Every decision to automate a business process requires a cost-benefit analysis. It is true that often the upfront cost of a new business tool or software can be hard to swallow, but often the overall cost savings significantly outweighs the initial cost. AP automation is an excellent example of this; to understand the real cost of automating your accounts payable department, you should first look at your current costs. You may not realize the hidden costs associated with your current AP process if you are manually issuing payments, mailing checks, or relying on paper files to check for fraud. Here are a few examples of these hidden costs that may be causing a significant impact on your company’s financials:
Paying Too Much to Pay Vendors
When your company receives an invoice from a vendor, the amount owed is not your total financial liability. The payment amount itself does not take into account the cost of your preferred payment method or the cost of labor to process the invoice. So, how much does it actually cost to process vendor payments?
Payment methods are not all equal when it comes to cost: paying by paper checks can cost up to $8 per check and wire transfers can cost between $9 and $25. Other methods, like ACH transfers, may only incur a small fee depending on the bank your business uses. Labor costs, as mentioned, can run high if you have more than one staff member processing payments. It may take extra time to verify data, wait to receive authorization, or find historical data to correct an error. Altogether, a single invoice could be costing you up to $25 to process!
AP automation drastically reduces the amount through lowered labor costs and better payment management. From digital access and authorization to setting up automatic payments, you could see significant savings within the first week by automating this costly process.
Missing Vendor Discounts
Many vendors offer early payment discounts to prompt businesses to process invoices faster. Early payments help vendors keep a higher cash-on-hand amount and reduce the amount of time spent waiting for payment to go through. On the other side, businesses can reap the rewards of paying early by reducing the total amount they pay. There are many types of vendor discounts, but the most common one is the “2/10 net 30” payment, which means a payment due in 30 days can be reduced by 2% if paid before the first ten days. Taking this discount by issuing an early payment can be a very smart business decision.
If your AP department runs slowly, or the payment is held up on a staff member’s desk or waiting for someone to find paper information in a filing cabinet, you may find yourself consistently missing discounts. If your business has the money available, it would be a shame to miss out on a discount due to an inefficient internal process. You are essentially paying more to run a slower department.
How does AP automation help? By automating your payment process, invoices are quickly verified, and payment is issued within a few days. If you choose a lower cost payment method, you can reduce savings further by automating that payment. You can set up recurring ACH payments so your vendors can be regularly paid on a set date, making the discount almost automatic.
Paying to Resolve Fraud
If your company tracks incoming and outgoing money on paper, you could be opening yourself up to high fraud risk. Fraud or errors can go unnoticed for a long time if they not caught right away with a paper-based audit system. If your company manually reconciles bank statements, a practice that itself carries a high risk of error, you may not have an accurate picture of your finances. This, coupled with the possibility of duplicated invoices, scammers issuing unauthorized payments, and compromised accounts due to unsecure payment methods, can create major financial trouble for your business.
If a fraudulent charge is issued from your business account, you could face overdraft fees, checks to vendors could bounce, and you may accidentally make late payments due to insufficient funds. It adds up quickly but can easily be reduced. Automating your payment schedules, your bank reconciliation statements, and adopting fraud detection tools can help.
AP automation tools capture and record invoice data and process it against past charges. Duplicate or unauthorized invoices are flagged immediately, preventing your company from accidentally paying them. The system automatically translates the captured information into stored data, giving you the ability to run on-demand reports to check your finances and outgoing payments.
Adopting AP Automation as a Long-Term Solution
Upfront automation costs do not compare to the long-term savings your company will see from streamlining your AP process. You can drastically reduce vendor costs, increase savings through vendor discounts, and identify fraud or errors right away. Staff will appreciate the improved workflow, and your vendors benefit from earlier payments. Stop subjecting yourself to the hidden costs of accounts payable and start increasing your balance through AP automation.