AP Automation ROI: Benefits & How to Calculate

Stacks of paper invoices, tedious data entry, and surprise late payment fees are still an unfortunate fact of life for many accounts payable (AP) teams today—even as cloud technology makes straight-through automation of AP processes accessible to organizations of all sizes. The trick for many organizations wishing to transition from manual AP to fully automated is in justifying the expense with hard numbers. ROI calculations can help an organization create a clear and practical breakdown of potential savings in counterpoint to how much they’ll spend on the technology.

What Is the ROI of AP Automation?

The ROI of AP automation is the business value achieved by investing in automating AP processes. Guided by the ROI formula, an AP automation ROI analysis juxtaposes the costs of implementing and operating automation technology against the tangible savings and intangible benefits experienced by the organization.

Tangible savings—often referred to as direct ROI—are easier to measure and calculate through traditional ROI formulas. These savings are often derived from reduced processing costs and fewer late fees. Intangible benefits—AKA indirect ROI—are harder to estimate exact dollar values but should also be included in the financial analysis. They can include better process transparency and happier staff, which can improve an organization’s retention rate. Most ROI calculations for well-executed AP automation initiatives find that they quickly pay for themselves in tangible savings and deliver many intangible benefits in the process.

Key Takeaways

• AP automation reduces invoice processing costs by helping organizations reduce time-consuming manual tasks and minimize costly invoicing errors.
• Automation speeds up invoice cycle times, unlocking early-payment discounts and helping AP teams cut down on late fees.
• AP automation can deliver timely information for managers’ decision-making and rigorous audit trails for compliance requirements.
• Automation can also deliver intangible returns in the form of stronger vendor relationships and healthier employee morale.

AP Automation Explained

By replacing manual data entry with automated workflows, AP automation helps companies process higher volumes of invoices without increasing head count. It can also imbue organizations with greater confidence in the timeliness of payments and the accuracy of their AP financial data. With AP automation, digital workflows handle the most repetitive parts of the invoice-to-payment process, reducing the need for human intervention.

Key elements of AP automation include:

• Electronic invoice capture: AP automation converts invoices into digital data, regardless of whether those invoices arrive by portal, email, or postal mail. Some systems use optical character recognition (OCR) and AI to accurately extract invoice details, such as vendor name, dollar amounts, and PO numbers. The system then transfers that information into accounting systems without a staffer needing to key it in.
• Workflow automation: Once digitized, invoices progress through a predefined approval workflow that is customized for the business. Software routes every invoice to the correct approver, based on rules that consider elements like the invoice amount or the department doing the purchasing. It can also be configured to send notifications and reminders, as needed. This automation helps avoid such situations as an invoice sitting forgotten on someone’s desk and maintains clear audit trails that show who approved what, and when.
• Automatic matching: AP automation can automatically match invoices to purchase orders and receiving documents to verify accuracy. If everything matches, the system can mark the invoice as approved for payment without any human intervention; if there’s a discrepancy, the system flags it for review. This automated two-way and three-way matching minimizes errors while maximizing efficiency.
• Payment processing and reconciliation: Once approved, payments can be scheduled and executed automatically for payment on or before the due date, using the preferred payment method determined by vendor contract terms. Automation helps organizations make payments on time and can be tuned to capture early-payment discounts. Some systems immediately record each transaction in the accounting system and reconcile payments with bank statements, simplifying month-end closes.

The ROI of AP Automation

AP automation activates savings and benefits that generate both direct and indirect ROI. In terms of direct ROI, for example, one recent study showed that automation can propel best-in-class AP departments to a per-invoice processing cost savings 78% lower than their peers. AP automation can also yield indirect ROI in the form of secondary benefits that improve operations, morale, or customer relationships. These eventually affect the bottom line as well, but they take longer to be felt and are harder to measure. Nevertheless, they also can stimulate significant value for the business.

Direct ROI

Direct ROI refers to easily measurable financial gains that immediately improve a company’s income statement. These include:

• Labor savings: AP departments can drastically slash their manual workloads by turning invoice data entry, matching, approvals, and payment processing over to automated software. Improved accuracy of automated processes also lessens the amount of time spent fixing errors and answering inquiries about discrepancies from suppliers. Industry research suggests that highly automated AP departments can cut time spent on inquiries in half. All those saved hours add up to substantial labor cost reductions over the course of a year.
• Manual error reductions: Human data entry, manual approval, and manual payment processes inevitably lead to mistakes. Keying in invoice information can introduce typos or incorrect coding, and shuffling papers from one place to another can result in lost or misfiled invoices. Automation can shrink the risk of errors and enforce validation rules, saving companies from the costly headaches of rework, overpayments, and late fees.
• Early-payment discounts: Many suppliers offer discounts when invoices are paid early. A typical discount could be somewhere in the realm of 1% to 2% of the invoice if it’s paid in 10 days instead of the usual 30. AP departments that still rely on manual processes often struggle to consistently take advantage of these opportunities. For example, manually run departments could have invoices still waiting for approval by the time the discount period expires. By speeding up invoice processing and approvals, AP automation makes it easier to capture those savings. Even a 1% discount can add up to large savings when aggregated from a large volume of payables.
• Decreases in late payment fees: On the flip side of early-payment discount savings, AP automation also helps companies cut costs associated with late payments. Missing payment deadlines results in late fees, interest charges, and unhappy suppliers. But with AP automation, the problem of invoices falling through the cracks or getting stuck in a large approval queue while someone is on vacation should become a relic of the past.
• Fewer duplicate and fraudulent payments: AP automation can significantly reduce the cost of payment errors and fraud. It does so by introducing matching and approval controls that prevent duplicated or erroneous payments. These automated systems will flag any invoice that appears to be replicated or doesn’t match a valid purchase order. Some systems can also spot invoicing anomalies that might indicate fraud, such as an invoice from an unknown vendor or amounts that regularly fall just below approval limits.
• Savings from e-invoicing: The shift to automated AP is typically done in tandem with initiatives to move suppliers and payment systems toward electronic invoicing and payments. Establishing standards and systems for receiving invoices electronically—either through email or an online portal—cuts down on material and processing costs. It also curtails risks of late payments and saves on physical storage space and filing supplies, since digital archives replace file cabinets filled with hard-copy invoices.

Indirect ROI

The secondary benefits of AP automation may not immediately show up as line items on financial statements, but they still contribute valuable indirect ROI over time. Some of these include:

• Enhanced audit trails: AP automation creates a digital paper trail for every invoice and payment. All actions—from receipt of invoice to payment—can be logged with time stamps and user IDs. This comprehensive recordkeeping reduces the cost of compliance in a number of ways. For example, such detailed and thorough record retention helps companies meet regulatory requirements consistently. Plus, digital archives make it easier to search for and pull data when auditors ask for it, increasing the speed and success of every audit.
• Better visibility: Detailed recordkeeping and accessibility of payment data isn’t just good for auditors—it also affords an excellent level of visibility to business stakeholders. Managers and controllers can see the current status of any invoice through dashboards and reports. And the finance team can get a better sense of cash outflows with the click of a button, as automatically collected data fuels reliable and consolidated views of outstanding payables, aging reports, and expense trends. This level of detailed reporting is rarely available when payments are processed manually.
• Increased efficiency: AP automation speeds up payment cycle times and enlarges processing capacity. What once took weeks to complete can often be done in days or hours. The most recent research shows that organizations with limited automation average 17.4 days to process a single invoice, whereas a highly automated firm averages just 3.1 days. These faster processing times generate cascading benefits: Payments become timelier, the accuracy of real-time financial data increases, AP staff and approvers can focus on more meaningful work, and the team can handle a higher volume of invoices at the same time. Increased efficiency is especially vital during growth periods or at end-of-month closing crunches.
• Improved vendor relationships: AP automation can build greater supplier long-term loyalty through reliable patterns of timely payments and transparency about payment timelines. Some AP systems also provide self-service vendor portals and automated communications that add further reassurance, which helps companies enhance their supply chain stability. Plus, having a reputation for being trustworthy about payments can help an organization negotiate better rates and terms from suppliers that know they’ll be paid promptly.
• Increased employee morale: Automating AP processes can make for happier employees. AP teams are known to dread the kind of repetitive, low-value tasks associated with manual invoice processing. Shifting employee focus to more fulfilling strategic work can increase job satisfaction and erase burnout. One recent study showed that 75% of AP professionals believe that the use of automation would have a positive impact on their career, and 94% express enthusiasm about using a tool to automate the most repetitive parts of their jobs.

How to Calculate the ROI of AP Automation

Calculating the ROI of an AP automation project involves juxtaposing the investment costs against the resulting savings accumulated over a given period. Disciplined organizations use ROI estimates to justify their initial investment and to calculate a payback period for that investment. By establishing a baseline of payment metrics prior to implementation and tracking those metrics afterward, a company can figure out if real-world ROI lives up to the original promise.

Following these steps can help build a business case for AP automation:

1. Establish a baseline: Quantify how much the AP process costs today, without automation. Include all relevant expenses during a given time period, which is usually a year of activity. The baseline should include labor costs; other operating costs, such as office space and equipment; and fees or losses from late payments or missed discount opportunities. Many organizations “shorthand” this benchmark by using a cost-per-invoice metric that totals all AP costs over the course of the year and divides that amount by the number of invoices processed in that year.
2. Estimate the benefits of automation: Project a new total AP cost after implementing AP automation. Vendors often provide estimates or ROI calculators—but to perform an independent calculation, businesses usually start by making conservative estimates for each area of savings. That would include labor and time savings, reductions in errors and duplicate payments, early-payment discounts, reduced late fees, papers and storage savings, and the value of expected indirect benefits. The anticipated annual savings is the sum from all those sources.

3. Calculate net savings: Next, determine the annual cost of the automation solution. Costs may include software subscription or license fees and implementation costs spread over a few years, such as those for amortization, training, and any ongoing maintenance or support fees. ROI is then computed using the classic formula that expresses ROI as a percentage:

   ROI = [(Annual savings – Annual costs) / Annual costs] × 100

   For example, if an analysis shows the automation will save about $25,000 per year and the yearly cost of the software is $15,000, then ROI = [($25,000 – $15,000) / $15,000)] × 100 = 67%. A positive ROI indicates that the savings outweigh the costs; the higher the percentage, the more attractive the return.

4. Consider the payback period: Another way organizations look at ROI is by considering how long the investment will take to pay for itself. In the above example, the net savings per year is estimated to be $10,000, so the payback period would be $15,000 / $10,000, or 1.5 years. This provides another way to justify the investment to the organization’s senior decision-makers.
5. Validate and track actual results: Calculating ROI in advance provides a forecast that can be used to help evaluate the actual ROI realized by the company. To do this, track the same metrics as those that were used to establish the baseline. Showing a reduction in cost-per-invoice and demonstrating ROI in line with the forecast can validate a good implementation. If the ROI is not performing as expected, an analysis of where the gaps are can provide an opportunity to adjust processes or address adoption issues that could be hindering savings.

Presenting concrete numbers for expected savings can help gain buy-in and will offer built-in accountability for results after implementation.

AP Automation ROI Key Metrics to Track

In addition to the key metrics used for comparing the organization’s estimated AP automation ROI against its actual ROI, others are only possible after automating. AP organizations can offer greater depth of accountability by tracking the following broader AP KPIs. These metrics offer insights not only into savings realized by automation initiatives, but also into the impact on cycle time, error and fraud rates, and usability.

• Cost per invoice: This is the premier KPI for tracking efficiency and ROI of AP process improvements. It measures the average cost to process one invoice from receipt to payment, including labor and overhead. Tracked over time, a declining cost per invoice will show AP automation is yielding savings. To calculate cost per invoice, divide total AP processing costs by the total number of invoices processed.
• Percentage of invoices paid on time: This metric tallies the share of all received invoices paid by their due date. The higher the rate, the more likely it is that AP processes are running well. To calculate it, divide the number of invoices paid on time in a specified period by the total number of invoices paid in that period and multiply the result by 100. A variation of this KPI is discount capture rate, which measures the percentage of all available invoices with early discount offers that were paid in time to obtain the discount.
• Exception rate: Exception rate is the percentage of invoices that require manual intervention due to errors or other matters, such as missing information, mismatches, or approval holdups. The opposite of this rate would be the rate of invoices passed “straight through” using automation. Either one used consistently is an excellent barometer of the effectiveness of automation and can be used over time to show progress as automation components are rolled out. To calculate: Divide the number of invoices with exceptions by the total number of invoices processed in a period, then multiply the result by 100.
• Duplicate payments detected: This KPI counts the number of duplicate invoices or payments that are detected by the system within the volume of payments made during a given time. It is difficult to establish a baseline for this prior to automation, but it’s worth tracking once the visibility exists for it. A decreasing trend indicates money saved over time. To calculate: Divide the number of duplicate payments detected by the total number of payments made in a period, and multiply the result by 100.
• Invoice processing cycle time: Sometimes called “invoice lead time” or simply “time to process a single invoice,” this KPI measures the average time needed from receipt of an invoice to its payment. The shorter that span, the better, as long cycle times tie up resources, lead to missed discounts, and risk late payments. The lags can also strain relationships with otherwise loyal suppliers. This time gap can stretch longer than two weeks when monitored manually, but automation can cut that time frame down to days. The calculation is the total time for processing all invoices in a period divided by the number of invoices processed in that period.
• Invoices processed per FTE: This is an efficiency measure meant to show how many invoices each employee (or “full-time equivalent”) can handle using the existing processes. Measured before and after automation, this provides an excellent litmus test for how well the automation project boosted productivity—invoices processed per FTE should rise dramatically post-implementation. To calculate, divide the number of invoices processed in a period by the number of AP staff (or invoice processors).
• Days payable outstanding (DPO): DPO is a standard financial metric that tracks the average number of days the company takes to pay its suppliers. It’s calculated based on AP balances and cost of goods sold (COGS). Depending on business goals, automated AP systems can be tuned to maximize or reduce DPO. For example, some companies may want to stretch out DPO for cash management, which means automation can be aligned with payments made exactly on time to optimize cash flow. But if achieving discounts is the goal, then automation can be tuned for shrinking DPO. To calculate, multiply the value of AP at the end of a period by the number of days in the period, then divide the product by COGS.
• User adoption rate: This is a metric for AP managers seeking to understand how fully the automation system is being used by the AP team and by approvers, vendors, and other stakeholders. Full adoption of automation technology is crucial to maximize its ROI. If ROI realities aren’t meeting expectations, this metric could offer some clues as to why. Adoption rate can be expressed in a number of ways, including the percentage of total invoices processed through the new system or the percentage of staff actively using system features.

Best Practices for a Smooth AP Automation Implementation

Technology provides just one piece of the puzzle for achieving AP automation success. Organizations should also transparently communicate their plans to help get AP employees on board, design processes and data standards that support smooth automation, and commit to measuring performance to continually improve automated processes over time.

Here are more details on best practices for orchestrating a successful AP automation deployment:

• Address common concerns early: Help team members understand the value automation will bring to their daily work right out of the gate. Alleviate worries about job loss or anxiety over new processes by emphasizing that automation takes on the most tedious tasks. Collaborate with workers to discuss how their roles can evolve as manual work is eliminated.
• Make sure stakeholders understand the value: Gain stakeholder buy-in at every level of the organization by clearly communicating the value and ROI of AP automation. Tailor communication of benefits to the audience, focusing on cost savings and insights for executives, greater transparency for those focused on compliance, reduced workload and fewer errors for AP staff, and less hassle for approvers.
• Identify internal champions to encourage user adoption: Choose a few well-respected people in relevant departments to be AP automation champions. These could include potential power users in AP and finance, as well as department heads who approve invoices. Involve them in early discussions about requirements and development to give them agency in discussions about solution selection. Keep them involved in implementation and training, so they become knowledgeable, influential, and approachable peers ready for user questions as the new system rolls out.
• Invest in user training: Be sure to allocate sufficient time and resources for training AP staff and other stakeholders involved in the system’s invoice approval process. Training should cover not only the technology but also new policies and revamped workflows. Vendor and supplier training should be part of this regimen, too. Suppliers need to know how to submit invoices to the new system and how to access self-service portals. This is one of the most crucial practices for boosting user adoption and maximizing ROI.
• Choose the right software: The right AP automation solution for a company depends on how well providers can handle necessary invoice volume and complexity, as well as compatibility with existing financial systems and broader ERP implementation. Look for features that are easy to use and that meet workflow requirements. Be sure to seek out modern AP platforms that effectively use AI to build out smarter, more reliable automations.
• Standardize data sets and workflows: The transition to AP automation offers a perfect opportunity to standardize and clean up AP data and processes—and, in fact, successful automation demands this discipline. Automation works best when it is feeding on consistent information that follows defined rules. Start cleaning up vendor master data by deleting duplicate entries and verifying important information. From there, update coding rules for invoices and define approval processes as clearly as possible. These steps lay the foundation for an automation project that genuinely improves AP workflow.
• Enable audit trails and compliance standards: AP systems can generate detailed audit trails for compliance tracking, but this level of recordkeeping often requires configuration and activation depending on the platform. Though all systems are different, this may warrant features like approval logging, user permissions, and audit-trail tracking. In addition, configure the system to enforce compliance rules and follow stated company policies. For example, if the policy states that a valid PO is required for every invoice, then set the system to flag any invoice without a PO.
• Test before go-live: It’s important to test the system in a safe environment before a hard cutover to production. Test the system on a variety of real-life invoice scenarios, such as different supplier formats, varying amounts invoiced, and tricky cases that include credits or partial receipts. Have internal champions start exploring the platform to be sure that the interface and workflows function without any glitches. Also consider processing some invoices in parallel through both the automated process and the old manual method, then compare results. Use test results to tweak configurations and validate the rollout before going live.
• Practice continuous improvement: The best AP automation implementations actually launch a long-term series of improvement cycles. Once going live, monitor KPI metrics and gather feedback from users. Use the findings to adjust workflows and configurations in a way that always maximizes ROI gains. Be sure to communicate the wins—and the savings—to stakeholders.

Maximize AP Productivity With NetSuite

NetSuite AP software offers a seamless automation experience for payables teams. It automates invoice capture, invoice review, approval, and payment. Using OCR and AI, NetSuite Bill Capture lets AP teams drag-and-drop vendor invoices from emails for automatic entry into the system. From there, the software can automatically conduct three-way matching against POs and receipts, flagging mismatches to prevent erroneous payments. NetSuite’s automated approval processes route requests to managers for one-click approval, even on mobile devices, with automatic scheduling of approved payments via ACH or other preferred methods. It’s an end-to-end productivity boost that helps AP teams speed up cycle times, cut costs, and minimize errors.

The ROI of AP automation is driven by a healthy mix of tangible savings and valuable secondary benefits. When done right, an AP automation implementation will pay for itself quickly and can continue to deliver returns for many years to come by delivering more efficient operations, stronger controls, and an agile finance function. For AP managers and controllers, AP automation provides an opportunity to turn a back-office task center into a source of savings and sound financial data for the company.

AP Automation ROI FAQs

Is AP automation worth it?

Yes. Recent research has shown that automated, best-in-class AP departments can achieve per-invoice processing costs that are 78% lower than the average for all AP teams.

How much does AP automation software cost?

Cloud AP automation tools are subscription-based, sometimes costing as little as a few hundred dollars a month for smaller teams and scaling up for high-volume organizations. Look out for vendors that add hidden per-invoice surcharges.

How does AP automation work?

AP automation captures invoice data using AI and OCR, matches each invoice to its correct PO, routes them to managers for electronic approval, and then schedules secure electronic payment. The systems can also log all that activity as it happens, which helps ease the compliance workload.