Why accounts payable outsourcing is gaining popularity
As the business world gets more competitive by the day, your company has to find ways to improve its services and stand out from the competition. Outsourcing accounts payable can be a viable solution for businesses looking to stay afloat in the highly competitive world and cut costs in the process.
Many businesses and organizations are turning to accounts payable outsourcing to specialized third-party teams. Outsourcing their accounts payable processes will help them to:
- Identify areas where they can cut costs to increase their profit margins
- Enhance their organizational efficiency
- Better manage their cash flow and working capital
Here’s what you need to know about outsourcing your AP team
So, what is accounts payable outsourcing, and how do you go about it? Get the answers to these questions, as well as the tips to help you outsource your accounts payable easily. This article will discuss the following:
- Why it is more expensive to hire and maintain an in-house accounting staff than outsourcing AP services
- Understanding the risks and rewards of outsourcing AP
- Tips to help you outsource your AP more efficiently and easily
What Is Accounts Payable Outsourcing?
Accounts payable outsourcing refers to inviting a third-party team to manage your accounts payable process for you. Your accounting department will have fewer tasks to accomplish since liabilities such as short-term debts and managing your creditors are given to qualified third parties.
Other services you can outsource include:
- Accounts payable administration
- Accounts receivable management
- Discrepancy resolution
- Sending purchase orders
The best financial document management agencies manage your AP functions when you outsource accounts payable services to third parties. Your in-house AP department can then focus on higher-level tasks and attend to the core business processes to enhance the performance of your company and increase service levels.
AP Automation vs. AP Outsourcing
You may also have come across AP automation. This process is different from AP outsourcing in several ways. When you decide to outsource your accounts payable, a third-party company will be running your AP department. But if you go for AP automation, you will be using third-party business intelligence to streamline your internal AP systems.
Essentially, AP process outsourcing transfers tasks and responsibility to another company for efficient management, while AP automation means you engage the services of another business’s business intelligence software to manage your in-house systems (with lower total costs on your part). You are only relying on the other company’s software, not the workforce, as is the case for AP outsourcing.
Why Should You Outsource Your Accounts Payable?
If your business still uses outdated systems such as paper invoicing and optical character recognition (OCR) to manage your AP processes, you have a big challenge on your hands. Upgrading these old accounting systems to modern tools, such as QuickBooks, can be a costly and time-consuming process. Thanks to the possibility of outsourcing accounting services, you may not have to worry about the costs of upgrading such systems.
Outsourcing AP processes can help you gain an edge over your competitors in the industry without a system overhaul that would be very expensive and may disrupt your business activities for some time. Your business can also benefit from outsourcing to professional third-party accounting companies through the streamlined accounting processes, which improve overall efficiency.
Pros of Accounts Payable Outsourcing
To help you determine if you should outsource your accounts payable workflow and data entry, here is an overview of its pros and cons.
Cost and Time Saving
Outsourcing AP tasks can save your company lots of money and time. According to the Society of Human Resource Management 2017 Talent Acquisition Benchmarking Report, hiring one employee can cost as much as $4,425. Such costs can easily stack up, especially for large companies. Outsourcing saves costs and time because you would only have to pay for the services.
Accounts payable tasks are prone to errors, especially when using old methods such as paper invoices. Third-party accounts management companies have the modern facilities and software needed to accomplish your tasks efficiently and accurately. Through outsourcing, Be Relax was able to cut its purchasing time from 8 hours to just 20 minutes. Another company, ZeroCater, has cut down its invoices from 200 to 4 in a month.
Access to Better Tools
Third-party AP service providers have professional teams in place and the latest tools to do the job. When you outsource your AP tasks to them, you are gaining access to their excellent tools such as computer systems complete with customized software for invoicing, expense management, and any other accounting software.
Outsourcing accounts payable reduces the workload in your company because your financial advisor wouldn’t have to supervise AP teams. This means that they are free to attend to the core values of the business. In SoulCycle’s experience, outsourcing has helped them attain growth and efficiency as complicated tasks like handling missing items and refunds are offloaded to a reliable third-party service provider.
AP outsourcing solutions put in place efficient systems to allow you to pay your vendor invoices on time, or even earlier, to enhance supplier relationships. A satisfied supplier may offer early payment discounts due to early payments, thus increasing your profitability. Outsourcing has helped Xpress Spa offload logistics and increase its profitability through massive savings on its products.
Cons of Accounts Payable Outsourcing
No Control Over the Accounts Payable Process
While it is easy to supervise an in-house AP team, the same is not possible for third-party service providers. You have no control over the way they handle your accounts, and 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 the tasks, any errors popping up 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.
Risky Dependency on Third-Party Companies
Outsourcing may help your company to cut costs and improve its services, but overdependence on these third-party service providers can be risky. If they face problems such as bankruptcy, these problems spill over to you in terms of delayed services.
Privacy and Security Concerns with accounts payable outsourcing
Outsourcing accounts payable data means you are sharing sensitive information, such as BPO and bookkeeping details, with third-party teams. This could be a potential gap in your business rules data security systems.
Tips for Successful Accounts Payable Outsourcing
To enjoy all the benefits of outsourcing your AP tasks, you need to choose the right third-party service provider. Here are some tips to help you:
1. Doing 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 in question to see what previous or present clients are saying about the company.
- Review the company’s previous projects to check whether they measure up to your expectations.
2. Preparing 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. Using performance tools to make sure your accounts payable outsourcing team is measuring up
It may be difficult to measure the performance of third-party service providers unless you use reliable performance measurement tools. You may never know if they are billing for idle time or are accessing non-work websites.
Propel Your Business Forward With AP Outsourcing
There is no doubt that accounts payable outsourcing can propel your business to the next level through reduced costs, increased profitability, improved efficiency, and access to modern tools, cost savings, and professional personnel. The downsides, such as lack of control over the outsourced processes and risk to your data security, are a small price to pay. Outsource your AP tasks to improve purchase-to-pay processes and procurement in general, and see your business grow to the next level. If you need help to automate or outsource your AP tasks, request a free demo.