Branden Jenkins is the chief operating officer of Jacksonville, Florida-based Medius, a provider of accounts payable automation solutions. Views are the author’s own.
For CFOs looking to make an impact and see a positive return-on-investment through digital transformation, automating the accounts payable function may be one of the surest ways to get there.
On top of saving money, automating the AP function can also save valuable time. Tuff Shed, a manufacturer and installer of storage buildings and garages, offers a good case study. In a webinar last year, David Pott, Tuff Shed’s director of accounting and controller, described how the Denver-based company — in a space of just six months — replaced its old, paper-based AP system with an automated one that allows invoices to go through an entire workflow in four to five days on average.
In a 2022 survey by Medius — which polled 2,750 senior finance executives globally — 24% of respondents said they were concerned about colleagues in their department being on the cusp of leaving, highlighting the stress that finance teams are under today as well as potential benefits that can be gained through AP automation.
Reduced operational expense and employee turnover
The automation of AP processes allows for smarter budget expenditure. With less time, headcount and resources needed to manually process what can be thousands of invoices a month, business leaders have more space to evaluate how to utilize budget. By minimizing the time required for the AP function, CFOs can redirect those resources to other strategic initiatives that will drive growth and profitability quickly.
Implementing automated AP also helps to retain talent and avoid recruiting-related costs. For example, AP software has drastically cut the administrative burden on the 17-man accounting team at Tuff Shed, alleviating the need for extra headcount and increasing the productivity of the team, according to Pott.
Improving yield and early payment discounts
Timing is everything when it comes to payments and optimizing cash flow. Most businesses (81%) offer early payment discounts, an offer nearly all companies (98%) would like to take advantage of, according to the Medius study. In practice, however, few companies are taking advantage of such discounts, with only 39% reporting that their financial team utilizes them. The reason for this gap hinges on clunky manual processes.
On average, financial teams take 23 days to approve the payment of an invoice, making it nearly impossible to meet any early payment discount deadlines, Medius found. This long turnaround time is due to manual communications and invoicing standards between suppliers and purchasers, which eat up an average of five hours per week of the average financial professional’s time.
Introducing AP automation enables finance and procurement teams to focus on growing the number of suppliers and amount of spend in an early-pay program. Automated AP also reduces cycle time and cost with suppliers. And consistently processing and paying invoices faster is proven to maximize participation in supply chain financing programs as suppliers opt into terms extension programs.
Reducing errors, overpayments and invoice fraud
When it comes to managing thousands of invoices, artificial intelligence and automation can run a much tighter ship than humans. Overpayment, costly errors and fraud are constant threats that leak money out of the business and are prevalent with manually-managed processes. Meanwhile, with the introduction of AI, online fraudsters and other threat actors have become more advanced than ever. Complex, manual invoice processes and messy paper trails create the perfect storm for these fraudsters to do what they do best. So why give financial criminals the keys to your company’s castle?
The Medius survey found that 34,000 cases of invoice fraud were spotted over 12 months (and these were only the cases that were caught). One in four finance professionals were unaware of and unable to estimate how much invoice fraud has cost the business. Ignorance isn’t bliss in this case, and this fraud comes at a high cost. Of the companies that identified invoice fraud within their organization, the average cost was $280,000 per year.
At a time when the office of the CFO is under unprecedented stress and pressure, automating the AP process can help to reduce burnout and give accounting team members the opportunity to focus on more dynamic priorities.