What’s the difference between operational vs. financial savings in Accounts Payable, and how can you achieve maximum savings in both areas?
Quantifying the amount of each gets tricky when you don’t have an exact formula because not only are there independent savings in each area, the savings are maximized when the two initiatives are complementary. For example, a large US utility was able to save $5.8 million in operational savings, which enabled them to save $185 million in early payment discounts over the course of three years!
But how did they do it?
Blue Hill’s most recent report, Financial vs. Operational Savings: True Scale in AP Improvement, breaks down the exact difference of each and how to calculate the true savings you’re earning--or could be earning.
In short, operational savings are those gained by better managing the Accounts Payable process internally, generally through automation.
In terms of operational savings when it comes to Accounts Payable, you most likely think of elimating as much paper as possible. After all, paper invoices require manual data entry or electronic conversion using scanning hardware or OCR software. In other words, paper is the anti-efficiency and makes processing invoices and manual and time intensive process.
To fully maximize operational savings, it’s important to minimize these cost drivers:
Per-page scanning fees (if any, after the move to electronic)
Periodic software licensing fees
Payment error rate
Financial savings are those gained by better working with those outside of Accounts Payable--such as procurement who negotiates purchases, treasury who manages cash, and suppliers who participate in discounting programs.
Here, the keys to success, and maximum results through the discounting program are:
Average discount offered
Efficiency of review and approval process
Get the full report to learn:
When automating payables processes isn’t enough to move the needle, and why you shouldn't just focus on operational efficiencies
The foolproof method to maximizing the results of an early payment discounting program that can save your company millions each year
How a large US utility saved $5.8 million in manual labor costs and $185 million in early payment discounts in just three years (and how you can, too!)