What if the key to achieving significant savings and productivity for your small business is as simple as rethinking how you handle your money? Consider this: how many dollars and hours are being wasted on paper-based accounts payable (AP) and accounts receivable (AR) processes today?
Wouldn’t it make everything easier, and also increase your bottom line, to automate these processes? Research suggests that automation of AP has the potential to lower processing expense by as much as 80% and process invoices 50% faster.
Likewise, automation of AR has the potential to enhance cash flow and lower DSO. Is it time then to challenge conventional wisdom and determine how AP/AR automation could revolutionize the financial well-being of your SME? Join us as we explore AP/AR automation ROI for SMEs in the following lines.
Understanding AP/AR Automation ROI for SMEs
Okay, so let’s break down what AP/AR automation ROI for SMEs actually is and why it’s actually a big deal.
First off, what is ROI in this context? Return on Investment is basically the bang for your buck. When it comes to money processes such as accounts payable and accounts receivable, ROI isn’t necessarily getting the money back, but the benefit you derive from an investment.
This could be cash you were previously spending (like on paper, postage, or correcting errors), time you were previously wasting that your employees can now spend on more productive work, generating more cash flow by receiving invoices paid and out earlier, or being able to get a better grip on your finances. It’s weighing the benefit you’re getting against the cost of implementing the automation.
Now, why is calculating this financial automation ROI absolutely important, especially for small and medium-sized enterprises? Well, SMEs don’t have unlimited budgets or huge teams. Every investment needs to do its share and earn its keep. For an SME, deciding where to allocate meager resources is humongous.
Showing clear ROI on something as high-impact as AP/AR automation will vindicate the up-front cost and effort, demonstrating that it is not just another expense, but a strategic initiative that actually undergirds the business’s bottom line and efficiency. It allows you to make data-driven, informed decisions on where to spend for maximum impact.
SMEs face their own unique obstacles to overcome, making the business worth automating. Maybe you’re drowning in piles of paper invoices covering desks and file drawers. Perhaps errors are creeping in as a result of manually entering data, resulting in frustrating slowdowns and annoying books that are impossible to reconcile.
So, attempting to chase after late payments would be a task that lacks the manpower to accomplish, or maybe you just don’t have clear visibility into who owes you what, and when, and managing cash flow is a constant thorn in your side.
These are exactly the kinds of thorns that AP/AR automation ROI for SMEs can eliminate, automating those tedious, time-consuming processes so you can get back to running and expanding your business.
The Tangible Accounts Payable Automation Benefits for SMEs
The following are the concrete, measurable benefits your SME can have from accounts payable automation. They are not airy ideas; they translate directly to hard savings and more effective operations, proving the AP automation ROI for SMEs.
Direct Cost Savings
- Let’s talk about removing mundane manual work. Automating AP reduces the time your employees spend on tedious data entry, matching invoices, and signing approvals on paper. It’s not just about making work less mundane; it’s about saving a considerable number of labor hours spent on these activities, freeing up employee time, and ultimately cutting operational costs associated with manual processing.
- Remember all that paper? Printing bills, addressing envelopes, paying for postage, and taking up real estate space to store stacks of documents? AP automation lets you shift to digital, basically eliminating these recurring expenses. Think about the money saved each month just by doing away with the paper trail – it adds up fast for any small or medium-sized business.
- Have you ever had to pay a late payment charge because you missed a payment due date? Or lost out on those wonderful early payment discounts suppliers periodically offer? Automation guarantees that invoices are processed and approved on time, reducing the likelihood of late payment charges by far and making it far easier to capitalize on chances to save dollars by paying suppliers prior to due dates.
Improved Efficiency and Productivity
- Imagine invoices flowing smoothly from receipt to payment without getting lost or stuck on a desk somewhere. AP automation really speeds up your entire invoice processing process. What could take days, or weeks, can often be done in hours, leading to faster approvals, better vendor relationships, and a much more responsive finance team.
- Think about what your finance department could do if they weren’t neck-deep in paperwork. By taking unnecessary manual labor out of their way, automation lets your team focus on more high-level activities – interpreting data, forecasting, preemptively managing cash flow, or even helping business development efforts. It’s smarter working, not hard working.
- Ultimately, this resulting increased speed and reduced manual labor is the real AP automation ROI for SMEs. The combined advantage of quicker processing, fewer errors, and a more effective team translates to staggering aggregate efficiency improvement to your whole finance operation, making your company more agile and competitive.
The Powerful Accounts Receivable Automation Benefits for Small Business
These are the benefits accounts receivable automation delivers to small businesses:
Accelerated Cash Inflow
- Get paid faster by invoicing immediately and offering easy online payment options. This immediate process shortens the invoicing-to-cash time into your bank account.
- Reducing Days Sales Outstanding (DSO) is essential. Automation speeds up billing and collections, decreasing the average number of days it takes customers to pay you after a sale has been initiated.
- Improved cash flow management becomes a reality. With funds coming in more quickly and predictably, you have more visibility and control over your business money on a daily basis.
Reduced Collection Costs
- Automatic follow-up and reminders handle most of the collection contact. Regular, timely contact politely reminds customers to pay without causing your employees unnecessary manual work.
- Minimizing the need for employees to make dozens or hundreds of calls or send one-off emails saves huge labor time and costs and makes your collection process a whole lot faster and less time-consuming.
Lower Error Rates
- Cash application automation precisely matches payments to outstanding invoices, reducing human error in entries. This eases reconciliation and properly posts payments.
- Precise improvement in your books is a significant benefit. Less human touch means fewer mistakes in tracking who owes what, leading to tidier books and more reliable financial reports.
How to Calculate Your Potential Financial Automation ROI
Let’s get practical. To estimate your possible AP/AR automation ROI for SMEs, there are some key steps to figure out the real financial effect. Here is how you can do this.
Identifying Current Costs
Begin by measuring how many hours your staff spends on manual AP and AR tasks such as data entry, invoice processing, and tracking payments. Calculate the cost per invoice, which encompasses processing time, error rectification, and storage. Moreover, calculate the monetary impact of delayed payments or missing early payment discounts.
Estimating Automation Costs
Next, consider the automation solution costs. These include subscription fees for software, initial setup and integration fees, and training fees for your staff. Although these are upfront expenses, they typically are offset by the long-term savings and efficiency that automation delivers.
Estimating Savings and Benefits
- Estimate how much time automation will save on a per-invoice or per-transaction basis.
- Project the expected reduction in manual errors and the costs of their correction, i.e, reprocessing fees, communication delays, or reconciliation hassles.
- Forecast the reduction in your Days Sales Outstanding (DSO) and the resulting positive impact on your overall cash flow and working capital availability.
The ROI Formula
Calculate your ROI by applying the formula:
ROI = (Total Benefits – Total Costs) / Total Costs × 100%
This calculation gives a percentage that proves the effectiveness and cost-effectiveness of implementing AP/AR automation. A positive ROI indicates that the benefits outweigh the costs, making it a worthwhile investment for SMEs.
Common Challenges for SMEs Implementing AP/AR Automation
While the potential SME AP/AR automation ROI is exhilarating, it’s conceivable to recognize that the path isn’t always smooth. These are some typical challenges small and medium businesses may face when they try to automate:
- The first hurdle SMEs often come across is the upfront costs. Even though automation will be self-paying in the long term, bringing the initial funds together to cover the cost of software subscription, installation charges, and any training that may be required can appear daunting when every available dollar is already stretched to breaking point. It requires planning to see past the upfront costs to the ultimate dividends.
- And then there’s the human factor: change resistance from your employees. People become used to their routines, even if they’re mundane and involve lots of manual labor. Bringing in new technology can be greeted with trepidation at times, fear of the unknown, or fear that their jobs will change. Getting buy-in and good training is key here.
- Picking the right solution can also seem overwhelming. There are many disparate AP/AR automation solutions out there with very different features, levels of complexity, and costs. To try to limit your options and find the best fit for your unique business requirements and budgetary restraints, exhaustive research and an understanding of what the system has to do are required.
- Lastly, incorporating new automated software into your existing accounting system or ERP at times requires some technical challenges. There must be seamless and correct data exchange between systems for the automation to work correctly and for you to be able to properly reap the touted AP/AR automation ROI for SMEs. Occasionally, some technical know-how or support during the installation is required.
In Conclusion
Let’s wrap up AP/AR automation ROI for SMEs by talking about the real bottom line. It’s not just having fancy software to implement AP/AR automation best practices; it’s a smart investment with a truly compelling return.
Consider this: cutting the time it takes to do things manually directly translates to real cost savings. Accelerating invoice processing and payment collection drastically enhances your cash flow, making your business enjoy healthier working capital. These aren’t minor adjustments; they are dividends that pay out in operational efficiency and fiscal health.
If you’re an SME looking to tap into this kind of ROI and streamline your financial processes, from supplier payouts to buyer solutions and beyond, a consultation with the experts at FAUREE is a powerful next step towards realizing those benefits.
References
- AP Automation ROI: Types, Benefits & How To Calculate It
- Key findings: ROI study of accounts receivable automation | Billtrust
- Tips to Optimise your AP/AR Strategy for a Better Cash Flow | Kolleno
- Top 11 Benefits of Accounts Receivable Automation | NetSuite
- Reducing AP Cost: Efficiency and ROI with AP Automation