If you run or are part of a large company, you are definitely familiar with uncountable workloads and multiple projects running at the same time.
If you are part of the procurement team, you might have the feeling elevated to a tenfold.
There are some solutions out there that can help you to reduce the heavy amount of operations, procurement departments face.
Today we’ll be focusing on one: Accounts Payable Outsourcing.
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What’s Accounts Payable Outsourcing?
Chances are you may already know what outsourcing is about, basically, it’s a practice that some companies decide to follow, to reduce tasks from their workload. How? By hiring the services of an external and experienced party, usually another company, to handle some specific activities for them.
In the case of AP outsourcing, those activities include things like processing and paying invoices.
AP: A reminder
Just a reminder that accounts payable or AP is the concept accounting departments use to refer to current and short-term liabilities of a business that have yet to be paid.
Reasons to Consider AP Outsourcing
Too much work
Yep, the most logical one goes first, and this is not just only for big companies but also for those businesses that have recently started and suddenly see themselves growing beyond their expectations. It’s not a secret that AP departments have a lot to take care of, so when there’s a peak in their responsibilities, too much might be just…well too much indeed.
High invoicing processing costs
If your company is still doing invoices manually, you could be shocked to find out how much does that cost. Think about it, a poor workflow not only costs you time, it’ll also have an impact on productivity, leading to an unavoidable decrease in profits. Outsourcing could seem just the right option.
No control
Again true, especially for those companies that manage AP manually, no way of tracking what you are doing means no data, and that means no visibility. So for all you know, your company could be paying twice for the same product without realizing it.
Poor supplier relationships
Something that companies overlook on some occasions is that suppliers can and will leave you if they aren’t happy with your business. A key reason for their dissatisfaction is poorly managed payments. If your company is constantly missing deadlines for payments, you can bet that it’s your responsibility to fix it ASAP.
It’s cheaper than hiring more staff
Yes, it’s always a solution to hire more people for your AP department, but depending on your company status that could mean more money and time. Outsourcing can quickly become a favorite solution if you don’t have the energy to invest in recruitment and onboarding processes.
Okay, that’s a good list of reasons why you could see outsourcing as a great idea, but before exploring more about it, let’s solve a fundamental question.
Is AP Outsourcing the same as AP Automation?
Quick answer: No
There are critical differences between outsourcing and automation.
Just like we mentioned at the beginning, if you go for outsourcing a part of perhaps the totality of your AP operations, it will mean that a third-party, external to your company, will be in charge of that.
AP automation, on the other hand, happens when you acquire software that will be used within your company, managed by your own AP department. It will usually have the following features:
- Streamlined online invoice capture and matching
- Upload documents or use OCR scanning for efficient management
- Safeguarding against fraud and preventing duplicate payments
- Automating the entire approval process from start to finish
The Pros of AP Outsourcing
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A little inside secret here, the majority of AP providers use automation to carry out your AP activities, for your company this can represent an advantage as you can get the benefits of having a special software to handle things.
Reduced costs
As we mentioned before, depending on the status of your business, in the long term, choosing an outsourcing alternative might be more cost-effective than recruiting, hiring, and training new employees.
Tracking
Among other benefits, you’ll find that AP providers will give you access to full-reporting functions, this way you can know with precision the status of your accounts payable operations.
Accountability
Think about it: If only one person or, in the case of outsourcing, a company is fully focused on handling your AP, then you can rest assured that there’s a high degree of responsibility and accountability.
Now, that we have seen the good, let’s over the downsides of outsourcing your AP
The Cons of AP Outsourcing
Lack of control
Yes, this one is probably one of the biggest disadvantages of outsourcing. If you aren’t there, if you aren’t seeing it, can you really feel confident that things are going as expected? The answer is up to you, but bear in mind that an external AP department could not completely match your existing AP processes, so you might need to adjust to their approach.
Depending on others
Following what we just discussed, you’ll also need to consider the factor of dependency between your daily operations and the AP services provider. Imagine that something goes wrong on their side, would your business be prepared for it?
Loss of privacy
When you work with AP outsourcing companies, they gain access to your sensitive financial information. Often, these firms store your data on their internal servers or in the cloud. Which is great most of the time, but for some businesses, this could mean yet another source of risk. As a security breach could happen at any moment.
Communication challenges
Even if you are the one hiring their services, an AP company will often follow its own protocols for how they communicate with each other and most importantly with you. While having live customer support would be great, it might not always fit within your budget. If you add to that the possibility of overseas staff, then on-time communication can become a problem.
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Final Thoughts
So yes, accounts payable outsourcing is an alternative for those companies that feel like they could use a hand handling their AP, but while it offers some good benefits, there are also negative aspects that need to be considered before making a decision. Remember that besides outsourcing, every business has the option to choose an automated software to handle processes with efficiency and security.
Key Takeaways
- What is Accounts Payable Outsourcing? Accounts payable outsourcing involves delegating the management of your company's accounts payable processes to a third-party service provider, allowing you to focus on core business functions.
- Cost Savings: Outsourcing can lead to significant cost reductions by minimizing overhead expenses related to staffing, training, and technology.
- Increased Efficiency: Third-party providers often have specialized expertise and advanced technology, resulting in faster processing times and improved accuracy in handling invoices and payments.
- Focus on Core Activities: By outsourcing accounts payable, your internal team can concentrate on strategic initiatives and higher-value tasks, rather than getting bogged down in routine administrative work.
- Access to Expertise: Outsourcing gives you access to a team of professionals who are experienced in accounts payable processes, ensuring compliance with regulations and best practices.
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