Ask how adaptable they are to changes in volume, processes, or technology, and request case studies or examples where they’ve customized solutions for other clients. Working with an external AP service provider, especially one in a different time zone or country, can create communication barriers. Delays in responses or misunderstandings due to language advantages and disadvantages of computerized accounting or cultural differences may lead to errors in processing or disrupt the workflow. Outsourcing accounts payable offers unparalleled scalability, allowing businesses to adjust their AP operations in alignment with their growth trajectory and seasonal demands.
This means that they’ll have systems in place to handle both a PO-backed or non-PO process, discrepancy resolution, vendor management and sometimes administrative support. These concerns can make it very appealing to outsource some (or all) of the accounts payable function, which ironically, becomes another invoice. While mistakes are inevitable with any manual process, duplicate payments cost businesses money; a lot of money in fact. When upper management is looking at these costs from a high level, they will likely be interested in exploring all options for reducing those costs for invoice processing, including outsourcing.
AP automation vs. AP outsourcing
An increasing number of businesses are outsourcing their accounts payable processes to a specialized third-party team. Companies outsource their accounts payable operations in part current ratio: definition, formula, and example to gain access to better tools and processes. Of course, this rapid change in processes can cause problems in-house, especially if your employees are used to your old procedures. No matter your current accounting system, the best accounts payable outsourcing firms have the tools to integrate with it. If you’re fed up with your current system, a provider can even help you onboard a new one.Easy integration helps you get started quickly so you can see value immediately.
- Apart from streamlining invoices, accounts payable outsourcing companies also reduce the incidence of errors in invoices.
- This is especially the case for paper-based processes and those manually entering data, chasing down approvals, and heavy PO-based processes.
- According to most case studies, companies typically use process outsourcing to add value to their businesses and to improve AP dramatically.
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 permanent accounts the source of problems in the AP processes. 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. Businesses that are used to doing accounts payable in-house are also used to a certain level of control. If you oversee the AP department, for example, you may enjoy the fact that you can step into a room and speak with your staff whenever you want.
Accounting Systems
The provider’s ability to operate from different locations is a huge added value to cater for the needs of your operations and the varying demand in different sites and time zones. A shared services center (SSC) is a centralized and consolidated business unit that provides services for multiple units within the same organization and/or numerous entities simultaneously. 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. With advanced technology and real-time reporting, you can track every step of the AP process, from invoice receipt to payment.
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. Moreover, invoice processing speed is limited by your staff’s abilities and work hours. Third-party accounts management companies have modern facilities and software to efficiently and accurately accomplish tasks. To acquire the resources necessary to streamline their internal processes, small and medium-sized businesses often turn to accounts payable outsourcing companies to fill the gap. By carefully considering the cost and value of different accounts payable service providers, you can make an informed decision that will deliver the best return on investment for your business.
Accounts Payable Outsourcing: Pros, Cons, & Best Practices
While you have to hire employees and spend time training them, you also need to purchase the tools required to do the job! Despite the myriad benefits of outsourcing your AP processes, it may not be the best choice for you. You may have hesitations about working with a third-party, or it may not be a reasonable choice in your industry. AP outsourcing companies don’t just follow best practices when doing their work.
Before outsourcing, it’s wise to educate your employees about the new process so they can work in tandem with your outsourced provider. 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. Furthermore, onboarding new technology, although necessary, comes with a hefty price tag. According to one study, 78% of best-in-class businesses had adopted e-invoice processing technology compared to just 38% of their struggling competitors.
Having a full suite of services ensures that all your AP needs are covered under one roof, simplifying management and communication. Apart from streamlining invoices, accounts payable outsourcing companies also reduce the incidence of errors in invoices. By running proper checks & validations, they can identify errors in invoices and prevent wrong payments. The use of AP experts and sophisticated technology helps them identify risks and reduce the incidence of fraud.