By Mark Penserini
There’s a healthy number of ROI opportunities within the payment automation sphere, and it’s relatively easy to estimate for any given organization by doing a payment analysis. Unfortunately, many professionals don’t take advantage of the available opportunities—or otherwise can’t recognize them due to the constantly shifting payment landscape. Payment automation companies make it their business to identify the options for each firm based on their unique needs and criteria.
For example, Nvoicepay scans for ROI possibilities by looking through vendor and payment data from the previous year. We focus on areas that will produce the most positive impact: transactional cost reduction and increased rebates, for example. Altogether, there are several areas where organizations see positive ROI from payment automation. Below are seven ways in which payment automation supports time and money savings, and how payment automation companies can lend a hand in achieving these goals. The examples given are based on our internal data.
1. Reduced check payments
Checks are the most expensive and time-consuming way to pay vendors. While switching vendors to electronic payment can be a time-consuming project, keeping to the status quo becomes even more costly in time and dollars in the long run.
While check costs vary by company, the general cost to print and mail checks is between $3 and $8 per check. This includes purchasing check stock, envelopes, postage, and staff time. We find that most organizations can reduce the number of checks they’re writing by about 70 per cent.
For example, if you’re writing a thousand checks per month at $3,000, switching 70 per cent of your vendors to electronic payment options will reduce the number of checks to roughly 300, costing $900. In this scenario, you’d save $2,100 monthly and $25,200 annually.
2. Increased rebates
Find chances to earn rebates, whether that’s making payments to vendors within a certain time limit, or meeting other requirements that ease up on the receivables workload. For companies that maintain a large vendor base, it can be tricky to scope out advantageous prospects.
We have found that roughly 15-20 per cent of vendors accept credit card, which is an excellent place to start looking for rebate potential. It’s startlingly effective to ask vendors if they’re able to accept cards. If even 150 vendors out of every 1000 switch to virtual cards, especially if they’re highest-paid vendors, you have the chance to generate rebates on hundreds of thousands of dollars each month.
3. Enabling vendors for electronic payments
Setting vendors up for electronic payment requires several steps, including reaching out to each vendor to ask which forms of payment they’ll accept, and collecting and verifying the provided information. Based on our experience enabling nearly a million vendors in our network, we estimate this process takes roughly 30 minutes per vendor. To switch 350 vendors to electronic payments would take about 700 hours of enablement work. If you pay your accounts payable team $25 an hour (a conservative estimate) the time spent on enrolling the 350 vendors would cost your company $17,500. Taking advantage of payment automation’s enablement programs often significantly reduces this cost, as well as the time spent on the process.
4. Prevented or resolved ACH errors
ACH files are very rigid and difficult to work with. Making one mistake can run the risk of the entire payment file being rejected. On a more granular level, misapplied ACH payments are very time consuming to retrieve. We estimate glitches affect one per cent of ACH payments, with an average resolution time of 45 minutes per payment.
5. Stopped payments, refunds, and reissues
Retrieving payments can cost more than simply the bank’s stop payment fee. Also included are the time it takes to communicate the error with the payee, figuring out the right amount, and re-issuing the payment. Or perhaps also asking for a refund in the event the initial payment went through before it could be stopped. We have found that roughly .05 per cent of payments require this type of intervention, and each occurrence can take about 45 minutes to resolve.
6. Supplier follow-up and outreach.
Every year, about 25 per cent of vendors will have some kind of change that requires an update to AP records. This can include an address, company name or bank account change, or even contact changes for new employees.
The average time to work through those changes is about 15 minutes each. If you have 2,000 vendors, about 500 of them will require some updating each year. This costs about 125 hours annually, or $3,105 at $25 an hour.
7. Prevented or resolved erroneous payments.
Payment errors happen—it’s an unavoidable—and familiar—aspect of any payment process. But automation can help to prevent a majority of the errors that are caused by accident.
Based on our internal metrics, we estimate that the average AP person spends 45 minutes per error. We’re calculating based on an error rate of about 1 per cent, which is our organization’s average—this number may be a conservative estimate for some businesses. Using this number, if a company makes 1,000 payments a month, ten will require error resolution. That’s equates to about seven and a half hours per month, or 90 hours annually, at a total cost of $2,250.
On the opposite end of the spectrum, fraud also poses a threat. It’s a bit harder to estimate the ROI on fraud prevention because losses vary depending on the level of a breach. That said, it’s not outside the realm of possibility to expect fraud to measure anywhere from hundreds to millions of dollars.
Yes, And…
The seven items in the list are some of the most common, calculable issues that Nvoicepay sees in our incoming customers. That said, there are other issues which are more difficult to calculate, which is why they didn’t make our list. These include issues like late payment fees and lost discounts due to slow payment turn-around times.
That’s not to say those issues, or others, aren’t important. But the time and money costs—as well as the value in fixing those issues—are simply more subjective.
Most organizations are aware that checks are expensive, but they may not take the time to analyze how much their older processes are costing them. This is probably the biggest obstacle to automating payments—the “if it ain’t broke, don’t fix it” notion. When you never add it all up, then you don’t see how broke it actually is.
By taking a simple, conservative, holistic view of the hard cost savings and operational efficiencies you can achieve, it becomes much clearer what the ROI is, and more importantly, all the areas in which your organization can move forward by automating.
Mark Penserini is VP of Partner Management at Nvoicepay and has over 25 years of operational and technical experience specializing in project management across Healthcare, Finance, and IT operations.
