The Economics of AP Automation
Reducing Costs, Improving Efficiency
and Driving Down Risk
by Christopher Ryan
Table of Contents
The Automation Imperative
— How to Blend People, Process and Technology................................. 2
Primary Invoice Processing Metrics ................................................................3
The BPO Mode of Improving Critical Business Performance
How Much ROI Can You Expect — Four Scenarios.................................... 6
Best Methods to Quickly Drive AP Cost-Effectiveness ............................. 7
How to Mitigate Financial and Operational Risk........................................ 8
The AP Automation Solution from StylusAP ............................................... 9
Frequently Asked Questions ............................................................................. 9
Next Steps ..............................................................................................................10
About StylusAP ....................................................................................................10
Solution Paper
© Copyright 2009 SpringCM 1

The Economics of AP Automation
The Automation Imperative — How to Blend People, Process and Technology
If Benjamin Franklin was correct when he said “A penny saved is a penny earned,” then you will earn a
great deal for your organization by following the strategies and tactics in this solution paper. Almost every
organization, from large corporation to small business, from public sector to nonprofit, has an imperative
to save money on its operational processes, to do things less expensively, to accomplish more without
increasing headcount, or (unfortunately), to keep up with the workload despite reductions in staff.
When economic times are good, companies have a ten- Is it possible to use the right blend of processes, technology
dency to get sloppy in their procedures, to let things pass, and people to cut costs, streamline processes and reduce
to throw more people at a dysfunctional system to mask the risks in your invoice operations, all at the same time? The
inefficiencies instead of attacking the underlying problems, answer is yes, but only if you understand the metrics of
thus proving the old maxim, “Rising revenue can cover AP automation, create a specific and measureable plan for
many other sins.” However, what was acceptable a few streamlining your invoice processing, and implement that
years ago is no longer acceptable today. And if you do insti- plan the right way. But for most of us, doing nothing is no
tute the right policies and technologies to see you through longer an option, and the single most important thing you
the tough times, can do to get your
your organization program on track
will be that much is to reduce the
stronger when a number of manual
strong economy processes through
reappears. automation. This
is the Automation
If you need one
Imperative.
more reason to
care, then please The Automation
read this often-re- Imperative was
ported statistic from described in a ses-
the Gartner Group sion at the 2009
very carefully: a 5 Forrester Research
percent reduction IT Infrastructure
in operating costs and Operations
has the same P&L Forum - Automat-
impact as a 30 per- ing Process Ex-
cent increase in sales. And while it is beyond the scope of ecution for Agility and Efficiency: “Automation is the key to
this paper to show you how to get a five percent reduction operational excellence because exploding complexity has
in your overall operating costs, we can and will show you rendered traditional methods ineffective. Automation is an
ways to reduce your invoice processing expenses by 50 evolutionary path that incorporates both technology and
percent or more. process. It is not an audacious, technological “big bang” for
wholesale staff replacement. “
As is true with many other areas of operational excellence,
there are three legs to the stool of improving Accounts Pay- Let’s have a look at how the Automation Imperative can
able Automation effectiveness: Processes, Technology and profoundly impact the costs of your accounts payable op-
People. eration. Note that the cost per invoice ranges are compiled
from averages from four excellent sources of information on
© Copyright 2009 SpringCM 2

The Economics of AP Automation
the impact that automation has on the effectiveness of ac- Primary Invoice Processing Metrics
counts payable/invoice processing operations, including: Let’s begin with what I call the Big Five Metrics of Invoice
• Aberdeen Group Processing.
http://www.aberdeen.com
Core Metric 1: Cost per Invoice – At SpringCM we talk to
• Paystream Advisors many organizations (corporations and public sector) about
http://www.paystreamadvisors.com
AP automation. A very small fraction of these companies
• International Accounts Payables Professionals have a good handle of what they are paying to process
http://www.iappnet.org each invoice. There are two ways to calculate the cost per
• Institute of Management and Administration invoice. First is to take the total departmental spend (includ-
http://www.ioma.com ing allocated overhead amounts) and divide by the number
While each of these organizations uses different method- of invoices processed. For example, if your total depart-
ology to measure the cost of invoice processing, they all mental spend is $20,000 per month and you are processing
agree there is a large gap between those organizations who 2500 invoices per month, the cost per invoice is $8.00.
are highly automated (best-in-class), moderately automat- Sometimes, the total number is not readily available so
ed (average) and non-automated (laggards). Almost every you have to calculate the amount from the bottom-up. In
study agrees that the best-in-class organizations process this case you must find every expense related to invoice
invoices for only one-fifth to one-half the cost of average processing (including exception management and vendor
companies and a staggering one-tenth the cost of laggard inquiries) and divide the total by the number of invoices pro-
companies. This is what is meant by the Automation Im- cessed. Here are the costs you should look for:
perative — it is a call for you to become efficient, to become
• Labor, including managers, supervisors and approvers
effective, and to stop other organizations from gaining or
(allocated if necessary)
sustaining a competitive advantage.
• Technology, including amortized costs for the software,
hardware, network, maintenance, training, customization,
integration services, etc.
• Telephone, paper, postage, fax, shipping services
• Paper and computer storage costs (for in-process and
completed transactions)
• Overhead expenses
• Bank processing charges
Core Metric 2: Time to Process Invoices – Since 90 per-
cent of the costs of a manual accounts payable operation
is in labor costs, the expression “time is money” is very ac-
curate. The time-to-process statistic refers to the average
time from when an invoice is received until it is scheduled
for payment — not necessarily paid, as this is dependent on
your particular payment policies.
Now that we’ve discussed the Automation Imperative and There is one exception where the cost per invoice and time
benefits, let’s talk about measurement criteria and method- to process invoice metrics could send you down the wrong
ology. path. Noted AP expert Nat Goodman pointed out in a re-
© Copyright 2009 SpringCM 3

The Economics of AP Automation
cent Web event that when he ran a large AP operation he Here are a few best practices concerning AP Automation
was able to consolidate 1000 invoices from Federal Express metrics:
into one monthly invoice. In this instance, the cost and time
1. Measure, but don’t take it to an extreme. Establishing a
to process that invoice went up but the total spending on few basic measurements that are easy to capture and
invoice processing went down. This example proves the monitor are better than dozens that are difficult and time
adage that for every rule there is an exception. consuming to compile.
2. Make sure that your measurements are actionable. In
Core Metric 3: Paid Within Terms – the percentage of in-
other words, don’t measure things that you cannot take
voices that are paid within specified terms. Note: this can
action upon.
be supplier-based terms or internal metrics, but either way,
3. Let your staff know what you are measuring. Don’t make
the ability to perform within the specified parameters is a
your metrics a secret and use them to catch people
hallmark of efficient accounts payable operations. The idea
doing the wrong thing. The numbers should be seen as
is that you are not a victim of outside circumstances, but motivational and not designed for retribution. By using
rather fully in control of your own destiny (at least as it ap- positive increases in the benchmark numbers as targets
plies to invoice processing). to be hit, you can use the power of peer pressure to drive
improved performance.
Core Metric 4: Early Pay Discounts – the percentage of in-
4. Don’t expect to hit your final targets right away, even with
voices where you are able to pay less than the total invoice
automation. Rather, strive to achieve constant incremental
amount. Some organizations are very aggressive about tak- improvement.
ing these early pay discounts, adding a profit component
How seriously do some organizations take their AP perfor-
to the AP Department. These organizations tend to have
mance metrics? For a good example, the link below will
a short Days Payables Outstanding (DPO) number. Others
take you to a chart that can be found on the University of
purposefully neglect to take early pay discounts and instead
Pennsylvania Website. It is obvious that Penn not only be-
choose to pay suppliers on-time or even late, in order to
lieves in creating processing efficiencies, but is willing to
preserve precious cash balances. These companies tend
hold its collective feet to the fire by publishing its perfor-
to have higher DPO numbers. The important thing to note
mance.
is that one strategy is not necessarily better than the other,
but rather that your AP department is able to produce the http://www.purchasing.upenn.edu/supply-chain/perfor-
desired outcome by executing (and measuring) against that mance-metrics.php
strategy.
For other examples of companies that have used automa-
Core Metric 5: Percentage of Duplicate or Erroneous Pay- tion to improve invoice processing performance, visit:
ments – Overpayments and duplicate payments are such
http://www.springcm.com/solutions/accounts-payable
a problem in accounts payable than an entire industry —
AP audit recovery specialists — has been created to deal There you can read about organizations like Chocolat-
with this issue. Duplicate vendor records, blanket purchase eria San Churro, a retailer of specialty chocolates that is
orders, invoice copies, expired vendors and inconsistent one of the fastest growing companies in Australia. Using
invoice numbering procedures all contribute to the prob- the AP Automation solution from SpringCM, Chocolateria
lem, and for some companies, this can be a significant cash San Churro was able to automate every part of its invoice
drain. We have seen companies more than recoup the en- processing function and achieve immediate operational ef-
tire cost of AP automation through reduction in duplicate ficiency gains of over 80 percent. You can also read about
and erroneous payments. Nexcap, whose Director of Operations Heather Mislak, stat-
© Copyright 2009 SpringCM 4

The Economics of AP Automation
ed “SpringCM got our AP solution off the ground very quickly. The Professional Services team’s willingness to understand
and improve our processes exceeded everyone’s expectations. Our SpringCM solution has reduced invoice-processing
time by 25 percent and we’re now equipped to double or triple our invoice-processing capacity.”
Similarly, a case study published by a business process outsource provider (BPO) shows a productivity increase of 70
percent for their audit recovery client after automating their AP processes. Specific areas of improvement reported in the
study include:
Before Automation After Automation
Invoice Tracking 15 per hour 38 per hour
Invoice Entry 5 per hour 7 per hour
AP Review 25 per hour 45 per hour
Invoice Entry Accuracy 65% 99%
Invoice Volume 16K per month 50K per month
As they say, “your mileage may vary” but these and other case studies are good indicators of the type of results you can
achieve with your own automation upgrade.
The BPO Model of Improving Critical Business Performance
by Dan McCue, SVP — Finance and Accounting Services, Sutherland Global Services (www.suth.com)
Business Process Outsourcing (BPO) consists of two cate- If you can answer “yes” to any of these questions, your op-
gories: Back Office outsourcing, which includes internal busi- eration and processes are good candidates for BPO:
ness functions such as finance and accounting, purchasing • Can the process be performed away from the primary
and employee help desk support and Front Office outsourc- business operation? For example physical inventory can
ing, which includes customer-related services such as ac-
only be done at the business site, but reconciling the phys-
count management, customer care and tech support.
ical inventory to the GL can be done remotely.
Both of these categories share a common goal: To improve • Can the source documents and business systems be
critical business performance metrics. The specific tactics accessed remotely? A vendor invoice can be scanned,
employed include: uploaded to a server for access by a person using your
• Cost reduction — BPO Companies can charge less web-based GL system.
for services by providing better technology, improved pro- • Is the process under consideration non-core to your
cesses and access to low cost geographies business? For example entering an AP invoice in most
• Reduction in managerial activities — By managing cases in not core to a business.
transaction processing employees and the potential for as-
sociated employee issues, BPO firms allow companies to
focus on their core business goals
• Improved access to technology and processes —
BPO’s provide turn-key solutions and execution eliminating
the need for companies to employee a staff for non-core
activity
© Copyright 2009 SpringCM 5

The Economics of AP Automation
How Much ROI Can You Expect — 11. Invoices and other docs are stored in disparate locations
Four Scenarios 12. Late payment penalties/duplicate payments; can’t take
The information provided above is compelling but the ques- advantage of early-pay discounts
tion is — How much can your organization save? How 13. No exception-handling process
much more efficient can you be? What can you expect as
a reasonable return on investment (ROI)? While we realize If this is your scenario, your efficiency gain from automation
that every situation is unique, these four general scenarios can range from 100-150%. Your ROI can range from 100-
can help you determine the range of savings and improved 300%.
efficiencies you can achieve.
Scenario 2: Low Automation, High Cost
1. Still mostly paper invoices
2. Some fax or e-mail invoices
3. Limited front-end capture/invoice imaging
4. Documented process for approval but lacks automation
5. May scan images after the invoices are paid
6. No workflow tools (relying on e-mail)
7. No visibility – Error-prone and discrepancy prone
8. Limited process metrics
9. Better vendor relations but lots of staff time needed
10. May have storage issues, on or off-site storage
11. Invoices may not be stored somewhere accessible to all
who need them, no easy way to search for invoices and
related docs
As you review each of these four scenarios, determine 12. Over payments and late payments may be issues
which of these is closest to your current environment.
13. Clunky exception-handling process
Scenario 1: Manual (Non-automated), Very High Cost 14. No ERP integration
1. Paper-based invoices (most or all received on paper)
If this is your scenario, your efficiency gain from automa-
2. Interoffice mail (overnight mail) and faxes
tion can range from 75-100%. Your ROI can range from
3. No front-end scanning of invoices 90-140%.
4. Non-documented and/or chaotic approval methods
Scenario 3: Moderate Automation, Moderate Cost
5. No scanning of paid invoices
1. Mixture of paper and electronic invoices
6. Manual or ad-hoc approval workflow
2. Greater percentage of faxed and e-mailed invoices
7. No visibility/follow-up to inquiries/ no knowledge of
3. Full scanning of invoices up-front
liabilities
4. Documented and automated approval process
8. No process monitoring metrics
5. High percentage of purchase orders with automated
9. No vendor help desk—can’t find records when people call
handling
for status; Questionable vendor relations
6. Automated rules-based/electronic routing and approval
10. Storage issues – where do I put all this paper?
© Copyright 2009 SpringCM 6

The Economics of AP Automation
7. Visibility including audit trails and reports http://www.springcm.com/solutions/accounts-payable
8. Process metrics to enforce performance standards and download the solution paper titled “Best Practices in
9. Limited staff devoted to vendor inquiries and better Accounts Payable.” Here are some steps to consider.
relationships
First, sit down with a knowledgeable AP expert (preferably
10. Paperless processes with no storage issues
an unbiased person outside your company) and map out
11. Ability to easily search for and locate invoices your current processes — in other words, you want to cap-
12. No issues with overpayments or late payments ture the “As is state.” You will then be able to properly plan
13. Smooth and automated exception-handling process
for the “desired state.” It bears repeating again — the more
manual and ad hoc the exiting processes — the greater the
14. ERP integration limited to flat file transfers opportunity for cost savings and efficiency improvements.
If this is your scenario, your efficiency gain from increased
automation can range from 25-50%. Your ROI can range Best Methods to Quickly Drive AP
from 30-60%. Cost-Effectiveness
You might be asking the question at this point, “What is the
Scenario 4: High Automation, Low Cost specific return on investment that I can get from automating
1. Most or all invoices are electronic various aspects of my accounts payable processes?” Glad
2. Invoice data is intelligently captured and extracted you asked, here are the areas of improvement and associ-
3. Front-end scanning and capture of any paper image ated ROI numbers:
4. Automated escalations 1. Leverage the value of your ERP system — Accounting
systems are terrific at processing structured data (e.g.
5. Full/high visibility
numbers and text found in a database), but not very good
6. Precise/finely tuned process metrics at managing unstructured data. Integrating an unstructured
content management system like SpringCM can increase
7. Minimal-to-no staff because you have a vendor dashboard
the efficiency of your ERP/accounting system by 5-20%.
to handle vendor payment inquiries
2. Reduce labor resource requirements — In most operations,
8. Totally paperless environment
labor costs represents up to 90 percent of total accounts
9. Global/24x7 access to all docs and data payable spending. An efficient invoice processing system
can not only vastly reduce the time necessary to process
10. Cash-flow benefits from early-pay discounts and vendor
each invoice but can also reduce the time spent on
negotiations
associated tasks such as vendor inquiries and problem
11. Hands-free exception-handling process; high degree of resolution. Although problem invoices represent only an
automation average of 11 percent of all invoices (according to IDC),
they may take up as much as 40 percent of staff time.
12. Full ERP integration
Total reduction in labor savings can be 30-85%.
If this is your scenario, you have already received the ben- 3. Get rid of the paper — Automated systems require little
efits of automation. Congratulations. if any storage, physical plant, paper, materials, postage
and shipping costs. It is quite possible to virtually eliminate
Assuming that you fall into one of the first three scenarios
these items and achieve savings of 20-90%.
(like most companies), there are several options for you to
4. Decrease/eliminate overpayments and duplicate payments
embrace the Automation Imperative and turn it into your
— We talked earlier about the how erroneous payments
own success story. Naturally, we hope that you will talk with
are a serious issue. Solving this problem can get you a
us about the benefits of accomplishing this with a Web- return on investment in your AP automation system of 10-
based SaaS solution. You might also want to visit: 30%.
© Copyright 2009 SpringCM 7

The Economics of AP Automation
5. Take advantage of early-pay discounts — This is an area SaaS licenses as you go and avoid purchasing
where smart AP professionals can influence the bottom costly enterprise content management licenses that
line and become corporate heroes. In tough economic may become ‘shelfware’. This is a very real issue
times, many companies are hungry for cash and are since industry analysts say that up to 40 percent of
willing to give you generous discounts for early payment. enterprise software licenses go unused.
Using automation to facilitate early payments can bring
b. The expenditure category of SaaS is usually a
you a return of 50-200%. monthly business expense instead of long-term
capital expenditures. Thus you can adjust payment
How to Mitigate Financial and to the current value received while preserving your
Operational Risk precious financial resources for other purposes.
Risk mitigation is always important but is particularly impor- c. You can avoid the “bait and switch” syndrome. Do
tant in tough economic conditions. While there are many you ever go to a large ticket retailer or auto dealer
ways to reduce risk in automating your accounts payable to find that the terrific deal that was advertised is
in reality much more expensive when you add in all
function, they generally fall into three major categories:
the upgrades and service fees that are necessary to
1. Responsibility — the idea is to make others responsible for make the item work for you? Likewise, the cost of
what they are good at, and thereby reduce the anxiety of an on-premises software license is only the starting
taking on new projects. One of the best ways is to utilize on- point and by the time you add all of the infrastructure,
demand technology such as Software as a Service (SaaS) services and maintenance costs, the solution costs
and thus eliminate all the infrastructure requirements such 2-4 times what you were anticipating. SaaS pricing is
as buying hardware, managing software installations, much clearer and there will be fewer surprises.
maintaining hardware and software implementations, etc.
In short, you should do what you are good at – financial Another major risk area is the possibility of unsuccessful
management – and leave the technology management to project deployment. It is no mere coincidence that CFO’s
others. and CIO’s are both particularly vulnerable during times of
2. Time — There is typically a large amount of time necessary implementing a new ERP system. And on-premises soft-
for you to research, specify, bid, select, implement, train ware usually requires more participation from your employ-
and manage AP automation technology. Traditional ees both in finance and IT and there are associated direct
scenarios that utilize on-premises software can require and opportunity costs. Given the much larger implementa-
three to six months (often more) from the start of the tion times of on-premises over SaaS, there is also a more
technology acquisition process until the technology is
significant risk of project delays, again delaying your time-
working on-site. This is a long time-to-value. By contrast,
SaaS is designed to give you a very quick time-to-value, to-value.
because you can often be receiving strong return on
Software as a Service can also be implemented on a “trial”
investment in less time than it takes you to write a complex
request for proposal (RFP). or “prototype” basis. Because it is much easier to imple-
ment, SaaS Invoice Processing can be tried before you
3. Finance — The issues of time and finances are intertwined,
make any financial commitment. You either quickly see the
and not just because of the truth of the oft-repeated
expression “ Time is money.” One of the major reasons value and ROI or you decide not to implement the AP Au-
that so much time is spent (some would say wasted) in tomation solution. As mentioned earlier, you can usually ac-
selecting automation technology is the severe financial complish this in less time than it takes you to write the RFP
consequences that ensue if you choose the wrong for on-premises software.
solution. To alleviate this risk, Software as a Service offers
several advantages:
a. There is no long-term commitment. SaaS is pay-
as-you-go and you will not be stuck with what you
do not use. You can easily adjust the number of
© Copyright 2009 SpringCM 8

The Economics of AP Automation
The AP Automation Solution from • Reduce Inaccuracies and Provide Greater Visbility into the
SpringCM Entire AP process
If you are facing common AP challenges like: • Monitor Activity and Report on Performance
• High cost to process each invoice • Achieve Real-time Integration with Your ERP/Acounting
System
• Lack of visibility into your company’s obligations
• Inability to quickly find specific invoices and related
documents Frequently Asked Questions
Here are a few of the common questions we receive about
• Duplicate payments and erroneous payments
SaaS-Based invoice processing.
• Frustration with the process, causing staff turnover and
repetitive training 1. Will I have to change my operational processes? The
answer is no. While it is always a good idea for you to look
• Too many manual or ad-hoc procedures causing errors and at ways to streamline processes, the SpringCM solution is
audit nightmares very flexible and designed to accommodate your current
• Difficulty collecting distributed receipts or generating (as is) or desired process model.
approvals from remote participants 2. Will my current operations be disrupted while I automate?
• No visibility into where invoices are in your While there will always be at least a small amount
process or how each staff member staff of disruption, the SaaS solution will make
is performing this minimal, and you will see the
positive benefits much faster.
Then you should explore the
3. Is my content safe?
SpringCM Accounts Pay- Absolutely — the SpringCM
able Automation Solution data center is SAS 70
to cost effectively ad- certified, giving you a
dress these challenges level of content security
and more. And because unmatched by the
vast majority of U.S.
SpringCM is delivered
corporations.
as a Web-based ser-
vice, there is no hard- 4. Can I try the
SpringCM solution before
ware to buy, and no
I make a commitment?
software to install and Yes you can. We can
maintain. The solution is discuss a free trial that will
so easy to configure and allow you to quickly see the
implement that you can be benefits.
up and running in a fraction of 5. How long does it take to
the time it takes for on-premise install and customize the solution?
software. The solution allows you to: Because the SpringCM solution is a
Web-based service, there is no hardware
• Receive, Index and Digitally-Capture Invoices and software to install. Rather, after meeting
• Store and Retrieve Invoices and Related Documents with you to determine the best way to optimize your
invoice processing and approval processes, we begin to
• Automate and Speed Invoice Approval and Related configure your account and get you productive as soon
Processes as possible. This can take anywhere from a few days to
• Handle Exceptions and Discrepancies in a Timely Manner several weeks.
© Copyright 2009 SpringCM 9

The Economics of AP Automation
6. Is Software as a Service (SaaS) the same as an ASP or About StylusAP
hosted? No, because hosted or ASP solutions are single
StylusAP provides an affordable, innovative on demand ac-
instance applications, meaning that each customer
has its own application with the subsequent issues of
counts payable automation solution for companies of every
management, upgrades, maintenance, and so forth. shape and size. Simply stated StylusAP works every day to
SaaS applications do not have these limitations, and are help companies to achieve tangible and measurable results
therefore much more efficient, and cost-effective. with accounts payable management initiatives that use smart
7. Can the SpringCM solution work with my existing ERP/ technology and the most secure systems. StylusAP provides
accounting system? The answer is yes. SpringCM uses state-of-the art accounts payable management solution that
Web services to integrate with both on-premises systems helps companies’ manage their AP process efficiently. We pro-
like SAP, Oracle, PeopleSoft, JD Edwards and Lawson, vide a enterprise-class accounts payable automation solution
as well as SaaS-based accounting systems like Workday,
as an on-demand subscription based service delivered via the
Intacct and Netsuite.
internet. StylusAP is powered by SpringCM ECM.
Next Steps
Automating your invoice processing is now easier than ever. About SpringCM
SpringCM can have a significant impact on your operations SpringCM is the recognized market leader in enterprise-class,
— and not your wallet. Contact one of our solutions experts on-demand content management. Led by enterprise con-
at 201-204-9079 or sales@stylusap.com and learn just how tent management (ECM) industry veterans, SpringCM deliv-
much time and money you can save. ers affordable, easy-to-deploy document management and
workflow solutions in a completely Web-based environment.
SpringCM’s award-winning ECM service eliminates software
installations, hardware maintenance and prolonged customi-
zation cycles associated with on-premises applications. The
breadth of functionality combined with personal attention to
clients enables SpringCM staff to offer tailored solutions to
organizations of all sizes and industries. Leading US and inter-
national companies like Avon, Comcast, Health Net, National
Australia Bank and Cox Communications trust SpringCM with
their mission-critical document management and workflow
StylusAP
# 843, Rahway Ave, Woodbridge, NJ 07095
www.stylusap.com 201-204-9079
© Copyright 2009 SpringCM WP-EOAP-1-09.01.A