Why Should You Outsource Your Accounts Payable Process?

If you’re like most business owners, you’re always looking for ways to save money and improve your bottom line. Accounts payable outsourcing services is one way to achieve both of these goals while also improving the accuracy of your books. Is it worth the risk of sharing your business’s financial information with another entity? Does accounts payable automation provide a better alternative? Let’s take a good look at the details.

What Are Accounts Payable?

As a business owner, you likely wore many work hats to get your business started. Consequently, you might not be familiar with accounting terms, such as accounts payable. If that’s the case, note that accounts payables are the amounts a company owes for goods and services received on credit.

The accounts payable process is what a business uses to track, manage, and pay these debts. Over the past decade or so, the process has increasingly involved the use of software to generate invoices and track payments.

What Is Accounts Payable Outsourcing?

AP outsourcing is the process of transferring the responsibility of paying invoices to an outside company. This practice is also called accounts payable business process outsourcing or 3rd party accounts payable. The primary goal of AP outsourcing is to save the company money by taking advantage of economies of scale and increased efficiencies.

What Is Invoice Management Outsourcing?

Invoice management outsourcing is a type of accounts payable outsourcing in which the outside company manages and pays invoices on behalf of the business. The outside company is responsible for ensuring that invoices are paid on time and that the business takes advantage of any early payment discounts. Some companies prefer this over outsourcing the entire accounts payable process.

When Should You Consider Making Changes To Your Current Accounts Payable Processes?

You might be thinking that your current AP process works just fine. After all, you pay the bills on time often enough, and you’re not incurring any late fees. So, why pay for outsourcing? These are some of the instances when you might need to consider outsourcing:

  • Your accounts payable team is overwhelmed with work and suffering from burnout.
  • You don’t currently have an established AP team and need help managing the process.
  • You’re not getting the best deals on goods and services because you’re not taking advantage of early payment discounts.
  • The AP process is taking up too much time, and you’d like to free up some of that time to focus on other aspects of your business.
  • You’re not confident that you or the accounting team has the time or expertise to manage the process effectively.
  • The process is not as accurate as it could be and you’d like to improve your books.
  • You’re not sure if your company is following all of the latest compliance regulations.

What Are the Benefits of Outsourcing Accounts Payable Function?

When you outsource your AP functions, you resolve all or most of the items identified above as good reasons to outsource. You can also leverage these additional benefits:

  • Reduced accounting and administrative costs
  • Improved ability to handle audits due to excellent books management
  • Improved cash flow management
  • Access to specialized accounts payable software and expertise
  • Reduced or shared risk by outsourcing to an insured and licensed entity

What Are the Challenges of Outsourcing Accounts Payable Function?

There’s no denying that outsourcing your AP function can lead to a wealth of benefits for your company. However, you also need to create contingency plans to account for these and other challenges that may arise:

  • Loss of control over the accounts payable process
  • Higher risks of losing confidentiality when involving a 3rd party accounts payable team
  • Potentially higher costs if the outsourcing company makes mistakes
  • Difficulty transitioning back to in-house processing if you’re unhappy with the outsourcing company

Is Accounts Payable Automation a Better Alternative to Accounts Payable Business Process Outsourcing?

If you’re not sure whether to outsource your accounts payable process, you might want to consider automation. In fact 44% of businesses surveyed by Business Insider intend to take this route in the next few years. Businesses that digitized their invoice accounts payable processes have reduced processing costs by 81% and sped up the processing cycle by 73%.

So, what is accounts payable automation? It is the process of using software and advanced AI to eliminate manual work in the accounts payable process. This can include automating the generation of invoices, tracking payments, and paying invoices.

When you outsource your accounts payable processes to another company, the team will likely rely on automation software to boost its economies of scale. It’s worth testing this out in-house for yourself before deciding if you need to hire a team to manage software that you can purchase for under $100 per month. Here are some additional benefits of automating your AP process:

  • Reduced need for overtime and the resulting costs
  • Reduced invoicing costs by roughly $8 per invoice 
  • Reduced time spent on menial or tedious tasks
  • Reduced likelihood of payment errors
  • Protection of jobs and employee morale by keeping the AP team onboard
  • Improved cash flow management
  • Elimination or reduction of lengthy, bureaucratic invoice approval processes

The Bottom Line

It’s important to weigh the pros and cons carefully before making a decision on accounts payable outsourcing services. Before you make a decision, it’s also worth giving accounts payable automation a try. This is a lower cost and lower risk investment. It also reduces the likelihood of negatively impacting employee morale when the company loses its AP workers. Eliminating this risk, in turn, improves employee buy-in for future automation efforts.

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