The Pros and Cons of Outsourcing Your Accounts Payable

• Standard
• Accounts payable outsourcing companies, AP Outsourcing, Digitizing AP

Each day, the business world gets more competitive. In such an environment, your company needs a way to improve your services and stand out from the competition while also cutting costs. Outsourcing accounts payable is a viable solution for companies wanting to do just that.

Managing accounts payable in-house is often a daunting task. The more your company grows, the more challenging it is to make sure the accounting department can keep up. Not only that, but the prospect of hiring more staff to handle accounting tasks is another expense. Many companies first turn to outsourcing while looking for a way to solve their staffing issues.

That is one benefit of accounts payable outsourcing companies. However, you shouldn’t just look at outsourcing as a mere shift in labor. Under the right circumstances, outsourced accounts payable services will provide tangible benefits and ongoing value to your business.

Even with the promise that outsourcing can be beneficial, many companies are uncomfortable with the idea of trusting one of their most important financial processes to an outside firm. And it is also possible that outsourcing won’t exactly fit your company’s needs. Adequately considering the advantages and disadvantages of outsourcing will put you in a great position to make the best call for the future.

A Note on Automation

Before we get started, it’s worth noting that outsourcing accounts payable is not the same thing as AP automation. While there is some overlap between the two, there are also significant differences. Both help your company respond to increased or fluctuating invoice volume. Both can help your company overcome accounts payable challenges like high processing costs and falling behind on payments. Outsourcing and automation just provide those benefits in different ways.

With outsourcing, you’re paying another company to run your accounts payable department. With automation, you’re using another company’s software to streamline your in-house accounts payable system. If you’re trying to decide whether to automate your business processes or outsource them, you need to ask yourself what you want to accomplish.

Automate if you want to …

• keep accounts payable processing in your company.
• make things easier for your in-house AP department.
• stay in direct control of highly sensitive financial information.

Outsource if you want to …

• have your employees focus on things other than accounts payable processing.
• partner with a reliable Accounts Payable Service that will handle data security for you.
• improve accounts payable without hiring more staff or implementing a new AP automation system.

In this article, we’ll focus on the pros and cons of outsourcing accounts payable. If you’d rather learn more about automation, we can help with that, too. Start by checking out our articles “5 Questions To Ask Before You Automate AP” and “10 Compelling Reasons To Automate Accounts Payable.”

The Pros of Outsourcing Accounts Payable

Outsourcing isn’t just about shifting responsibility for accounts payable processing. Ideally, deciding to work with a business process outsourcing (BPO) provider will add value to your business and improve your accounts payable process. The benefit of outsourcing include:

Cut Costs:

It can be costly to have an in-house accounts payable staff, and costs go up if you need to hire and train new people. In addition, the equipment and programs that are necessary for AP processing can be very costly. Outsourcing, on the other hand, means you can have experienced, equipped professionals do the same job at a lower cost. You’ll reduce the transactional cost for AP processing because with outsourcing you pay by the invoice, not by the hour.

Efficiency:

Accounts payable service providers have access to automated processes and a wealth of experiences. This lets them process invoices quickly. Also, because handling your business processes is an accounts payable outsourcing company’s core service, they don’t get distracted by other important tasks like an in-house AP department might. This means the company you outsource to can get your work done more quickly and accurately – and use less paper – than a small in-house staff could.

Constant Coverage:

If you have an in-house AP department, a supervisor is responsible for managing scheduling and handling issues if employees are out. You can’t always guarantee constant coverage, though, especially during something as uncertain as a pandemic. An outsourcing firm cross-trains multiple employees on accounts and maintains common standards across their company. That means you never have you worry about being left uncovered.

Automated Tracking:

Even though outsourcers do the work off-site, modern accounts payable services technology lets you track each step of the accounting process instantly. You’ll have constant real-time access to all your AP information. With this sort of access, you’ll never be left in the dark about accounts payable processing or important financial data.

Fewer Errors:

Human error can lead to costly consequences. In fact, if you’re using spreadsheets to track accounts payable, it’s pretty much guaranteed that there are already errors in your process. However, the automated processes and experienced professionals that service providers use can minimize common mistakes.

Tighter Controls:

Outsourcing accounts payable helps ensure you’re never losing or overlooking invoices. Your provider should have a reliable system in place with control procedures to keep track of your invoices and ensure they’re paid on time. Working with a BPO provider should also greatly reduce headaches related to locating documents and data for budget planning, audits, and more.

Better Resources:

A good business partner can take on your AP operations and provide analytics on possible avenues for improvement. They also have greater bandwidth to add more volume so they can absorb seasonal increases and year-end crunches more effectively. And if you work with an accounts payable outsourcing company that is also a technology provider, you’ll be in a prime position to learn about the latest advances in technology. You’ll also have personalized improvement opportunities available.

The Cons of Outsourcing Accounts Payable

As with so many things, the advantages of business process outsourcing come with a few downsides as well. Some of these downsides are just something that’s a part of outsourcing because no solution is ever 100% perfect. Other potential downsides may or may not be a problem for your company. Those depend on the quality of the BPO provider you choose. There are fewer downsides if you’re working with a reliable accounts payable outsourcing company.

Loss of Control:

When you have in-house employees conducting invoice processing, your company’s control over invoices and financial information is much more direct. But when you outsource your AP process to a third party, you give up a certain degree of control and visibility. You no longer directly control exactly how they handle your accounts payable processes, even though you’re still in control of your company finances.

Error Reporting Issues:

Many outsourcing providers conduct their own audits but sometimes the process feels like a black box. If something goes wrong, you’re not always sure how to validate the issues. If you still see problems in your AP department after outsourcing, management might find that they’re unable to fully identify the sources of problems. Whether or not this becomes an issue depends on how well your accounts payable outsourcing company communicates key information.

Dependence:

If you’re outsourcing accounts payable, you will depend completely on that company to do vital work. If something happens to them (bankruptcy, security breach, etc.) it would put your accounts payable process at risk. That’s one reason why it’s so important to choose a reliable partner to work with.

Exceptions Processing:

All companies have exceptions in their accounts payable workflow. Some outsourcers can be very selective about which kinds of exceptions they will process. Because BPO companies rely on having a low cost per invoice, they may insist that you process exceptions yourself. An inflexible outsourcer can make it seem like you’re only getting half of the solution you paid for.

Duplication Issues:

If your outsourcing provider charges by the invoice, then you need to take extra caution to avoid duplicate submissions. And because many outsourcing providers don’t have the tools to tell you how duplicated submissions occurred, it can make you feel powerless to solve the problem. You’ll need to get your vendors and/or AP employees all on board with the change in submission systems to avoid problems.

Conclusion

While there are potential downsides to outsourcing accounts payable, most of those downsides are minimal with the right accounts payable outsourcing company. And if you do decide you’d rather keep your AP processing in-house after reading through this list of pros and cons, then utilizing accounts payable automation can give you many of the same benefits in terms of streamlining processing and cutting costs.

Here at NextProcess, we’re dedicated to minimizing risks and maximizing results for all our customers. We offer safe, affordable options for either outsourcing or automating your accounts payable process. Our BPO and accounts payable services provide a variety of options to guarantee excellent results.

Contact us today to get started or request more information. We’ll be happy to answer any questions you have about outsourcing or automating AP processing and help you set up an accounts payable solution that’s right for your company.