The Pros and Cons of Outsourcing Accounts Payable: An In-Depth Analysis

Many business leaders expect a huge headache in switching from a traditional AP system to a more practical automated one. Companies that are worried about headcount expansion are often struggling with an equivalent increase in paperwork. Many companies outsource their AP for a variety of reasons that make perfect sense for their strategic situation. You’d be so busy shipping papers back and forth, making sure nothing slipped through the cracks of those manual systems, that you’d be no better off than you were before.

AP automation vs. AP outsourcing

Accounts Payable SSC is a unit that handles all accounts payable transactions for more than one business unit within the organization, and sometimes, they control the invoice-to-payment processes for several entities. AP automation is possible when subscribing to a SaaS solution, adopting a dedicated accounting software, or adopting an ERP system on-premises. And the accounts payable outsourcing service usually has remote access to your accounting software to keep your general ledger and expense reports up to date. But an exceptional partner should also have the tools and expertise to help you work smarter in a post-pandemic world. The ultimate solution to future-proof your business is to consider installing an accounts payable solution.

Less process control

• According to most case studies, companies typically use process outsourcing to add value to their businesses and to improve AP dramatically.
• By outsourcing to third-party account payable services, the best financial document management companies handle your AP functions.
• The world is a big place and sending payments to vendors has become increasingly complicated.
• Outsourced companies don’t necessarily guarantee transparency or more efficient communication.
• With less scale, smaller enterprises need more flexibility from outsourcing partners than multinational corporations.
• Outsourcing accounts payable processes can offer a wide range of benefits to businesses, such as cost savings, improved efficiency, and enhanced visibility and control over financial transactions.
• An AP outsourced business solution might sound like it operates more efficiently, so it can improve your bottom line.

When considering outsourcing, develop a list of potential accounts payable outsourcing companies to evaluate for cost, capabilities, security, data privacy, customer service, and business strength. Whether you outsource to a third-party provider or purchase AP automation software, the cost savings are there. 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. Additionally, when you own your own AP process you can turn accounts payable into a strategic partner for your business.

The drawbacks of outsourcing accounts payable

Trade payables constitute the money a company owes its vendors for inventory-related goods, such as business supplies or materials that are part of the inventory. A company’s total accounts payable balance at a specific point in time will appear on its balance sheet under the accounts payable outsourcing current liabilities section. Accounts payable are obligations that must be paid off within a given period to avoid default. Having a skilled eye on your finances at all times will give you peace of mind, as well as the ability to make well-informed financial decisions.

With our simple interface, you can fully automate Accounts Payable while having easy access to data and analysis at the click of a button. Plus, you can manage payments with batch approvals, allowing you to authorize the payment of vendors efficiently. After learning about all the issues that outsourcing Accounts Payable can help with and the benefits of using a third party, you’re probably ready to start researching potential providers.

How to Outsource Your Accounts Payable in 5 Key Steps

• For instance, you can implement Stampli’s best-in-class AP Automation software and train your team within days.
• This is in line with accrual accounting, where expenses are recognized when incurred rather than when cash changes hands.
• All this can be avoided by simply outsourcing accounts payable to a provider that can supply the same services at a fraction of the cost.
• If your team can create value elsewhere in the business by moving to an outsourced AP model, outsourcing might make sense.
• Adopting outsourced accounts payable services introduces a new level of efficiency and productivity, thanks to the advanced technologies and automated processes of specialized firms.

Vendor relations should be taken as a customer service approach, because vendors can (and will) pull contracts from your company if they find it difficult to work with your business. From missed due dates or non-payments, vendors will be in touch with the AP department to track down the status of their payment which again, takes away valuable time from accounts payable. No matter the circumstance, when a vendor is missing a payment, it’s always your fault.

But by considering factors such as cost, scalability, and the level of control desired, you can make an informed decision about the best approach for your business. Furthermore, by working with an AP outsourcing provider, businesses can ensure that they maintain a high level of compliance with financial regulations and industry best practices. With over 18 years of experience in the industry, https://www.bookstime.com/law-firm-bookkeeping ILM ensures high-quality AP outsourcing services, with expertise in all major payments and ERP systems. Any company dealing with accounts payable best practices in-house is bound to have greater control over its processes. Emergencies can be prioritized and handled straight away with direct approvals. With a third-party provider, you will have to play by their terms and timings.

• Additionally, since the outsourcing team only works on your accounts payable, they can deliver results much faster.
• In AP outsourcing, activities such as managing short-term debts and creditors are conducted by qualified third-party AP teams.
• AP outsourcing to a payable service leads to tighter controls and faster payments.
• This is where accounts payable outsourcing enters the spotlight, offering a streamlined, expert-managed alternative to the traditional in-house approach.
• When the AP department receives the invoice, it records a $500 credit in accounts payable and a $500 debit to office supply expense.

The differences between these options are essential to note in this article to help businesses pick the right partner for them and their growth goals. In the following, we will discuss the pros and cons of outsourcing accounts payable services compared to having an in-house accounts payable team, AP automation, and the shared services center. Outsourcing accounts payable processes can result in a loss of direct control over managing financial transactions and vendor relationships. Although this can free up valuable time and resources for businesses to focus on other core activities, it may also lead to a lack of oversight and increased dependency on the outsourcing provider. Outsourcing accounts payable processes can offer a wide range of benefits to businesses, such as cost savings, improved efficiency, and enhanced visibility and control over financial transactions.

Present AP team lacks controls

However, if it’s total visibility into the accounts payable process you seek, automated AP software may be your best bet. If you’re analyzing data with paper and excel sheets, there’s a high chance of errors due to limited visibility into vendor costs or ineffective spend. As the business world grows more competitive, companies are scrambling to improve services and differentiate their brand, while cutting costs. Managing accounts-payable in-house requires time and money that your business might not have. As most outsourcing providers charge per invoice, duplication errors can be quite costly.