How to Calculate the ROI of Automating Your Accounts Payable Process
Accounts payable (AP) is one of the most labour-intensive functions in finance – and also one of the most ripe for transformation. With automated invoice processing, finance leaders can cut costs, improve accuracy and free up staff for higher-value work. But how do you quantify those gains? Calculating the return on investment (ROI) of AP automation is the key to securing buy-in and making strategic decisions. Here’s how to break it down step by step.
Start with Your Current AP Costs
Before you can measure the value of AP automation, you need a clear picture of your current spending. Manual invoice processing is more expensive than most realise, particularly when you account for hidden costs like staff time and late payment penalties.
Cost per invoice
This is the most direct measure of efficiency. It includes all expenses involved in processing a single invoice, from receipt and data entry to approvals and archiving. Studies indicate that manual processing can cost anywhere from £7 to £20 per invoice, depending on your industry and volume. By calculating your average cost per invoice, you’ll establish a strong baseline to compare against post-automation performance.
Staff time and salaries
Manual invoice processing consumes a large portion of your AP team’s time. Consider how many full-time employees are involved, how much time they spend on invoice-related tasks and what percentage of their salary goes to this work. Don’t forget to include time spent chasing approvals, fixing errors or answering any queries from suppliers.
Error correction and late fees
Whether it’s duplicate payments, incorrect coding or missed approvals, mistakes are common when invoices are processed manually. These errors not only cost time but often lead to financial penalties or strained supplier relationships. Tally up your average monthly losses due to errors, including any late fees paid due to invoices not being approved on time.
Identify Automation Costs
Once you know what you’re currently spending, it’s time to assess the investment required to implement automated invoice processing. This should include both upfront and ongoing costs, providing a complete picture of what AP automation will cost your business.
Software and setup
The main cost component of AP automation is the software itself. Snowfox uses AI to automate up to 90% of your invoice processing – but pricing will vary depending on the number of invoices, your ERP setup and the level of customisation needed. Factor in any implementation or integration fees at this stage.
Training and onboarding
Even the best software needs a well-prepared team to succeed. Include the costs of training internal users, onboarding administrators and supporting change management. If you’re using external consultants or system integrators, those costs should be included here too.
Maintenance and support
Most AP automation solutions operate on a subscription basis. This means ongoing costs for software licences, support and system updates. With Snowfox, the model includes a fixed implementation fee, an annual maintenance fee and a transaction-based charge for correctly predicted coding dimensions – giving you transparency and flexibility as your volumes scale.
Measure Savings After Automation
With your automation solution live, you can begin to track tangible savings across time, cost and efficiency. These figures are the foundation of your ROI calculation.
Labour hours reduced
One of the most immediate benefits is a reduction in labour hours spent on manual invoice handling. AP automation streamlines data capture, routing and approvals; meaning fewer staff are needed for repetitive tasks. Track the number of hours saved per month and multiply that by your average hourly wage to calculate monthly labour savings.
Fewer errors and penalties
Automated invoice processing significantly reduces the risk of duplicate payments, mismatches and manual entry errors. Over time, this should translate into fewer penalties and less time spent fixing issues. Compare your error correction costs pre and post-automation to quantify the improvement.
Early payment discounts gained
Speeding up invoice approvals creates opportunities as well as reducing risk. With faster processing, your team can take advantage of early payment discounts that were previously out of reach. Track the total value of discounts secured each month to include in your ROI.
Use This ROI Formula
The standard formula to calculate return on investment is straightforward:
Based on automating invoices per year with Snowfox.
(Total Savings – Automation Costs) / Automation Costs
This gives you a percentage that reflects the net gain from your investment. A positive ROI means the benefits outweigh the costs. The higher the percentage, the better your return.
ROI example with real numbers
Let’s run a simplified example to bring this to life.
Before AP automation:
- 20,000 invoices per year
- £10 average cost per invoice = £200,000 annual cost
- Additional error-related and late payment costs = £20,000
After AP automation:
- Cost per invoice drops to £3 = £60,000 annual cost
- Errors and penalties reduced by £15,000
- Early payment discounts gained = £10,000
- Total automation cost = £40,000 (includes software, support and training)
ROI Calculation:
Total savings = £200,000 + £20,000 – £60,000 – £5,000 = £155,000
ROI = (£155,000 – £40,000) / £40,000 = 2.875 or 287.5%
That means for every £1 spent on automation, the business saves £2.88 — a powerful case for investment.
Make ROI Part of Your Digital Finance Strategy
AP automation is a strategic lever that allows finance teams to scale operations, improve compliance, and focus on value-adding work. But to secure support from leadership and justify continued investment, you need the numbers to back it up.
By calculating your current costs, accounting for automation expenses and measuring post-implementation gains, you can confidently present the ROI of your AP transformation.
The impact of automated invoice processing is clear. Reduced costs, faster payments, fewer errors and happier suppliers – all made possible through Snowfox’s smart automation.To explore how AP automation can benefit your business, visit our AP Invoice Processing page.
