Summary: Outsourcing accounts payable can boost efficiency, but it's not for everyone. Learn when to consider it, key pros and cons, and how it differs from automation.
What Is Accounts Payable Outsourcing?
Accounts payable encompasses a range of critical functions that support an organization’s finances, including invoice processing, vendor payments, data record-keeping, and compliance. Accounts payable outsourcing is the process of delegating all of the AP-related tasks to a third-party provider. Outsourcing accounts payable helps employers focus on strategic growth while letting accounting professionals handle critical AP tasks to ensure compliance.
When To Consider Outsourcing Accounts Payable?
Here are some scenarios in which you can consider outsourcing accounts payable.
High Invoice Volume
Many businesses process invoices and payments almost every day. And when you have hundreds of invoices each day that you are manually processing, it gets harder to stay on top of your tasks. In such cases, companies should consider outsourcing their accounts payable operations to focus on more strategic tasks for business growth.
Global Accounts
Some businesses operate globally, meaning the invoices and payments are in your local currency and other currencies. Operating with multiple currencies requires understanding tax implications depending on where the payments are made.
When you outsource your accounts payable function, the third-party providers are experts in the field and can help you navigate the complexities of handling multi-currency payments and related compliance.
Seasonal Spikes
Not all businesses have the same volume of accounts payable tasks throughout the year. Some see a spike in accounts payable operations in a certain quarter. If that sounds like your business, consider outsourcing your accounts payable function during these seasonal spikes. This will help employers focus on generating revenue while the third-party provider takes care of the invoicing, payments, and compliance.
Benefits of Outsourcing Accounts Payable
Outsourcing accounts payable can benefit the organization in many ways, these are:
Cost Efficiency
Outsourcing the accounts payable function means you only pay for the period you’re actually getting any AP-related tasks done. This way, you don’t have to hire a team full-time with a recurring payroll, recruiting, and training costs. Many accounts payable third-party vendors charge a per-invoice fee, which ensures that organizations are not paying anything over what gets processed.
Improved Processes & Accuracy
When the outsourced accounts payable providers handle all AP functions, they use standardized processes and technology for improved accuracy, so you don’t have to worry about tax implications, timely transfer, or accurate payments. This minimizes the possibility of manual errors and improves financial reporting.
Stronger Data Security
Accounting outsourcing providers are professional organizations that handle many clients’ financial and confidential data. The accounts payable outsourcing providers have strong data security measures implemented that put the client at ease when giving them access to the client’s financial information. Providers are typically compliant with industry standards such as SOC 2, GDPR, or ISO 27001, ensuring sensitive financial data is safeguarded.
Disadvantages of Outsourcing Accounts Payable
While there are benefits to outsourcing the accounts payable function, below are some items to consider before engaging any third-party service providers.
Loss of Control over AP Processes
When third-party vendors handle all of your AP processes, including how they do it, when they do it, what systems they use, and what the process is; all of these tasks will be managed by them according to their own policies, which will leave you with very little visibility and control over your accounts payable function.
Limited Customization
Since accounting service providers handle your AP function, you cannot customize the processes based solely on your organization’s needs. AP providers have built processes to support clients from various industries, and they may not have options for you to customize workflows and reporting formats according to your business’s unique needs.
Communication Gaps
Working with AP service providers can mean you have a layer of separation between your organization and the people managing your accounts payable function. This can lead to communication gaps or delays in resolving time-sensitive issues such as disputed invoices, urgent payments, or financial reports.
Compliance Risks
If your third-party service provider has not handled customers in your specific industry in the past, they may not be aware of your industry-specific compliance requirements. This can result in incorrect tax payments, leading to penalties and hefty fines.
Accounts Payable Outsourcing Vs. Accounts Payable Automation
Accounts payable automation and outsourcing accounts payable both help organizations run their AP function, but both have different approaches. Accounts payable automation is a process where technology is used to reduce manual work and creates workflows that automatically receive, input, approve, and run invoices or payments.
Below, we have showcased differences between the two to help you understand what is better for your organization.
| Accounts Payable Outsourcing | Accounts Payable Automation |
|---|---|
| Delegates the entire AP function to a third-party provider | Uses modern technology to streamline and digitize the AP process |
| Recurring cost when you use this service | One-time cost to set up the system |
| Low control over AP processes | Customization according to business needs |
| Dependent on the knowledge of the provider’s staff | Based on system capabilities and AI |
Authors:
Charlotte is an Human Resources Information Systems and Martech expect, Charlotte has worked for major brands in the industry including FactorialHR and Tooltester. Originally from Manchester, UK, with a Bachelor's degree from the Manchester Metropolitan University, Charlotte currently lives in Barcelona, Spain.