Outsourcing Accounts Payable: The Pros and Cons

Accounts payable outsourcing is using third-party teams to manage the AP process. Learn about the benefits and alternatives to outsourcing manual AP tasks.
Written by:  Allison Reich
Last Updated:  May 11, 2023

Why accounts payable outsourcing is gaining popularity

As the business world becomes more competitive, companies continually look for ways to improve services and increase cash flow. Following the rationale that time is money, these businesses use outsourcing to make the most of internal employee time.

The Accounts Payable (AP) department is a popular candidate for outsourcing. Many businesses and organizations are turning over their accounts payable to specialized third-party teams to:

  • Identify areas to lower costs and increase profit margins
  • Enhance organizational efficiency
  • Better manage cash flow and working capital

Outsourcing is popular, but it comes with some challenges alongside the benefits. Is accounts payable outsourcing the best solution for your organization? What is the process for finding and implementing the best accounts payable solution for your organization?

This article covers:

  • Why an in-house accounting staff is more expensive than outsourcing AP services
  • The risks and rewards of outsourcing AP to specialized outsourcing providers
  • Alternatives to AP outsourcing that offer its benefits without the drawbacks

Download the free ebook: How Automation Can Solve Finance Teams’ Biggest Challenges

What is accounts payable outsourcing?

Accounts payable outsourcing refers to contracting with a third-party team to manage your accounts payable process for you. Your accounting department will have fewer tasks to accomplish since activities such as managing short-term debts and creditors are conducted by qualified third-party AP teams.

Other services you can outsource include:

  • Accounts payable administration
  • Accounts receivable management 
  • Discrepancy resolution
  • Sending purchase orders

The best third-party teams manage your basic AP functions. Your in-house AP department can then focus on higher-level tasks and attend to the core business processes to enhance your company's performance and increase service levels.

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AP automation vs. AP outsourcing

One alternative to outsourcing your AP function is to implement AP automation. This is different from AP outsourcing in several ways. When you decide to outsource your accounts payable, a third-party company runs your AP department. With AP automation, your in-house accounts payable team uses a sophisticated platform to streamline your internal AP systems.

Essentially, AP process outsourcing transfers tasks and responsibilities to another company for efficient management. AP automation uses business intelligence software to manage your in-house systems (with lower total costs on your part). 

AP Automation software frees up time your team spends on repetitive, manual tasks like invoice data capture, 3-way matching, and paying vendors so that they can focus on more strategic work. This has several advantages, including lower costs, 24/7 operations, and lower third-party risk. 

Why do companies outsource accounts payable?

If your business is making do with paper invoicing and optical character recognition (OCR) to manage your AP processes, you already know the challenges of outdated systems.

Upgrading old accounting systems to modern tools is costly and time-consuming. 

Evaluating your options with a complete understanding of what’s available leads to better business outcomes. Let’s look at the pros and cons of outsourcing.

Pros of accounts payable outsourcing

Cost and time saving

Outsourcing AP tasks saves your company considerable money and time. According to recent reports, hiring one employee can cost as much as $4,425. Executive hiring costs climb even higher. 

Such costs can quickly stack up, especially for large companies. Outsourcing eliminates costs and time associated with recruiting, hiring, training, and compensating additional employees.

Improved efficiency

Manual accounts payable processes are prone to data entry errors. Moreover, the speed of invoice processing is limited to your staff's abilities and work hours. Third-party accounts management companies have the modern facilities and software to efficiently and accurately accomplish your tasks.  

Access to better tools

Third-party AP service providers offer professional teams and the latest tools to do the job. When you outsource your AP tasks to them, you gain access to excellent tools such as computer systems complete with customized invoicing, expense management, and other accounting software.

Reduced workload

Outsourcing accounts payable reduces the workload in your company. This leaves your AP team free to attend to the value-creation activities of the business. 

Increased profitability

AP outsourcing solutions put in place efficient systems that allow you to pay your vendor invoices on time—even early—to enhance supplier relationships. A satisfied supplier may offer discounts due to early payments, thus increasing your profitability.  

Cons of accounts payable outsourcing

Despite the benefits of using accounts payable outsourcing companies to relieve your internal accounts payable department, there are drawbacks to this approach: 

Lack of process control

While it is easy to supervise an in-house AP team, the same cannot be said for third-party service providers. You cannot control how they handle your accounts or run back-office processes. This may hinder transparency, communication, and efficiency.

Difficulty reporting accounting errors

When it comes to outsourced AP services, error reporting can be problematic. 

Since you are not physically present to supervise tasks, any errors may not receive due attention. You may not even notice serious errors—such as duplication of invoice processing and exceptions processing—until it is too late. It may also make spotting payment fraud more difficult. 

Third-party risks

Outsourcing may help your company cut costs and improve services, but over-dependence on third-party providers introduces more risk. If a third-party company experiences mismanagement or bankruptcy, this may disrupt your accounting services and affect vendor relationships. 

While these solutions can be cost-effective, they require a high level of confidence to avoid potential issues or mitigation costs. 

Privacy and security concerns with accounts payable outsourcing

Outsourcing accounts payable data means sharing sensitive information such as BPO and bookkeeping details with third-party teams. This could create a potential gap in your business rules and data security systems.

[eBook] How Automation Can Solve Finance Teams’ Biggest Challenges

How Automation Can Solve Finance Teams’ Biggest Challenges

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Tips for successful accounts payable outsourcing

Choosing a reputable third-party processor is an essential step in reaping the benefits of outsourcing your AP tasks. Here are some tips to help you.

 1. Do your research on accounts payable outsourcing businesses

Choosing the best outsourcing companies may be challenging if you don’t know what to look for. Consider these tips when looking for the best team to partner with:

  • Check for any reviews and testimonials of the company to see what previous or present clients are saying about the company.
  • Review the company’s previous projects to check whether they meet your expectations.
  • Use a security questionnaire or other supplier evaluation tools to understand the company’s data security and service-level processes.

 2. Prepare your in-house team for change

Outsourcing requires several changes to your in-house AP processes. These include delegation of responsibilities, implementation of new software, and changes in the submission systems. Early preparation ensures a smooth transition to the outsourced services.

 3. Use performance tools to make sure your accounts payable outsourcing team is measuring up

The performance of third-party service providers is difficult to measure without implementing performance metrics and measurement tools. You may never know if they are billing for idle time, accessing non-work websites, accurately reporting issues, etc.

Consider AP automation as an alternative to outsourcing

Implementing software may be a more cost-effective and reliable way to solve the workflow issues within your AP function. Automation offers many benefits of outsourcing accounts payable without the liabilities of engaging a third-party team. 

By implementing AP automation, businesses can: 

  • Improve internal processes without increasing or outsourcing the department
  • Increase visibility through real-time data access and analytics insights
  • Use accounts payable solutions that integrate with other systems, such as finance or ERP tools
  • Create dynamic controls for every user, from departmental stakeholders to the CFO
  • Implement well-designed workflows and purchasing processes unique to your business case

AP automation: Case studies and outcomes

There’s no doubt that accounts payable outsourcing and automation improves your organization through higher cost savings, better pricing, increased profitability, improved efficiency, and better data insights and tools. Automation offers all these outcomes without sacrificing the security or visibility of your AP process. 

Order.co has helped high-performing clients in diverse industries increase the efficiency of their procurement process.

ZeroCater: Using Order.co, the office catering company cut its invoice volume by 50x, improved its spend visibility, and eliminated rogue spending across the organization.

SoulCycle: This well-known fitness brand streamlined processes across its 90+ locations by creating curated ordering with preferred vendors, implementing invoice consolidation, and improving budget tracking for better spend management

XpresSpa: Using AP automation across its 50 locations helped the organization realize nearly 10% first-year savings, reduce its management approvals to 47%, and achieve 100% order compliance.

Streamline your AP process with Order.co

While accounts payable outsourcing is a viable option for some organizations, many can get the benefits of outsourcing while maintaining higher efficiency and security with a procurement platform. 

  • Order.co streamlines many accounts payable functions and offers valuable insight into your procurement spending. 
  • It creates the efficiency of an outsourced solution and eliminates the uncertainty associated with third-party teams. 
  • Order.co also provides a centralized and dynamic ordering process that empowers teams to get what they need more efficiently. 

To see how automation can improve your business outcomes with a scalable solution, request a demo of Order.co.

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