How to calculate accounts payable automation ROI

Accounts payable automation streamlines your entire AP process, from invoicing, to approvals, to payments, to reconciliations. By using smart software that automates these tasks, you can process hundreds of bills in a fraction of the time.

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When purchasing and implementing AP automation software, one of the most important metrics to consider is the return on your investment.

What is accounts payable automation ROI?

AP automation ROI is just as the name suggests: the return on investment (ROI) you get from AP automation software that you purchase. Whenever you implement new software of any kind, you want the benefits to outweigh the costs.

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AP automation software with a good ROI will not only provide a financial benefit that outweighs the financial cost of purchasing or building the software itself, but it should also make your life easier.

Components of AP automation software

Before we calculate AP automation ROI, let’s review what AP automation software can do for your business. Here are the main components of high-quality AP automation software:

• Invoice capture: You can instantaneously process complex invoices. With optical character recognition (OCR) technology, the software can read and code your invoices according to pre-defined rules and smart suggestions.
• Data extraction: As part of the data extraction process, your software can automatically code your expenses, then provide analyses that help you track and manage those expenses.
• Invoice matching: AP automation software can provide 2-way or 3-way matching. Invoice matching (1) verifies that you were invoiced the correct amount, and (2) ensures you don’t pay the same invoice twice.
• Invoice processing: By integrating with your accounting systems, the software automatically ties bills to purchase orders, sends payment approval requests to the right manager, updates inventory lists, and posts to your general ledger..
• Payment tracking: The software can manage multiple payment methods, track whether they have been delivered, and even make suggestions for better payment approaches (like flagging vendors that accept credit cards).

What influences the ROI of AP automation?

When thinking about ROI, what factors should you consider? The following costs and benefits will likely affect your ROI calculation.

The costs

Other than the monthly cost of licensing the automation software (or the upfront costs of building proprietary software), you should also consider:

• Workflow disruption: The temporary disruption to your payables process could have a ripple effect throughout the rest of your organization, throwing off estimates and projections, straining inventory management, or lost productivity.
• Training: You may have to invest in training to get your staff acquainted with the software, and these training costs could continue as you adopt more of the capabilities included in your software package.
• Damage to vendor relationships: If the software rollout isn’t perfect and invoices get paid late, it could damage relationships with vendors.
• IT system upgrades: You may need to invest in additional computer systems to handle the new software.
• Additional payroll costs: You may need to replace a lower-paid hire with someone in a higher salary range who understands the technology.

The benefits

There are both financial and non-financial benefits to consider when determining your ROI. A few are:

• More efficient processing: Processing invoices quickly leaves you more time to spend elsewhere in the business and ensures you make payments on time. The software will also help you process more invoices in a shorter time.
• Reduction in payroll costs: With more efficient software, you may be able to eliminate positions from your AP department.
• Fewer errors: Errors can be costly both from a vendor relationship standpoint and in late payment fees or interest. You can reduce the likelihood of errors by automating a portion of your AP process.
• Lower cost per invoice: Automating your AP process will likely lower your cost per invoice. Look at this metric when determining your ROI.
• Better payment terms: As you begin to pay invoices more promptly, your vendors may extend to you better payment terms. 

How to calculate the ROI of accounts payable automation

To perform a cost-benefit analysis of AP automation, take the following steps:

1. Calculate the financial costs of implementing the software.
2. Calculate the financial benefits of implementing the software.
3. Determine your financial net return or net loss (shown as a percentage of total costs) to get ROI. The formula for ROI is as follows: Net savings or (loss) / Total costs = ROI‍
4. Take non-financial factors into account.

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When performing your financial calculations, consider the costs or savings over a predetermined period (i.e., three months, six months, one year). Let’s look at an example.

AP automation software ROI example: 3-month ROI 

You’ve been using your new AP automation software for three months. Here are the financial costs and benefits that you’ve noticed over the last three months:

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Your ROI over the last three months is calculated as (Total benefits) - (Total costs) = (Net benefit)/(loss), which translates into: $40,000 - $47,000 = $7,000 (loss)

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Your ROI is then calculated as: ($7,000) / $47,000 = 14.9% negative ROI

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As you can see, in the first three months of using the software, your business experienced a 14.9% loss on your investment. This isn’t unusual when implementing new software. Let’s see if the ROI changes if we project those costs and benefits out for an entire year.

AP automation software ROI example: 1-year ROI

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Your ROI for an entire year is calculated as (Total benefits) - (Total costs) = (Net benefit)/(loss), which translates into: $160,500 - $77,500 = $83,000

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Your ROI is then calculated as: $83,000 / $77,500 = 107.1% positive ROI

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Although the software is already a great return on your investment after only one year, let’s consider the non-financial costs and benefits, as well. The only drawback you’ve noticed is that a few of your AP staff members have been resistant to the new workflow. But you’ve noticed all the following benefits:

• Your AP department is happier and there is less turnover.
• Your AP department has had time to explore more reliable vendors.
• Your vendors like getting email confirmations that invoices have been received and payments are on the way. 
• Suppliers are happy that payments have been on time, so they’ve begun to offer early payment discounts.
• Your managers report being less stressed at the end of the month.

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These non-financial benefits can be just as impactful as financial ones, so don’t overlook them when calculating ROI.

How Ramp delivered 503% ROI to customers

A recent Forrester Total Economic Impact™ (TEI) study revealed that Ramp delivers an impressive 503% ROI to its customers by transforming finance operations. This ROI stems from two key areas of impact:

1. Time saved

Ramp’s automation tools significantly reduce the workload of finance teams.

• Accounts payable efficiency: AP managers save up to 8 hours per month by automating finance tasks like invoice approvals and bill payments.
• Expense reporting streamlined: Employees save 3 hours per month by automating receipt logging and expense report processing with Ramp’s corporate cards.

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Together, these improvements result in a total of 2,280 hours saved per year, allowing teams to focus on strategic priorities instead of manual tasks.

2. Cost savings

​​Over three years, Ramp solutions helped businesses save $41,000 by:

• Increasing visibility into expenses and limiting unnecessary spending.
• Identifying duplicate payments and avoiding costly errors or fraud.
• Earning cashback rewards on corporate card transactions.

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Beyond financial gains, participants in the study reported additional benefits that strengthened their operations:

• Improved employee experience: Faster reimbursements and streamlined expense reporting reduced frustration and boosted satisfaction.
• Seamless integrations: Ramp’s compatibility with ERP systems and other business tools ensured smooth implementation and ongoing efficiency.
• Enhanced productivity: Centralized workflows eliminated bottlenecks, empowering teams to work smarter.

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Ramp continues to empower businesses by saving time, cutting costs, and enhancing both financial operations and employee experiences.

Simplify AP and maximize ROI with Ramp

Ramp’s AP automation software simplifies accounts payable workflows while delivering measurable ROI for businesses. By automating time-consuming tasks, enhancing visibility into spending, and reducing errors, Ramp empowers finance teams to save time, lower costs, and work more efficiently.

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Here’s what Ramp’s AP software offers:

• AI-powered automation: Ramp automates data entry, invoice processing, and coding with smart suggestions, freeing your team to focus on strategic tasks.
• Comprehensive payment visibility: Manage all payments—domestic and global—on one platform with full visibility across checks, cards, ACH, and international wires.
• Real-time ERP integration: Sync bills, vendor information, purchase orders, and more seamlessly with your ERP system to keep processes running smoothly.

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Ready to see how Ramp can maximize your AP ROI? Learn more about Ramp Bill Pay.