AR Automation ROI: Calculating the Business Impact

AR automation can deliver an ROI of 400-600% over three years by improving cash flow, reducing operational costs by up to 80%, and boosting staff productivity 3-4x. Businesses often see a 20-30% drop in Days Sales Outstanding (DSO) and fewer errors, leading to faster payments and better working capital management.

Key Takeaways:

• Faster Cash Flow: Reduce DSO by 20-30%.

• Cost Savings: Cut processing costs by 60-80%.

• Improved Efficiency: 3-4x staff productivity boost.

• Error Reduction: Decrease errors by 80-90%.

Quick ROI Formula:

ROI = (Gains - Costs) / Costs x 100
Example: A $100K investment yielding $250K benefits = 150% ROI.

By automating AR processes, companies like Vistaprint and Siemens have unlocked millions in working capital, reduced manual tasks, and improved customer satisfaction. Use this guide to assess your current metrics, calculate costs, and estimate potential gains to build a data-driven business case for AR automation.

ROI Components for AR Automation

Benefits and Returns

AR automation can bring noticeable financial and operational improvements, directly affecting a company’s bottom line. One of the key advantages is reducing Days Sales Outstanding (DSO), with many companies seeing a 20-30% improvement. This means quicker cash flow and better working capital management.

For example, Vistaprint implemented Esker's AR automation solution and saw their DSO drop from 66 to 52 days in just six months. This change unlocked $3.8 million in working capital savings. However, achieving these results requires careful consideration of implementation and operational costs.

Cost Breakdown

When planning for AR automation, it’s important to understand the associated costs. Here's a breakdown:

These costs play a vital role in calculating ROI.

ROI Calculation Method

To calculate ROI, use this formula:

ROI = (Gains from Investment - Cost of Investment) / Cost of Investment x 100

For instance, a $100,000 investment that delivers $250,000 in annual benefits results in a 150% ROI. On average, businesses report ROIs ranging from 400-600% over three years.

Key metrics to monitor for success include:

Key Performance Metrics

Performance Indicators

To measure ROI effectively, focus on these core metrics:

• Invoice processing speed: This is a key indicator of efficiency improvements.

• Collection Effectiveness Index (CEI): Tracks the percentage of receivables collected within a set timeframe, offering a clear view of collection performance.

Here’s a breakdown of key metrics and their potential improvements:

Manual vs Automated Results

Comparing manual and automated accounts receivable (AR) processes highlights the clear advantages of automation. Here’s how they stack up:

For example, Siemens invested €2.1 million in automation and reduced manual AR tasks by 40%. This shows how automation can significantly improve operations.

Other benefits of automation include:

• Customer satisfaction (CSAT) boost: Automation increases CSAT scores by 15-20%.

• Faster dispute resolution: Dispute resolution times drop by 40-60%, improving client relationships.

• Quicker payments: Higher CSAT scores result in payments arriving 12-18% faster.

• Better forecast accuracy: Reduces working capital fluctuations by 15-20%, enabling smarter, data-driven decisions.

How To Grow ROI With Accounts Receivable Collections

4 Steps to Calculate AR Automation ROI

Use this simple framework to align your calculations with key business goals:

1. Assess Current Performance and Identify Opportunities

Start by measuring key metrics that matter to decision-makers. Here's a breakdown:

Predict Future Improvements

Use industry benchmarks and your own data to estimate potential gains:

• Cash flow impact: For example, companies with $10M in revenue can unlock $275K in working capital for every 10-day reduction in DSO.

2. Calculate Total ROI

Follow these steps to get a clear picture of your ROI:

1. Add Up All Costs

Include every expense over a 3-5 year period, such as:

• Implementation and customization fees

• Integration costs

2. Estimate Total Benefits

Quantify the benefits, like:

• Capturing early payment discounts

• Reducing bad debt

3. Use the ROI Formula

For example, if your total benefits over three years are $500,000 and your costs are $200,000, your ROI would be 150%.

Pro Tip: Be cautious with your estimates. Factor in both measurable benefits and less tangible ones for a balanced view.

These steps create a foundation for validating ROI in real-world scenarios. Next, we'll explore how these calculations play out across various industries.

ROI Success Stories

Here are some examples of how the ROI framework has delivered measurable results:

Manufacturing Company Results

FUJIFILM Holdings America Corporation streamlined its processes, cutting invoice processing time by 66% (from 3 days to 1 day) and reducing past-due receivables by 50% within just six months. They also gained the ability to monitor cash flow in real-time.

SaaS Company Results

Danone North America saw impressive improvements, including:

• A 7-day reduction in DSO

• 75% faster cash applications

• A $35M boost in working capital

• 30% increased output from their collections team

Viega achieved even more striking results:

• DSO dropped 62.5% (from 120 days to 45 days)

• 99.8% adoption of e-invoicing

• $500K in annual savings

That $500K annual saving translates into a 250% ROI in the first year, considering standard implementation costs. These outcomes highlight how reducing operational expenses and speeding up cash flow directly contribute to ROI, as outlined in the earlier calculation method.

Conclusion

Key Takeaways

AR automation can achieve a return of 400-600% over three years. This is driven by reductions in DSO (20-30%), cutting operational costs (60-80%), and boosting staff productivity by 3-4x. These gains are reflected in the results seen across various industry case studies.

Next Steps

Here’s how you can apply these insights to your organization:

• Review Your Current Metrics: Gather and document your existing AR performance data.

• Set Specific Goals: Identify measurable targets, such as lowering DSO or reducing operating expenses.

• Research Vendors: Look into AR automation platforms that fit your business requirements.

• Plan a Phased Rollout: Develop a detailed implementation plan with clear milestones and resource allocation.

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