The benefits of full AP automation in the real estate space are proven. Yet most AP departments operate in a manual or semi-automated environment. Why the disconnect?
AP departments are unsure of how to build a business case for automation. To get you started on the path towards full automation, here are three steps to building a business case:
Step 1: Cover all your bases
A business case for full AP automation should include three key elements:
- Hard savings: labor costs, physical document storage and retrieval, software licenses, etc.
- Soft savings: faster cycle times, efficiency improvements, enhanced supplier relations, etc.
- Risk mitigation: fewer lost or misplaced invoices, better document tracking and control, less onerous and error-prone compliance and tax reporting processes, streamlined reporting, etc.
The sections on hard and soft savings should include conservative, moderate and aggressive estimates so senior management can determine the best-case and worst-case scenarios.
Step 2: See where you stand
You can’t fix what you can’t measure, the old saying goes. But most AP departments do not know their current invoice processing costs – one of the most critical metrics to cost-justifying automation.
While developing your business case, be sure to calculate your current processing cost-per-invoice, considering any overhead (e.g. utilities, rent, third-party scanning and data capture services), as well as the proportion of your invoices that is non-PO based, which typically cost more to process.
Here is a formula for determining your current invoice processing costs:
Annual invoice volume (#)
AP full-time equivalents (#)
Average AP FTE compensation and benefits ($)
Total AP cost ($): (AP FTEs x average compensation and benefits) + any overhead
Cost per invoice = $ total AP cost/# of annual invoices
Step 3: State your case clearly
Once you have drafted your proposal for full AP automation, create a summary page highlighting the hard and soft savings, risk mitigation and the assumptions (e.g. invoice processing costs) used to create them. You want the potential benefits of AP automation to be clear to senior management.
Your business case for full AP automation also typically requires various financial measurements, such as return on investment (ROI) and total cost of ownership (TCO) to be estimated. Determine which measurements your senior management requires in a business case for AP automation and be sure to prominently feature them in your proposal and on its summary page.
Using these three steps will help win senior management’s approval of your automation investments.