An increasing number of businesses are outsourcing their accounts payable processes to a specialized third-party team.
With accounts payable outsourcing, they can:
- Manage their working capital and cash flow better.
- Identify potential areas of cost-saving.
- Increase organizational efficiency.
But what is accounts payable outsourcing and how do you do it?
In this article, we’ll answer these questions and also include a few handy tips to help you outsource your accounts payable easily.
This article contains:
- What Is Accounts Payable Outsourcing?
- Should You Outsource Your Accounts Payable?
- 4 Benefits Of Outsourcing Your Accounts Payable
- 4 Drawbacks Of Outsourcing Your Accounts Payable
- 3 Tips For Efficient Accounts Payable Outsourcing
Let’s get started.
What is accounts payable outsourcing?
Accounts payable outsourcing is a form of outsourcing where a third party team manages your accounts payable processes.
You can outsource tasks like:
- sending purchase orders
- accounts payable administration
- discrepancy resolution
- accounts receivable management
By outsourcing to third-party account payable services, the best financial document management companies handle your AP functions. It also frees up your in-house AP departments to focus on higher-level tasks and core business processes.
Should you outsource your accounts payable?
Most businesses still use outdated and expensive systems like optical character recognition (OCR), or even paper invoicing, to manage their AP processes.
Why is this a problem?
Companies that don’t use e-invoices and other electronic automation tools are likely to lose out to more productive competitors! Additionally, upgrading those old accounting systems to modern solutions such as Quickbooks can be costly and time-consuming.
Instead of worrying about this yourself, why not outsource your accounts payable to a third-party service provider?
Outsourcing accounts payable processes can help businesses gain an edge in their industry without the need for a system overhaul. It can also streamline your internal accounting processes for better efficiency.
To help you decide if you should outsource your AP tasks or not, let’s take a look at its pros and cons:
Four benefits of outsourcing accounts payable
Here are the main advantages of outsourcing your AP tasks:
1. Saves money and time
An in-house AP team can be extremely expensive.
While you have to hire employees and spend time training them, you also need to purchase the tools required to do the job! These costs can stack up quickly, especially if you have a large team.
How does outsourcing help?
You don’t have to hire or train outsourced teams for the job, as they already have the required skills and tools to do it. You only have to pay for their services!
Outsourcing can also automate many of these tasks for you! This way, companies gain huge cost reductions from saved time and improved productivity.
For example, back-office employees don’t have to spend hours on manual data entry, recording disbursements and bookkeeping.
You can outsource these activities to a service provider who has a dedicated team and the tools for the job!
Tip: Want to save more money? Many outsourced services even offer early payment discounts if you pay your invoices before the due date!
2. Greatly improves efficiency
Every account payable task is prone to errors — especially if you use outdated tools like paper invoices. But thanks to advanced technology and invoice processing automation, accounts payable outsourcing services are less likely to suffer from costly human errors!
Additionally, since the outsourcing team only works on your accounts payable, they can deliver results much faster.
By outsourcing accounts payable tasks, you free up your in-house team for core business activities like managing vendor relationships and improving budgets. This boosts your employees’ efficiency across the board!
3. Access to better tools
Acquiring modern accounts payable solutions can be time-consuming and expensive. Additionally, the costs and resources used for onboarding your employees to use these tools further stack up!
Outsourcing accounts payable helps businesses avoid these costs while using the best document management and business intelligence tools available.
Third-party service providers have skilled teams who use the latest tools to perform the job. You won’t have to worry about paying for each tool or training your team on it. Just hire specialized outsourced teams to benefit from AP tools at much lower costs!
4. Constant coverage
Most in-house teams have a financial supervisor, such as the CFO, to manage issues when employees aren’t present.
However, a single supervisor can’t take on all the work, right?
Outsourcing accounts payable takes most of this workload off of your AP team supervisor. Even if some employees are absent, the stress of covering up does not land on a sole supervisor.
As most outsourcing firms have several employees for the same task, you don’t have to worry about your provider being understaffed — there’s always someone who has you covered!
Four drawbacks of outsourcing accounts payable
Although there are several benefits of outsourcing your AP work, it’s not suitable for everyone. Let’s have a look at the main disadvantages of an outsourced AP provider:
1. Lack of control
It’s easy to supervise your in-house invoice processing activities as your employees are always visible and accessible.
However, this isn’t the case with outsourced teams.
With outsourced accounting services, you don’t have direct visibility over how the team handles your accounts payable processes. Remember, they could be thousands of miles away!
While this does take some of the supervisory duties off your hands, the lack of control can hinder communication, transparency and efficiency.
2. Difficult to report errors
With in-house AP processes, it can be easier to spot and resolve errors. However, when you outsource the task to a third-party provider, error reporting can be problematic.
As you’re not physically present where the tasks are performed, it can be difficult to manage any issues that pop-up. You might not even be able to quickly identify the source of problems in the AP processes.
Here’s a glance at some issues that commonly occur in accounts payable outsourcing:
A. Exceptions processing
Most businesses have a few exceptions and business rules in their accounts payable workflow. Usually, these exceptions can easily be accounted for in-house.
However, an outsourced team may not agree to process these exceptions to minimize their processing cost per invoice. They might even ask you to process these exceptions yourself!
B. Duplication issues
As most outsourcing providers charge per invoice, duplication errors can be quite costly. And as these providers could be thousands of miles away, keeping track of these duplicates can be difficult.
But how do you avoid duplicate submissions?
The best method is to clearly communicate the change in submission systems with vendors and AP employees. If everyone is on the same page about the process, problems are less likely to occur!
3. Higher risk
While outsourcing helps a company cut costs and improve its service levels, it can often limit their independence.
Think about it.
Businesses grow dependent on third party teams — even for essential functions like accounts payable and software development!
Why is this a problem?
If the outsourcing provider goes bankrupt or has a security breach, your company will be affected too. Your accounts payable process may be put at risk, and switching to another system can be expensive and time-consuming.
4. Privacy concerns
If you’re outsourcing accounts payable data, you need to share your confidential financial data with the third-party provider.
Depending on the industry standards and your outsourcing provider, the data may be stored on internal servers or even on the cloud. This could increase your data’s accessibility — making it prone to unauthorized access.
So how do you keep your data safe?
Three tips for streamlined accounts payable outsourcing
To outsource your accounts payable easily, here’re a few things to keep in mind.
1. Choose the right service provider
This goes without saying, but the quality of work done depends on the service provider you choose.
Think about it.
When you hire new employees, you don’t just hire anyone — you consider their skillsets to determine if they’d be a good fit for your company. Similarly, you need to make sure that you pick the best outsourcing provider.
How do you choose the right AP service provider?
Read reviews and testimonials
While these don’t give you the full picture, checking reviews and testimonials is a great place to start. Read about the benefits and drawbacks people have faced when hiring a particular provider.
Look at their previous projects
While you may not be able to access the exact data about their projects, case studies and accounts of the provider’s previous work give you an idea about their quality.
Read about their policies and security measures thoroughly
This is essential to judge how well the outsourcing provider’s privacy and data protection measures match up to yours.
2. Prep your in-house team for the change
It’s essential to prepare your in-house employees before outsourcing your accounts payable tasks.
AP outsourcing usually involves several changes to your accounts payable processes.
These can include:
Delegation of responsibilities
As you outsource AP tasks that were previously carried out by the in-house team, your employees might have different responsibilities and day-to-day tasks.
Implementation of new software
Outsourcing is likely to introduce modern AP software as well as collaboration tools to boost your efficiency. Your in-house team will probably need time to familiarize themselves with the same.
Changes in submission systems
To streamline your AP processes, your data submission systems will need to be updated. Ensure your employees are up to date with these to avoid errors or duplication.
To ensure smooth onboarding and efficient coordination, everyone needs to be on the same page.
Take the time and effort to communicate all changes to your employees — while this may take some time, it’s going to result in smoother processes, which will pay off in the long run.
3. Use performance monitoring tools
Accounts payable outsourcing can be stressful as you can’t keep an eye on your third-party team.
When the team could be on the other side of the world, how do you verify:
- how productive they are.
- if they’re accessing non-work websites.
- if idle-time is being billed for work hours.
Luckily, performance monitoring tools like Time Doctor could help you with this!
What’s Time Doctor?
Time Doctor is a powerful performance tracking software used by PWC and KPMG to track their outsourced teams’ work activity.
Here’s how it can help you manage your outsourced accounts payable team:
- Timesheet reports: track the time the team worked during a given time period.
- Detailed project reports: know how much time it took to process each invoice.
- Web & app usage report: identify the websites your outsourced team accesses during work hours.
- Distraction management: help your remote team avoid distractions with pop-up alerts.
- Inactivity timer: ensure that the outsourced team doesn’t log idle time as work hours.
- Payroll management: bill your service provider for completed invoices within Time Doctor.
Tip: Contact us today to learn more about how Time Doctor can help monitor your outsourced AP team!
Whether you own a startup or a multinational BPO, outsourcing can help you cut costs and streamline your accounts payable process!
However, don’t rush into outsourcing all your AP tasks.
Make sure you hire the best outsourcing provider to match your accounts payable needs and keep your data safe.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.