Accounts Payable Automation: A Smart Choice for CFOs to Achieve Return on Investment
For CFOs seeking a positive return on investment through digital transformation, automating accounts payable (AP) functions may be one of the most reliable paths. Drawing on Medius's 2022 global research and the practical case of Tuff Shed, this article analyzes the multiple benefits of AP automation in reducing operational costs, decreasing staff turnover, improving cash discount utilization, and preventing invoice fraud, and points out that it helps alleviate pressure on finance teams and frees up human resources to focus on strategic priorities.
Editor's Note:Branden Jenkins is the Chief Operating Officer of Medius, a Jacksonville, Florida-based company that provides accounts payable automation solutions. The views expressed in this article are solely those of the author.
For CFOs looking to make an impact through digital transformation and achieve a positive return on investment, automating accounts payable (AP) functions may be one of the most reliable paths.
Beyond cost savings, automating AP processes also saves valuable time. Tuff Shed—a Denver-based manufacturer and installer of storage buildings and garages—provides a great case study. During a webinar last year, David Pott, Tuff Shed's accounting director and corporate controller, described how the company replaced its old paper-based AP system with an automated one in just six months, enabling invoices to complete the entire workflow in an average of four to five days.
A 2022 survey conducted by Medius (which polled 2,750 senior finance executives globally) showed that 24% of respondents expressed concern that colleagues in their department were about to leave, highlighting the pressure on current finance teams and hinting at the potential benefits AP automation could bring.
Reducing Operating Costs and Employee Turnover
Automating AP processes enables smarter budget spending. By reducing the time, labor, and resources needed to manually process potentially thousands of invoices each month, business leaders have more room to evaluate how to use their budgets. By minimizing the time required for AP functions, CFOs can redirect these resources to other strategic initiatives that can quickly drive growth and profitability.
Implementing automated AP also helps retain talent and avoid recruitment-related costs. For example, according to Pott, AP software significantly reduced the administrative burden on Tuff Shed's 17-person accounting team, eliminating the need to add staff and boosting team productivity.
Improving Returns and Early Payment Discount Utilization
Timing is critical when it comes to payments and optimizing cash flow. According to Medius research, most businesses (81%) offer early payment discounts, and nearly all companies (98%) want to take advantage of this benefit. In practice, however, very few companies actually use these discounts, with only 39% reporting that their finance teams take advantage of them. The gap stems from cumbersome manual processes.
Medius found that finance teams take an average of 23 days to approve an invoice payment, making it nearly impossible to meet any early payment discount deadlines. This lengthy turnaround time results from manual communication and invoice standards between suppliers and buyers, consuming an average of five hours per week for finance professionals.
Introducing AP automation enables finance and procurement teams to focus on expanding the number of suppliers and the scale of spending in early payment programs. Automated AP also shortens cycle times and costs with suppliers. Consistently processing and paying invoices faster has been shown to maximize participation in supply chain finance programs, as suppliers choose to join extended payment term programs.
Reducing Errors, Overpayments, and Invoice Fraud
When processing thousands of invoices, artificial intelligence and automation are more rigorous than manual management. Overpayments, costly errors, and fraud are persistent threats that erode corporate profits and are especially prevalent in manually managed processes. Meanwhile, with the introduction of AI, cyber fraudsters and other threat actors have become more sophisticated than ever. Complex manual invoice processes and chaotic paper records provide these fraudsters with opportunities. So why hand over the keys to the corporate castle to financial criminals?
Medius's survey found that 34,000 invoice fraud cases were discovered within 12 months (and these are only the ones that were detected). A quarter of finance professionals do not know and cannot estimate how much invoice fraud costs businesses. In this case, ignorance is not bliss—this fraud is costly. Among companies that identified internal invoice fraud, average annual losses reached $280,000.
At a time when the CFO's office faces unprecedented pressure and strain, automating AP processes helps alleviate burnout and gives accounting team members the opportunity to focus on more dynamic priorities.