Accounts Payable

Amid Economic Uncertainty, What’s Next for Accounts Payable?

August 12, 2022

Man deep in thought beside signs of economic downturn

Estimated Reading Time: 5 minutes

Ever feel like you’ve spent more time responding to external factors than internal initiatives over the last few years? You’re not alone.

Business decisions have been impacted by COVID, the Great Resignation, inflation, global unrest following the invasion of Ukraine, and supply chain issues resulting from China’s Covid-Zero policy…to name a few. It’s no surprise that nearly 75% of CFOs view economic uncertainty as the top challenge their organization faces.

Manual AP processes can magnify that uncertainty, but with a few upgrades it can help build a solid foundation for the future. Here are some of the challenges and potential opportunities for accounts payable amid an uncertain economic future.

The Challenges

Manual AP errors are more common (and expensive) than you think

You might be surprised to learn more than 85% of small and medium-size enterprises manually process invoices. You’d be less surprised to learn a great deal of human error accompanies manual processing. According to research, nearly 90% of spreadsheets contain inaccuracies.

While disruptions in the supply chain and staffing challenges can create financial challenges, the costs of manual data entry errors are every bit as real and immediate.

The London Olympics provides a perfect example. In that case, an employee accidentally entered “20,000” tickets instead of “10,000” tickets in a financial spreadsheet, causing the committee to sell 10,000 tickets to seats that didn’t exist. While not every error is as high profile as that, these blunders can be challenging and problematic, and they are difficult to avoid when individuals and small teams are working manually with a large volume of data manually.

Manual AP done right is expensive too

It’s not just errors that drive up accounting costs. In a manual AP process, labor drives up the cost of processing invoices. One AP clerk processing invoices full-time at $20 per hour (approximately $3,440 per month), processing between 300-400 invoices monthly costs your business about $9-12 per invoice.

There is an equation you can apply to your own operation to get a full sense for the true cost per invoice – total cost of processing an invoice divided by the total number of invoices processed over a given period.

To get this figure, you need to determine the labor cost spent processing each invoice, the associated infrastructure cost (for tools like ERP), the cost of supplies (like paper and ink), and any transaction fees you may receive from the bank. Add all costs together, divide them by the number of invoices over a given period to determine the average amount spent on each invoice.

When you consider your cost of manually processing invoices when things go perfectly, it’s clear how quickly costs can balloon when mistakes are made and, in unfortunate cases, fraud occurs.

Manual AP is vulnerable to fraud

The more your process relies on manual input and oversight, the less control and visibility you have. And that makes your business more vulnerable to fraud. Studies show the average company loses 5% of its annual revenue to fraud.

One example is Providence Water Supply, which experienced an employee expense fraud to the tune of more than $13,000 when a purchasing supervisor used their company card to buy personal items over the course of 20 years. After the employee was found to have made a $155 purchase – which was paid back – officials opened an audit and found a long line of fraudulent transactions.

Finding a Solution

In times of economic uncertainty, your bottom line is viewed with increased scrutiny. The challenges listed above create a series of costs – predictable and unpredictable – many organizations can’t afford. Automating AP addresses each challenge and helps lower costs, increase efficiency, and protect your company from fraud.

What is AP automation?

AP software automates your entire process in one system. It incorporates the data entry benefits of OCR technology to upload invoices, combined with the ability to receive, store, route, and process documents electronically. It allows automated purchase order matching and routes invoices through to the correct approver. Once approved you can pay vendors electronically. Lastly, you can manage employee expenses in the same system.

Reduce costs

AP automation helps you reduce expected costs by replacing inefficient processes. Reducing data entry, centralizing document storage, removing paper, and giving staff more time drives down the recurring cost of manual processing significantly.

Organizations that have implemented an AP software solution have experienced an 83% reduction in data entry time over manual processing. That cuts the average processing cost per invoice from the previously mentioned conservative estimate of $9-12 to $3 or less.

Prevent fraud

An AP automation solution can help also help protect you from internal fraud by allowing you to segment and separate duties in the approval process, ensuring the person who approves invoices and the one who makes payments are not the same.

Employee expense reports are another major source of internal fraud – illegitimate expenses or overstating costs, for example. Preventing this type of activity starts with a well-defined reimbursement policy, which automation can support. AP software can segregate duties, ensuring the person who reviews expenses is not the same as the one who distributes the funds.

Easy access to AP data

A big benefit, especially relevant right now, is easy access to AP data. A recent study, conducted with 225 CFOs worldwide, found 54% had implemented automation of some kind. Those companies performed better on agility, insights, and efficacy, and are in a better position to make remote payments.

In addition to the clear financial benefits of automation, the ability to easily report on spending and liabilities in real-time and find documents faster can help your finance team perform at a higher level across the board. Bottlenecks like standing approvals are much easier to track online than track down in person.

Reducing costs is likely a topline priority as we stare down an uncertain economy, but the ability to do so while also improving your department’s overall processes will carry you to a position of strength in any economy.


newsletter signup
Straight To Your Inbox

Stay up-to-date on top accounting and finance trends

Sign up for our newsletter and receive our latest resources, news and insights.

Learn More About Beanworks

Discover how AP automation can free your accounting team from manual data entry, delays, and paper-based processes.

View Our Product