How can Automation save 40% to your bottom line?
Are you curious about automation and how it can save your department and organization money? To understand automation and the benefits, it’s important to understand the baseline accounts payable process.
Let’s begin with one of the standard and manual accounts payable methods “Pay and Chase” where the payment is sent prior to the reconciliation of supplier statement.
Typical Manual Process Using The Operations Department as an example:
- Suppliers send invoices to the Operations Department or company’s accounts payable department
- Invoices received by the Operations department are approved and coded by each approved manager and sent to Accounts Payable department.
- Invoices received by Accounts Payable department are sent to the Operations department for approval and coding. The Operations department approves and codes the invoices and then sends them back to Accounts Payable.
- Accounts Payable checks that the approval codes are valid and inputs the invoices into the Payable system.
- Accounts Payable prepares check run; prints the check run; attaches actual invoices to the check run and sends it to the appropriate Finance department for verification and settlement approval
- Appropriate Finance Department checks the invoice against the check run and approves the settlement.
- Once approval for settlement is gained, Accounts Payable cuts the check and sends it out.
To Reconcile the statement:
- Accounts Payable receives statements from suppliers and enters each invoice number into the Payables system to see if the invoice is paid or not.
- If the invoice is not paid, then Accounts Payable asks supplier(s) to send another copy which it then sends to the Operations department for approval.
- If approval is gained then invoice is set up for payment and
- If no denied, then the invoice is disputed.
- If the invoice is paid but on supplier statement it is shown as canceled, then Accounts Payable requests for the credit note which it then processed for a refund.
The average business approves at least 200 batched invoices per week.
Each batch will contain around 100 line items and about four pages of double-sided paper which total to 16 double-sided printed pages per week, just for approval purposes.
Processing one invoice involves the following steps. If completed in sequential order and without delay, this can be short process. However, the reality is different.
Manual Process
| Time | Action | Department | Notes | |
|---|---|---|---|---|
| 1 | 90 seconds | Approval | Operations department | Check against PO, stamp, write amount, code, create invoice and send to Accounts Payable |
| 2 | 60 seconds | Input into Accounts Payable System | Input into Accounts Payable System | Check the approval codes are correct and type invoice into system |
| 3 | 60 seconds | Prepare check run | Accounts Payable | print check run, attach invoice and deliver invoice to Finance This step can be eliminated. |
| 4 | 60 seconds | Verification check run against Invoice & Approval | Finance | log check run into a worksheet and manually check invoice against check run reference columns (up to 4 references) |
| 5 | 30 seconds | Statement received for Suppliers and reconciled | Accounts Payable | Enter each invoice shown on suppliers’ statement and verify whether payment status: paid; unpaid; overpaid; underpaid |
| 6 | 120 seconds | Follow up incorrectly paid and unpaid invoice | Accounts Payable/ Operations departmen | Accounts payable researches issue to resolve with Operations department and Supplier |
| 7 | 420 seconds/invoice |
The small amount of Accounts Payable employees is tasked with ensuring this happens daily.
How can they eliminate “circling” one invoice three times? How will they be sure that paid amount is the correct amount as registered by Supplier? How will they make sure that all due invoices as registered by Supplier are paid?—- Reconciling before settlement and automating the reconciliation and settlement process is the answer.
The Automation Process
| Time | Action | Department | Notes | |
|---|---|---|---|---|
| 1 | 90 seconds | Approval | Operations department | Check against PO, stamp, write amount, code, create invoice and send to Accounts Payable |
| 2 | 60 seconds | Input into Accounts Payable System |
Accounts Payable | Check the approval codes are correct and type invoice into system |
| 3 | 10 seconds | Prepare check run | Accounts Payable | print check run, attach invoice and deliver invoice to Finance This step can be eliminated. |
| 4 | 20 seconds | Statement received from Suppliers and reconciled | Accounts Payable | Supplier sends e-Statement that is reconciled automatically- Eliminate duplicate and missing payments by viewing exactly where each invoice stands before settling. |
| 5 | 10 seconds | Verification against supplier statement & Approval | Finance | log check run into a worksheet and manually check invoice against check run reference columns (up to 4 references) Finance can compare check run against approved statement by downloading to an Excel doc and using keyword functionality. No need to print. |
| 6 | 60 seconds | Follow up incorrectly paid and unpaid invoice | Accounts Payable/ Operations department | Accounts payable researches issue to resolve with Operations department and supplier Process is done during statement reconciliation |
| 7 | 250 seconds per invoice | (40% less time) |
Automating this process will reduce steps 3, 4, 5 and 6 from 270 seconds to 100 seconds, total. At 200 invoices per week, or 800 invoices per month, the manual process will take 66 hours. Using automation to reconcile and settle will take a maximum of 56 hours which is a saving of 37 hours.
Manual
420 seconds/ invoice x 800 invoices per month = 93 hours per month
Automate
250 seconds/invoice x 800 invoices per month = 56 hours per month
COST
Manual
93 x $60/ hour = $5580
Automated
56 x $60 / hour = $3360
40% savings!
In short, cost savings are significant, 40% on labor, not to mention the cost of paper, printing and supplies incurred. The bottom line cost-savings realization makes investment in Automation timely and well worth it.
Need help in setting up your automation?
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