The Pros and Cons of Outsourcing Your Accounts Payable
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 if often a daunting task. The more your company grows, the more challenging it is to make sure the AP 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 outsourcing. However, you shouldn’t just look at outsourcing as a mere shift in labor. Under the right circumstances, outsourced accounts payable will be a service with tangible benefits that provides ongoing value in 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 is not the same thing as accounts payable automation. While there is some overlap, with outsourcing you are paying another company to run your accounts payable department. With automation, you’re using another company’s software to streamline your in-house AP 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. If your primary goal is to make things easier on your in-house AP department then automation is probably what you’ll want. But if you’d rather take more of the workload off your hands you’ll want to outsource. This article will focus on the pros and cons of outsourcing. If you’d rather learn more about automation, check out these articles:
The Pros of Outsourcing Accounts Payable
Outsourcing isn’t just about shifting responsibility. Ideally, making the decision 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:
Hiring your own in-house accounts payable staff, as well as all the equipment and programs that are necessary for the process, 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.
Accounts payable service providers have access to automated processes and a wealth of experiences. Plus, your invoice copies and statements will be processed quickly because that’s the business’ core service to you. 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.
With an in-house AP department, a supervisor would be responsible for managing scheduling and handling issues if employees are out. An outsourcing firm cross-trains multiple employees on accounts and maintains common standards. That means you never have you worry about being left uncovered.
Even though outsourcers do the work off-site, modern technology lets you track each step of the accounting process instantly. You’ll have constant real-time access to your accounts payable information. With this sort of access, you’ll never be left in the dark about your AP processing.
Minimization of Error:
Human error can lead to costly consequences. In fact, if you’re using spreadsheets to track accounts payable, it’s pretty much a given that there are already errors in your process. However, the automated processes and experienced professionals that service providers use can minimize common mistakes.
Outsourcing accounts payable helps ensure you’re no longer losing or overlooking invoices. Your provider should have a reliable system in place with control procedures to keep track of your papers. Working with a BPO provider should also greatly reduce headaches around research and locating documents as needed.
A good business partner can take on your AP operations and provide analytics on possible avenues for improvement. They also have a greater bandwidth to add more volume so they can absorb seasonal increases and year-end crunches more effectively. And if you work with a technology provider as well as an outsourcer, you will be in prime position to learn about the latest in technology and 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 inherent to outsourcing. Others will depend on the quality of the BPO provider you choose.
Loss of Control:
When you have in-house employees conducting invoice processing, the control is much more direct. But when you outsource your accounts process to a third-party, you do give up a degree of control and visibility. You no longer directly control exactly how they handle your accounts payable processes.
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. Your management might also find that they’re unable to fully identify the sources of problems you’re still seeing in your AP department.
If you outsource your 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.
All companies have exceptions in their accounts payable workflow but outsourcers can be very selective about what they will process. Because they 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.
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.
While there are potential downsides to outsourcing accounts payable, most of those downsides are minimal with the right provider. But 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 as outsourcing.
Here at NextProcess, we’re dedicated to minimizing risks and maximizing results for all our customers. We offer safe, affordable options for outsourcing or automating your accounts payable process. Our BPO and accounts payable services provide a variety of options to guarantee excellent results. You can use your staff as much or as little as you like to keep control of AP processing within your company.
Contact us today to get started or request more information. We’ll be happy to answer any questions you have and help you set up an accounts payable solution that’s right for your company.