Financial leaders must identify what constitutes success for their business and identify roadblocks preventing it from progressing, particularly as back office and administrative activities increase with growth or invoice volume.
Suppose resources for your accounts payable (AP) department are limited. In that case, it's crucial that AP adapt to handle more invoices when volume rises - all while taking care of other duties to financially sustain company expansion. Outsourcing some paperwork may seem appealing because accounts payable personnel activities tend not to have as direct an effect on operations as other functions do.
Of course, outsourcing some or all of the account's expected tasks also has downsides. Business organizations today face fierce competition to maintain profitability, so companies constantly look for ways to enhance their offerings and generate increased revenues. One strategy organizations use is outsourcing; outsourcing allows internal employees to make better use of their time, putting more of it toward contributing revenue instead.
Accounts Payable management is one of the more frequently outsourced departments within companies and organizations, often hiring professional third-party teams to handle it on their behalf to:
- Identify areas to lower costs and increase profit margins
- Enhance organizational efficiency
- Better manage cash flow and working capital
Outsourcing accounts payable services is becoming an increasingly common solution. Yet, your organization must still carefully consider its pros and cons before taking this route. How will it assist them in finding and implementing the best accounts payable solution for them? Is outsourcing accounts payable the answer?
This post will further define and explore accounts payable outsourcing as well as explore AP Automation as one method to handle an invoice backlog efficiently and precisely. Now, let's get the party going. Let's go through each stage to advance towards completion.
What Is Accounts Payable Outsourcing?
Accounts payable outsourcing refers to engaging a third-party vendor to manage invoice or bill-related operations on our behalf, typically including capture, purchase order (PO) matching/processing/payment, record preservation/storage, and reporting tasks - though specific services can vary significantly from vendor to vendor.
Accounts payable outsourcing involves contracting out your accounts payable process to trained outside personnel. They handle tasks like managing creditors and short-term debts on your behalf. Due to this, there can be advantages and drawbacks associated with employing third-party AP services. When making this decision for yourself or a client, the benefits must outweigh any possible risks involved in outsourcing.
Other services you may consider outsourcing include:
- Accounts payable administration
- Accounts receivable management
- Discrepancy resolution
- Sending purchase orders
Outsourced accounting teams take over essential accounting functions for your business, freeing up more time for complex projects and procedures to increase productivity and enhance customer satisfaction. Most businesses considering accounts payable outsourcing are dealing with one or more of the following problems:
Your App Team Is Overwhelmed With Their Workload.
At times of rapid business expansion, accounts payable teams often become overwhelmed due to their workload. This is often evidenced by an increase in invoice volume being received - although this increases sales, it also puts additional strain on accounts payable teams that rely heavily on POs, paper documents, and data entry by humans and approval processes - eventually, each new invoice poses additional pressures reducing productivity in turn reducing productivity over time.
Your Invoice Processing Costs Should Be Lowered.
Manual invoice processing costs have been estimated to cost up to $30 in our previous blog article, with expenses quickly mounting if your workflow could be more effective and save time and resources when dealing with uncooperative vendors or multiple departments working back and forth to confirm bills. This post presents various examples of hidden expenses in invoices.
Senior managers likely seek all available methods of cutting invoice processing costs, including outsourcing. When taking an overall look at these expenses, this option is particularly advantageous.
Your App Process Lacks Controls.
Duplicate payments cost companies millions every year when mistakes in human processes lead to the same fees, costing an average of 0.1%-0.05% of invoices paid per invoice payment cycle as duplicate payments; without appropriate safeguards in place, this could cost hundreds, thousands, and even millions in wasted settlements depending on the size and nature of their company. Your team may spend valuable time reconciling incorrect expenses when payments are missed or made posthumously, taking away from other AP tasks.
Your Vendor Relationships Are Suffering.
As suppliers have the power (and will) to cancel contracts from your firm if doing business is too tricky, vendor relations should be considered part of your overall customer service strategy. Vendors contacting accounts payable over missed deadlines or nonpayments consume valuable time; any lateness is always your fault regardless of circumstance - sometimes vendors resend invoices through multiple mediums to ensure payment of one another, which results in double paying an invoice altogether.
Pay For An Ap Service Rather Than Hire More Ap Staff.
Financial directors frequently face staff turnover, lack of time to properly screen candidates due to daily responsibilities, or increasing costs by adding full-time personnel. Outsourcing part or all of the accounts payable may seem appealing, resulting in another bill being received in return. Is any of this ring valid for you? Do you address these challenges through outsourcing or automation? Let's investigate further.
Ap Automation Vs. Ap Outsourcing
Automation of Accounts Payable (AP Automation) can serve as a viable alternative to outsourcing your accounting function, though there are distinct differences between AP outsourcing and Automation of AP: when outsourcing is involved, your accounts payable department is managed by third-party service providers; using advanced platforms, your in-house accounts payable staff could improve internal systems through Automation of AP. To run operations more effectively, AP process outsourcing entrusts duties and obligations to another business.
Business intelligence software used by AP automation manages your internal systems effectively while saving you money overall. So that employees have time for more strategic tasks, AP Automation software automates time-consuming manual operations like invoice data capture, three-way matching, and vendor payment - creating time savings by streamlining repetitive work processes like this one. The benefits of automation include reduced expenses, round-the-clock operations, and reduced risks posed by third parties.
Read More: Unlocking Market Insights: The Role of Financial Research Services
Solving AP: Outsource or Automate?
As we mentioned, outsourcing your AP tasks has pros and cons. Let's break them down.
The Benefits Of Outsourcing Accounts Payable
Benefits of outsourcing accounts payable include:
Potentially reduced costs
Outsourcing accounting tasks could be less expensive than employing and training your staff, depending on your circumstances. By outsourcing, you won't have to worry about insurance, pensions, office space, and equipment requirements for staff that you would have had to manage yourself.
Increased resources
Outsourced accounting solutions typically employ technology (AP Automation platforms, for instance) to control their workflows, with mechanisms in place for vendor management, dispute resolution, and processes that either align or don't align with POs and any necessary administrative assistance.
Administrative, tracking & reporting
As well as other administrative duties, managed accounts payable services will provide reporting as part of their service fee. Services might provide analyses, month and year-end close, reconciliation, document management, cost-per-invoice reporting, and time-to-payment estimates, among many other benefits.
Uptime and accountability
As our vendor focuses exclusively on accounts payable (AP), they'll pay close attention to our AP needs, unlike smaller firms where one person often takes on many roles, such as controller and CFO or AP manager and processor. However, when using technology like AP Automation, you might experience near-continuous uptime depending on its implementation or whether your team members are dispersed across geographical regions or team dynamics.
The Drawbacks Of Outsourcing Accounts Payable
Loss of control
When outsourcing accounts payable (AP), your control over events outside your premises will inevitably diminish; this also applies to vendors outside your organization who provide outsourced AP. Don't expect your vendor to spend his weekend making up any sudden shortages due to emergencies; instead, things may happen more according to their procedures rather than following your workflows precisely. Likewise, don't be alarmed if someone sees your financial records without your knowledge - one drawback and weakness associated with accounts payable internal controls is losing privacy.
Flexibility
Experienced accounts payable professionals know that things don't always run according to plan in AP. Every business processes exceptions differently depending on your agreement with an AP vendor - some might return exception processing to you or your team because their business model requires minimal invoice processing expenses. In contrast, others may need someone who provides guidance or oversight.
Dependency
Delegating tasks you dislike or cannot complete yourself is terrific, yet increasing your dependence on vendors also creates support and increases your dependence. Unfortunately, you cannot ensure their payments continue on time should any complications prevent you from using their services, especially for foreign suppliers.
Errors will still occur, even though an outsourced vendor should possess more robust controls and produce fewer errors than an overburdened AP department. Reviewing document trails to spot mistakes might prove challenging due to limited access. When problems do arise, they could quickly escalate over days or weeks, leaving your documents vulnerable for review and fixation by someone else. It would be prudent to inquire whether their solution uses full AP Automation or requires manual data entry at any point throughout its process.
Communication
Reputable outsourced AP vendors should offer live customer assistance; however, their terms of contact with you will likely be restricted and unlikely to yield many profound ideas that would allow your company to run more smoothly and profitably without an A+ AP department. Furthermore, be wary if one or more outsourced services may have offices and employees overseas. This could present communication hurdles that compromise results in poor service delivery or communication gaps.
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Conclusion
Suppose you can accept some limitations and seek relief from accounts payable tasks. In that case, outsourcing may be the correct answer for you. We suggest exploring AP Automation if you are trying to solve some of the typical accounts payable issues that firms experience; those listed above were in our first section. However, initial conversations between suppliers will still take some time to arrange.Contact us as we are the best Financial Research Services company.
Accounts payable can also be an invaluable strategic business partner when managed in-house. Instead of subjecting employees to hours-long manual data entry processes, automate this part and free up their time to review vendor contracts to identify early payment savings opportunities - so no missed deadlines.
