Calculating the ROI of AP Automation: Key Metrics to Consider

“What’s in it for me?” is a blunt question, but it is also one that is perfectly legitimate for finance teams to ask when they are considering a major investment in accounts payable automation.  

The answer lies in key performance indicators that impact both AP staff and the larger business. These KPIs, as they’re known in shorthand form, often determine the success of an AP team and the core processes they are responsible for overseeing and executing. When you are gauging the success of an AP automation program—or just making your business case for one—you will want to use the following KPIs to either forecast your future effectiveness or determine your effectiveness in the present.  

Days Payable Outstanding (DPO)  

Getting payments out the door too quickly can imperil the organization’s cash flow. Getting payments out the door too slowly can cause you to miss early payment discounts—more about those in a moment—and have angry vendors breaking out the metaphorical pitchforks and torches.  

Striking the right balance, then, keeps vendors happy and the business solvent. That becomes much easier with AP automation, which allows AP teams to create a repeatable, streamlined process for payments that happens without fuss and without surprises. That allows you to build in a reasonable time lag for payments once the invoice is processed, but not one that risks the ire of unhappy suppliers.  

Cost of invoice processing  

Payments are not cheap—Ardent Partners recently estimated checks cost over $9 for every payment made—but automation makes those costs trivial. The same is true for invoices, but invoices are also both more expensive and more of a bear to process.  

Ardent estimates that the average cost of fully processing an invoice is $12.88, which is a rough average for those businesses with little-to-no automation to bring to bear. Best-in-class organizations with automation and know-how, meanwhile, average out at $2.78, or a savings of $10 per invoice.  

Showing those benchmarks is an excellent way to determine the ROI you should shoot for. Factoring your own pre-and-post automation invoice processing costs and comparing them to this benchmark can help you determine just how well automation is doing for your organization.  

Invoice cycle time  

A cousin to the cost of invoices, cycle time is also linked to your ability to achieve timely payment discounts. Ardent estimates an average of 17.4 days to process a single invoice for a heavily manual, paper-based business, while best-in-class organizations with automated process flows average just over three days. It is no exaggeration to say that shaving two weeks off your invoice processing time saves plenty of money, while also opening the door to discounts that may not have been previously achievable. 

Keeping track of your cycle time not only helps make the case for AP automation, but also allows you to keep an eye on the way that average ebbs and flows over time, allowing you to tweak workflows and nudge approvers if necessary.  

Rebates captured  

A source of revenue beyond early payment discounts, rebates can be achieved when you work with a bank or fintech partner that offers them. For Bottomline, as an example, Premium ACH and virtual card payments made to suppliers offer cash-back rebate opportunities. Suppliers pay a small fee on every transaction in exchange for (ideally) significant accounts receivable value and/or the promise of faster payments. 

These rebates can add up to a high enough volume of payments to be offset other significant expenses in the finance function and larger business, with some Bottomline customers utilizing them to pay down enterprise resource planning (ERP) systems. Keeping track of your rebates earned helps point to the success of automating payments, especially when paired with early payment discounts realized.  

Many of our customers follow best practices and incentivize suppliers to accept payments through Paymode. It is typical to see payers offering payment in net 15 for payments made via Paymode and net 45 for payments made via check. This helps the suppliers tremendously manage their cashflow and reduce DSO.  

Payments processed without fraud 

This is not a metric you will find on the average list of AP KPIs, because the dollars may be more difficult to quantify. Nonetheless, it is one well worth the trouble of calculating. 

Why? LexisNexis Fraud Services estimates that for every dollar in fraud losses, the average US business spends $4.45 remediating those incidents. Given that the Federal Bureau of Investigation’s Internet Crime Complaint Center estimates that the average business email compromise (BEC) loss is north of $125,000, businesses can be on the hook for over half a million dollars if a fraudster is successful in infiltrating the business and stealing payments or ransoming critical data.  

Using these numbers as a benchmark, you can make a powerful case for automation if it is paired with the right kind of security. For example, Bottomline’s Paymode B2B payments network secures supplier bank account information and protects against BEC by authenticating businesses and users, resulting in zero successful fraud annually. Unlike check payments, which are getting easier to steal, these payments are protected by layers of security. If you can choose a partner who can keep you fraud-free, industry benchmarks indicate AP could be saving the business $500,000 or more. That is an immensely powerful KPI, even if it is not a commonly used one.  

By targeting these five KPIs for improvement with AP automation, you can justify an investment either when making your business case or retroactively. These KPIs translate to real-world improvements in efficiency, security, and revenue for the business, and are an easy way to underscore the value of accounts payable improvements within your organization.