role of physical payment execution and the byproduct of automation (ie. time saved and visibility generated through data lifting and automation) there are a world of possibilities. For starters, ePayments (ACH, EFT, wire, and virtual cards) are growing quickly and displacing the heavy reliance on checks in the B2B space, but more importantly they provide a more secure conduit and one that can actually monetize the process (virtual card payments). Through this one payment type alone, many companies can generate a 1-1.5% tap on eligible spend.
The math looks like this:
Spend / mth = $20,000,000Invoices / mth = 5,000VCards @ 25% / mth= $5,000,000Rebates @ 125 bps / mth= $62,500Annual impact= $750,000
This does not even factor additional cash saved through the elimination of checks, but The Accounts Payable Network estimates the average cost to cut a check at $5.14, so a simple formula multiplying that value with the forecasted number of checks saved by using a virtual card in their place will yield the result.
Beyond that the other strategic gain is early payment discounts, which can be massive and will be something we look at more deeply in future posts.
All that said, remaining in the state of a painful, dysfunctional process is not really an option in today’s networked economy. If you’re unsure of what approach is right for you, may we suggest checking out our eBook on AP automation vs E-Invoicing?