One of the first steps in knowing the impact of Accounts Payable Automation is calculating what your Accounts Payable process cost.
What is your current cost per invoice is one of the first questions I ask someone when starting or wanting to improve their AP Automation journey.
1. Hard Dollar – This is cost that is associated to tasks that, when automated are eliminated 100%. Look at the chart below. The steps in the Accounts Payable process that are slashed are previously people, time and effort that the organization doesn’t have to do… software will take over the task… creepy huh?
2. Soft Dollar. Well if hard dollar are costs associated to those process steps that are completely eliminated then soft dollar are those costs that impacted by Accounts Payable Automation, but not completely eliminated. (Again) Using the graphic above you can see the coding and approving of invoices are example of soft dollar cost. When automated, the ideas is automation can help (greatly if done right) coding and approving, but the tasks are still part of the process. They are business decisions that still have to be made, so they are not eliminated 100%.
I was thinking to write a title to this section more dramatic than “be warned”… but maturity has gotten the best of me (dang), so on with the warning.
If you base decisions (change, ROI, Cost Per Invoice…) on soft dollar cost you have put yourself in a position to not achieve your goal. Soft dollar is a moving target that cannot be accurately pinned down. I guess I can write that soft dollar is like shifting sand… and you know what happens when you build a house on that stuff.
Now don’t get me wrong. There is nothing wrong with soft dollar savings, it’s just not good when setting and achieving numbers based goals. Hard dollar on the other hand is a much better benchmark because the tasks are there and when automated they are gone. If the task of entering invoices into the accounting system cost your organization $4.50 per invoice, then you can expect to have a cost reduction of $4.50 per invoice. Now… here is the best news. At the end of the process you find that you only saved $3 and not the $4.50… you have more work to do. That’s probably the biggest benefit of using hard dollar cost.
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