Should You Outsource Accounts Payable?

Kate Freer
By Kate Freer | June 11, 2021
About Kate

The Advantages and Disadvantages of Outsourcing Accounts Payable

We’re all guilty of it, having that ‘I’ll just do it myself’ mentality, and sometimes it works to our advantage, and sometimes it doesn’t. When it comes to your company’s accounts payable process, outsourcing it through an accounting service that provides AP automation could mean the difference between a thriving and struggling business. Of course, outsourcing accounts payable may not be for everyone, but it’s certainly worth exploring.

Accounts payable overview

Simply put, accounts payable is the money owed to vendors or suppliers. A company purchases items on credit which then needs to be paid back in a set amount of time – essentially, it’s an IOU, and involves the combination of travel expenses, vendor payments, and operating costs.

Most companies have an accounts payable department, which is essential to keeping finances in line and maintaining healthy relationships with suppliers. Accounts payable functions can include invoice processing, POs, data entry and more, however a company’s accounts payable workflow is much more than recording invoices and paying them. Maximizing the overall accounts payable process can unlock savings and improve cash flow.

What is accounts payable outsourcing?

Accounts payable outsourcing is when you hire a third-party to manage your company’s AP process. These BPO providers have all the necessary tools and technology to execute all of your business’ accounts payable functions. But AP outsourcing doesn’t, and shouldn’t, stop there. Top-notch providers will not just take over these tasks, they will optimize them by introducing new capabilities and developing more efficient business processes to enable growth.

Challenges of in-house accounts payable

An accounts payable department that is managing the AP process on its own (in-house) is most likely overwhelmed, especially if you’re a small business and with piles of invoices coming in each day.

According to Ardent Partners’ Accounts Payable Metrics that Matter in 2020, the top challenges holding AP back are exceptions, lengthy invoice approval times, and too much paper. Another big challenge is the amount of time staff spends on handling supplier inquiries. By not solving these tactical and manual-based issues, companies cannot expect to extract value from its AP departments, which means lowering processing costs, improving workflow, driving back office efficiencies, and making better-informed decisions all fall to the wayside.

Benefits of outsourcing accounts payable

While handing over the reigns of your accounts payable may seem a bit nerve wracking, outsourcing accounts payable to a trusted partner has the potential to offer tons of advantages like:

  • Saving time and money
  • Access to new payables solutions and tools
  • Improved workflow
  • Increased security

With the right provider, companies can streamline their business operations, refine their processes and grow revenue. An established accounts payable software service will enhance cash flow and make the overall AP process more efficient, which in turn will lower costs and build stronger relationships both within the company and with vendors.

Comparison: Accounts Payable Outsourcing vs. Accounts Payable Automation

When your Accounts Payable operations just aren’t cutting it, you may be asking if you should automate or outsource the process, and what is the difference?

AP automation streamlines invoice processing workflows, from invoice receipt to approval routing, to PO and receipt matching to the invoice, to review and exception management, to final approval for payment. In a nutshell, it simplifies each invoice so that they’re readily available, tracked, and paid on time. When automating accounts payable, a company will rely on a third-party software to automate the process, but the business keeps all AP processes in-house and requires staff training within the AP department.

Outsourcing your AP is a bit different. As previously mentioned, it involves hiring a third-party provider to manage all AP operations. It avoids the cost of adopting accounts payable software and does not use up company resources to run the show when it comes to the AP process. It also provides a business with a repertoire of  technology and tools, which usually includes AP automation -offerings that create a competitive edge.

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Pros of outsourcing accounts payable

If you haven’t realized it already, the benefits of outsourcing accounts payable are limitless. Outsourcing presents a unique opportunity to completely revamp the AP process while also freeing up time and money.

Cost savings

The truth is, outsourcing your AP process is cheaper than other solutions. Large overhead expenses are avoided because you don’t have to hire staff members and training those employees because the third-party provider is already equipped with the people and tools to streamline the AP process for you. These cost savings contribute to improved cash flow and the overall financial health of the business.

Resources and automation

Service providers who manage outsourced accounts payable will already have the tools needed for the job, including software, document management, and reporting tools. AP automation can and should be included in this package, which unlocks value in the various accounts payable processes like invoice processing, ERP integration, and payment and remittance management.

Secure invoice processing

The world is a big place and sending payments to vendors has become increasingly complicated. Companies, especially small to medium-sized ones who don’t have their own security teams, are plagued security issues. An AP outsourcing provider bridges the gap by providing sophisticated security measures and technology for AP processes that reduce the chances of a company experiencing something like payment fraud.

Faster turn around times

There is never enough time in the day but utilizing a payable outsourcing service that has access to the latest technology and time-saving tools puts some time back on the clock. It also creates an accounting system that is fast and accurate, which in turn streamlines a company’s workflow.

Remove the risk of error

Even the slightest error discovered in an accounts audit can lead to not only costs but also compliance issues. Manual data entry and the lack of control around Purchase Order requisitions, approval, and delivery account for many account payable errors.

Professional outsourced companies will incorporate advanced technologies, systems, and processes in order to identify, remove and mitigate any errors before they become an issue.

Cutting down on paper invoices and manual data entry

The technology that comes with an accounts payable outsourcing provider presents the opportunity to eliminate paper and reduce manual tasks like data entry. No more drowning in paper invoices and no more wasting resources that could be better spent on more strategic tasks.

Cons of outsourcing accounts payable

There are two sides to every story, and that means there are some reasons way company might want to avoid outsourcing the AP process. Moving your in-house AP department to a third-party provider comes with hesitations and is not a decision you should make lightly.

Privacy and third-party concerns

When choosing to outsource AP, a company will need to hand over their historical data as well as any in-house documents, which some might find concerning. Its always best to research a provider’s privacy policies and security measures before engaging with them to make sure they meet your privacy requirements.

Some people may find this a concern. Offer suggestions around researching the privacy policies and security measures prior to engaging with the outsource partner.

Lack of control over accounts payable

By outsourcing AP, a company is giving up control over their entire AP process. Gone is the ability to ‘pop in’ to check on the AP department and see how bookkeeping is going. With remote work, people are starting to feel more comfortable working via the cloud, but if the loss of control is a big concern, it’s worth clarifying with a potential provider that open communication and transparency are important to you.

Teething issues

With any change comes some hiccups and there might be some initial challenges when outsourcing the AP process. When a company takes its AP department from in-house to outsourced, there is the possibility that entries will be duplicated. Before any changes take place, it would be wise to hold an internal meeting with staff to discuss the outsource partner, how this will affect workflow, and what employees can do to ensure a seamless transition.

Tips to help you shift from in-house to outsourcing your accounts payable department

To make the transition from in-house AP to outsourcing accounts payable, companies need to do their due diligence on any potential AP outsourcing firms. Here are some tips to make sure you’re choosing the right fit for your company:

  • Research: Get your hands on any testimonials and case studies, which will give you a glimpse into the experiences that other businesses had with the particular provider. What worked for those companies and what didn’t? Also take a look at the security polices of the provider and make sure they align with yours.
  • Prepare: Everyone needs to be on the same page when a company pulls the trigger on outsourcing its AP tasks. Roles and responsibilities might change, and employees need to be made aware of this and educated on what exactly the outsourced company is taking over. Any changes in processes like data entry should also be communicated so there are no duplication or errors.
  • Monitor: If you are concerned about not being able to check in on the outsourcing firm’s productivity, you can employ a performance monitoring tool. This has features like timesheet reports, inactivity timers, detailed project reports and more.

Future challenges if you do not outsource your accounts payable

Outsourcing the AP function is becoming more and more common as companies realize they can improve operations without making an in-house investment in technology. Missing out on the opportunity to outsource accounts payables means missing out on reduced costs, improved cash flow and workflow, better vendor relationships, and the peace of mind that your AP processes are being managed with the latest technology and tools.

Being stuck with AP operations that are manual, time-consuming, prone to errors, and lack visibility will not enable future growth and will only create more problems down the road. Outsourcing accounts payable removes those challenges and positions a company to compete and thrive in the current business environment

How Corcentric can help you with accounts payable outsourcing

Outsourcing accounts payable isn’t just about handing over a company’s AP tasks and calling it a day. Leading outsourcing providers like Corcentric will elevate the AP process with a combination of industry experts and state-of-the-art technology.

Corcentric’s wide range of product solutions such as accounts payable outsourcing, invoice processing, as well as accounts receivable, makes us an essential part of the success of any company. With a relentless focus on the customer, Corcentric works with businesses to improve cash flow and achieve the operational efficiency they’ve been searching for.

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