Bookkeeping
What is Accounts Payable Outsourcing?
Outsourcing is a tempting alternative for organizations that want to remove the hassle of processing accounts payable. It cuts down costs, eliminates errors, and avoids the pain points of a traditional process, like manual data entry, document storage, and training new employees. Additionally, these solutions allow supplier invoices to be paid on time, enhancing vendor relationships. A satisfied vendor is more likely to offer discounts due to early payments, which increases the company’s profitability. Outsourcing accounts payable means your accounting department will have fewer tasks to accomplish since activities such as managing short-term debts are conducted by qualified third-party AP teams.
If a business relies heavily on a single provider for these tasks, it could be at risk if that provider experiences challenges such as security breaches or bankruptcy. In such cases, the business’s AP processes could come to a standstill, potentially damaging vendor relationships and other aspects of the business. Next to high processing costs, it is also a time-consuming and error-prone process.
Accounts Payable Software
In many cases, outsourcing is the easiest way to eliminate paper invoices, checks, and receipts. Paper processing has long been one of the most significant sources of problems for accounts payable professionals, especially in terms of fraud. But without the right efficiencies and reporting tools, the risk of payments fraud and vendor non-compliance escalates as businesses grow. In fact, according to the 2018 Payments Fraud and Control Survey by the Association for Financial Professionals (AFP), 78% of all organizations surveyed were hit by payments fraud in 2017. Among those that were hit by fraud, 92% said the attacks collectively cost at least 0.5% of their organization’s annual revenue.
Accounts payable involves current liabilities like short-term debts to vendors and suppliers for goods and services purchased on credit. The balance sheet for accounts payable is a component of working capital (current assets minus current liabilities). You can seamlessly integrate it with your existing accounting software, allowing you to easily manage your accounts payable process without having to switch between multiple systems. Klippa SpendControl uses advanced OCR technology to automatically extract and process key information from invoices with automated data entry, and speeding up the overall turnaround time. These specialized companies have the knowledge, resources, and technology required to execute and improve the organization’s current AP procedures. They are in charge of documenting invoices, reviewing the details of bills and invoices, making payments, keeping records on file, and reporting.
Third-party accounts management companies have modern facilities and software to efficiently and accurately accomplish tasks. Genpact provides a comprehensive range of AP outsourcing services, including invoice receipt and processing, vendor management, and payment processing. They strive to offer cost savings, improved efficiency, and increased visibility and control for their clients.
To avoid this risk, you can always install AP automation software that’s run by your own skilled staff. That way, the risk remains inside the business and payments can be automated. AP software can also increase timely payment processing with automated triggers in the matching and approval process. If your company handles at least 250 invoices per month, you’re looking at spending over $5,000 to process your payables. This can lead to delays in the processing of invoices and payments, as well as misunderstandings and errors. Besides the lack of control and transparency, outsourcing AP may also hinder communication between the company and the service provider, due to language barriers, cultural differences, or physical distance.
- A company that outsources its accounts payable may grow dependent on a third-party firm.
- If you haven’t realized it already, the benefits of outsourcing accounts payable are limitless.
- However, some practices can be followed to ensure that businesses partner with the proper accounts payable outsourcing provider.
- Outsourcing your AP is a significant decision that should not be made lightly.
However, one main issue is whether companies can entrust their most essential financial processes and highly confidential data to a third-party firm. Another potential disadvantage of outsourcing accounts payable processes is the risk of over-dependence on the service provider. One https://www.quick-bookkeeping.net/ of the potential drawbacks of outsourcing accounts payable is the loss of control over these processes. When a business outsources AP to a third-party provider, it relies on the provider to handle AP tasks accurately and efficiently according to their own terms and schedules.
One of the biggest benefits of outsourcing accounts payable processes is the potential for significant cost savings. The improved efficiency mentioned in the previous point will lead to savings in several areas, such as reduced invoice processing costs and increased vendor discounts. Improved efficiency in accounts payable processes can also lead to better cash flow management and a more strategic use of financial resources. Outsourcing accounts payable processes https://www.bookkeeping-reviews.com/ can lead to significant improvements in efficiency for businesses. By leveraging the expertise and technology of a third-party provider, organizations can streamline their AP workflows and reduce the time spent on manual tasks such as data entry and invoice processing. Efficient invoice receipt and processing can lead to cost savings and improved accuracy, reducing the likelihood of manual data entry errors and facilitating better cash flow management.
Outsourcing companies have more flexibility because they are not bound by location or culture
Efficient payment processing is another key service provided by accounts payable outsourcing companies. By ensuring timely and accurate payments to your vendors, your organization can benefit from improved cash flow management and reduced invoice processing costs. Prompt payment also helps to strengthen vendor relationships, leading to better terms and increased discounts.
But it involves incurring other costs such as investing in the software and allocating time for training the employees to use the software. As companies increasingly recognize the benefits of outsourcing accounts payable (AP) functions, those who choose not to embrace this strategic approach may encounter future challenges. Missing out on the opportunity to outsource AP can lead to several issues, including increased costs, inefficient cash flow and workflows, strained vendor relationships, and reliance on outdated technology and tools. However, accounts payable automation may not be suitable for all businesses, as it may not offer the same level of human oversight and adaptability as outsourcing accounts payable processes.
Reasons why companies are outsourcing their AP process
This includes not only processing invoices but also managing payments, ensuring compliance, and handling vendor queries. Providers with experience in your industry or similar business sizes can offer tailored solutions that better fit your needs. Outsourcing accounts payable offers unparalleled scalability, allowing businesses to adjust their AP operations in alignment with their growth trajectory and seasonal demands.
If outsourcing providers do not have the facility to detect duplicate invoices, then the business ends up incurring more costs than necessary. A company that outsources its accounts payable may grow dependent on a third-party firm. This dependence is risky, especially if the outsourcing partner suddenly faces bankruptcy or security breaches. 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.
Accounts Payable Outsourcing vs Accounts Payable Automation
If your current accounts payable process has considerable cash leaks or issues, moving to outsourced AP may improve budget optimization even after the cost of service fees. The average cost to process an invoice is as high as $15, and outsourcing or automation may offer up to a sixfold reduction in processing costs. 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. Many vendors from across the globe offer Accounts Payable services, and businesses that utilize them can save time and money and take loads of stress off their employees. AP automation refers to the use/ integration of software and technology to streamline and automate the accounts payable process.
Loss of direct control
With a platform like MineralTree, all invoice data is available to use in data analytics, upon invoice capture. As a result, financial leaders can leverage more accurate cash forecasting models based on better information. Outsourcing accounts payable has certain advantages, including cost savings, more time for value-added core business functions, and solving capacity issues. However, outsourced AP still has the disadvantages of human error, duplicate payment risk, and fraud. Outsourcing AP also gives teams significantly less control and oversight into their payables.
Working with an external team may lead to communication challenges, especially if they are located in different time zones or have cultural differences. Sharing financial information with a third party involves inherent risks https://www.online-accounting.net/ in data security and privacy, requiring trust and strong safeguards from the provider. When you outsource, you don’t have as much visibility over the process, nor do you have as much control over how the process works.