The comprehensive guide to accounts payable outsourcing

The differences between these options are essential to note in this article to help businesses pick the right partner for them and their growth goals. In the following, we will discuss the pros and cons of outsourcing accounts payable services compared to having an in-house accounts payable team, AP automation, and the shared services center. The accounts payable department is responsible for managing any invoices or due payments for vendors and suppliers the business works with to provide material, products, services, or other goods. If your current accounts payable process has considerable cash leaks or issues, moving to outsourced AP may improve budget optimization even after the cost of service fees. The average cost to process an invoice is as high as $15, and outsourcing or automation may offer up to a sixfold reduction in processing costs. Moreover, invoice processing speed is limited by your staff’s abilities and work hours.

Also, don’t be disconcerted when outsourcing AP and they have eyes into your financials; a loss of privacy is one drawback and vulnerability when it comes to accounts payable internal controls. Administrative, tracking & reporting – Since you’ll be paying this vendor a fee to manage your AP, they’ll often provide reporting among other administrative functions. Managed AP services can offer reporting on cost per invoice and time to payment among others, and routines such as analysis, month and year-end close, reconciliation, and AP document management. And the accounts payable outsourcing service usually has remote access to your accounting software to keep your general ledger and expense reports up to date. Yes, you’re outsourcing AP data entry, pushing those manual data entry headaches onto someone else, but that invoice processing will still involve a lot of paper. You’ll have to either ship or scan those paper invoices and receipts to get them to your AP outsourcing team.

Before selecting a provider, assess whether they can offer customizable services that align with your specific AP workflow. Ask how adaptable they are to changes in volume, processes, or technology, and request case studies or examples where they’ve customized solutions for other clients. Outsourcing firms specialize in AP management, ensuring not only efficiency but also strict compliance with evolving regulatory standards.

Cost Savings through Accounts Payable Outsourcing

That’s why financial outsource industries and businesses have switched to AP automation. Companies may be tempted to outsource AP processes because they’ve outgrown their manual AP systems. How a payable outsourcing service communicates is typically on their terms. Although live customer support is ideal, it may not always be in the price range. Staff can also be located overseas and in a completely different time zone; which puts a strain on communication.

Evaluating cost and value

Some companies find that the cost of outsourcing is offset by the overhead savings created by delegating certain processes to an external provider. Conduct a cost analysis to determine if outsourcing your AP processes could improve efficiency and reduce operational costs. AP outsourcing solutions put efficient systems in place that allow you to pay vendor invoices on time (or even early) to enhance supplier relationships.

And, to make sure both the customer and the AP team benefit from the relationship, that outsourced AP team is probably using automation. If a separate party manages AP functions, a company’s in-house teams may focus on other core tasks such as budget, analysis, decision-making improvement, and vendor relationship management. Accounts payable outsourcing providers often set pricing per invoice at the cost of $1.50 to $2.00 per invoice, not by the hour.

Costly Payment Processing

1. By ensuring timely and accurate payments to your vendors, your organization can benefit from improved cash flow management and reduced invoice processing costs.
2. Potentially reduced costs – It’s possible that outsourcing your AP duties will be more cost-effective than hiring and training your own team.
3. Errors – While an outsourced vendor should have better controls and, theoretically, make fewer errors than an overwhelmed AP department, errors will still happen.
4. Many account payable outsourcing companies charge on a per-invoice basis.
5. Outsourcing vendor management tasks can ensure that vendor relationships are well-maintained.

By shifting the responsibility of accounts payable operations to specialized providers, companies can dedicate more time and resources to these core activities, driving growth and innovation. Companies who outsource accounts payable services introduce a new level of efficiency and productivity to their team, thanks to the advanced technologies and automated processes of specialized firms. Outsourcing payment processing tasks to a reliable provider also reduces the risk of payment fraud and errors, as they employ advanced technologies and processes to identify, eliminate, and minimize such risks. This can ultimately save your organization time and money while maintaining a high level of accuracy and compliance. Outsourcing your accounts payable processes may be cost-effective for a business. In-house AP processes require hiring people, investing in training materials, and equipment/software which can be quite expensive for a business.

If a contract with the vendor does not cover exceptions in processing, then your business has to deal with it separately. Outsourcing companies may not always be transparent in how they deal with your AP processes. Also, changes in your processes may not be fully implemented by outsourcing companies handling your AP processes, resulting in more errors or rework. If there are limited resources within your AP department, it becomes crucial to plan on how to scale the function to deal with greater volumes of invoices and data entry. Now, depending on how efficient that service is and how many hours you need from them, they still might be more cost effective than automating your own AP processes and maintaining a lean double entry system of accounting AP team.