As the business grows, supporting tasks swallow increasing amounts of time and resources. Accounts payable (AP) is an indispensable part of a healthy and profitable business. Still, it can quickly overwhelm your internal accounting team and siphon off resources from more business-critical activities.
While it’s not for every business, AP outsourcing is growing in popularity to streamline operations and free up internal resources. In this article, we’ll explore account payable outsourcing, its pros and cons, and whether it’s the right move for your business.
What is Accounts Payable Outsourcing?
Accounts payable outsourcing is a form of business processing outsourcing (BPO) in which a company hires a third-party contractor to manage their accounts payable. The goal is to reduce the workload on the internal accounting team by outsourcing AP-related tasks to an experienced service provider.
Accounts Payable Outsourcing Services
AP outsourcing firms can carry out a range of services to help manage the AP process on behalf of their clients. Some examples of these types of services are:
- Third-party consulting and accounting
- Accounts Payable software solutions such as MakersHub
- Quickbooks Live – an online service that connects small businesses with QuickBooks-certified virtual bookkeepers.
- CFOs for hire
- Managing short-term debts and creditors through qualified third-party teams
- Accounts receivable management
- Discrepancy resolution
- Sending purchase orders
The Challenges of Managing All Accounts Payable In-House
Before we make a case for outsourcing accounts payable, let’s look at the most impactful challenges that organizations face when managing all of their AP processes in-house:
Manual Data Entry
In most cases, manual data capture and data entry are tedious and time-consuming tasks that don’t require much problem-solving or creativity.
Some of these activities include:
- Capturing and reviewing all details from vendor invoices.
- Conducting way matching to validate purchase orders and avoid falling victim to potential payment fraud.
- Generating multiple reports and iteratively manipulating data to understand the status of your accounts payable and cash flow.
These activities distract your workforce from more strategic work, wasting your human resource potential.
Incorrectly Coded Items and Expenses
A top concern of 41% of organizations is human errors due to manual inputs that lead to inaccurate data and accounting mistakes. These mistakes can lead to wrongfully inflated payments, late payment penalties, or other accounting errors that can drag on time and resources.
AP automation is one way to virtually eliminate these errors by removing the need for manual input in highly repetitive tasks where mistakes are most common. The problem is that it can be difficult for organizations without the expertise to implement automated AP workflows.
Inaccurate Data Impacts Financial Visibility and Forecasting
Mistakes during manual data input or handling can also lead to making financial forecasts and strategy-based decisions based on factually incorrect data. This can lead to critical strategic errors in the short to long term that can impact everything from vendor relationships to profitability.
Process and Tools
Companies often rely on several software tools to support their various accounting operations; for example, ERP (enterprise resource planning) software, invoice processing applications, workflow technologies, and more. A dependency on multiple tools leads to various challenges, such as a complex procurement process, increased maintenance, and more intensive employee onboarding and training programs.
Pros and Cons of Accounts Payable Outsourcing
Pros of Accounts Payable Outsourcing
As is evidenced by numerous case studies, outsourcing has the potential to revolutionize an organization’s accounts payable processes. Here are some of the most significant benefits companies have achieved by outsourcing their AP:
Time and Cost Savings
You’ll save your team a considerable amount of time by offloading many of your most time-consuming AP tasks to a third party. If we go with the adage that time = money, it’s already a win-win for your business.
Organizations also continuously have to expand their accounting team as they grow. That can represent a significant expense, as the average cost per hire in the US is roughly $4,000, and the average accounting staff salary is $52,980.
Outsourcing AP can also help prevent costly financial liabilities due to human error, like duplicate payments.
Considering all this, organizations often find that outsourced accounting services can offer cost-effective rates that work out cheaper in the long run.
Increasing Invoice Processing and Payments Efficiency
Accounts payable automation can significantly accelerate invoice and payment processing workflows. AP automation software is highly adept at processing these mundane, back-office tasks in a faster and more scalable fashion.
Human errors and outdated technologies, like paper invoices, can hold up your in-house AP processes. Outsourced service providers use rule-based systems with built-in compliance and governance to avoid these types of mistakes and keep turn-around times short.
Focus on Higher-Level Strategic Tasks
One of the key benefits of outsourcing some of your accounts payable functions is to reduce the workload of your internal AP team. This will allow them to focus on high-level AP functions with more value-creating potential for your organization, such as budgeting, analysis, strategic decision-making, and vendor relationship management.
Access to Better Tools and Skills
Accounts payable is likely not your core business, so expecting your AP department to function at the same level as professional accounts payable outsourcing services is not always realistic.
As their core competency, outsourcing firms always ensure that they work with the latest and best tools to streamline and enhance their accounts payable processes. Not to mention continuously benchmarking their accounts payable against industry standards and metrics to ensure their services are competitive.
It also means that outsourcing providers put a lot of time and effort into ensuring they hire the best talent to remain competitive. And that they maintain vendor relationships to always be at the cutting edge of accounts payable solutions.
Cons of Accounts Payable Outsourcing
AP outsourcing is not for every organization. Before you commit, you should also carefully consider the potential cons of outsourcing solutions:
Privacy and Third-party Concerns
For a third-party provider to do its job, you’ll need to hand over historical data and any in-house documents relating to your accounts payable. The AP service will store the client’s data on its internal servers or cloud storage. So, companies that use an outsourced service will rely on a third party to protect their interests.
Some companies consider handing this information to an external entity a significant security risk. That’s why it’s equally important to research a provider’s privacy policies, security measures, and track record before proceeding.
Lack of Control Over AP Processes
AP outsourcing firms will be handling their client’s accounts payable in real-time, and there isn’t always an opportunity or bandwidth to run everything by an internal accounts payable department. Service providers use their own accounting systems, processes, and methodologies to execute AP tasks in a way that’s as efficient, accurate, and cost-effective as possible.
Queries or issues regarding AP will also need to be routed to an external party, which may take more time than handling them internally. AP process outsourcing may reduce transparency, communication, and efficiency. However, interfering too much in your service provider’s day-to-day operations can further hamper the undertaking, so you’ll need to trust their business processes.
Handling Reporting and Accounting Errors
Because you, or your staff, are not physically present to monitor the process, it’s more likely that critical issues, like duplication of invoice processing and exception processing or payment fraud, will go unnoticed by you.
While an outsourced AP firm will have measures to attempt to prevent these errors and minimize their risk, they can’t guarantee they won’t occur. When they do, it can be harder to trace the root cause of the error and create an audit trail for remedial action.
How to Go About Outsourcing Accounts Payable
There are broadly two ways you can go about outsourcing your AP:
Outsourcing to People
This is when you hire a third-party service provider to take over some of the tasks from your internal AP team. You can think of this as a hands-off approach that will put other people in charge of some, or all, of your AP operations.
The main benefit of this route is that it will save you the maximum amount of time and effort. However, the cons are that it’s usually a pricier option, depending on the firm’s pricing and how they calculate processing costs.
Outsourcing to Software
Also called AP automation, This method involves leveraging software to reduce the amount of manual work your accounts payable department has to do. As mentioned, many different AP solutions exist that either addresses a specific pain point or can execute a broad range of AP-related tasks.
The benefits are that this is typically a lower-cost option than outsourcing to a firm. You also don’t have to deal with some of the cons of outsourcing because you’ll retain ownership of your data, have complete control over your AP operations, and will still be able to monitor and address errors or concerns in-house.
MakersHub is an accounts payable solution designed specifically with industrial businesses in mind. It allows companies to collect all bill data with a single click, using the most comprehensive, accurate, and reliable Smart Data Reader on the market. Using an optical character reader, large language models, and self-learning algorithms MakersHub offers fast and reliable data capture with high accuracy. And it integrates seamlessly with Quickbooks to eliminate the need for manual data input. Makershub further streamlines the entire AP pipeline with built-in bill approval tracking and automated payment processing.
Top Accounts Payable Outsourcing Companies
Market research and understanding your options are key when it comes to outsourcing any business process. If you feel like it would be a good fit for your business, here is a short list of some of the top AP service providers:
- MakersHub: MakersHub serves industrial businesses and integrates with QuickBooks. MakersHub is the only tool available in the US that can fully automate bill data entry, payment record creation, and payment processing set to pay out on the due date. MakersHub offers a 30-day free trial. MakersHub is recommended by QuickBooks Pro advisors. The best value for money to scale your AP processes given MakersHub affordable monthly fees.
These other options are for Enterprise size businesses and come at a significant cost.
- Accenture: Accenture is an Irish-American professional services company based in Dublin, specializing in information technology services and consulting. They offer a wide range of outsourcing services, one of which is accounts payable.
- Genpact: Genpact is a global professional services firm that provides a range of business and technology services, with a focus on digital transformation by leveraging technologies like automation and AI. Accounts payable is one part of its suite of finance and accounting services.
- Deloitte: Deloitte is one of the world leaders when it comes to audit and assurance, consulting, financial advisory, risk advisory, tax, and related services. Their wide range of financial services, includes accounts payable, accounts receivable, bookkeeping, and more.
Are Accounts Payable Outsourcing Right for Your Business?
While outsourcing accounts payable has pros and cons, the potential benefits outweigh the downsides for most organizations. That’s especially true if you feel that your accounting team is overwhelmed with managing accounts payable as it is because the main benefits of outsourcing accounts payable are streamlining your internal AP processes and making them more scalable.
Signs you may need help with AP (and check out MakersHub as an option to automate accounts payable and data entry tasks)
- You need fast and efficient invoice creation when billable items are entered for each job/customer.
- You need accurate COGS. Inputs to products, product lines, and jobs.
- Can you answer the following: Were our jobs profitable? Did we bill the customer for all the right things?
- Struggling to track incoming SKUs, and item numbers correctly.
The key takeaway is that handling AP processing the old-fashioned way can hamper businesses from realizing their full potential. It is riddled with manual, time-wasting activities, and the risk of errors leading to costly mistakes is needlessly high.
While outsourcing accounts payable is a viable solution for some, it can leave you open to certain risks inherent to working with a third party. AP automation, on the other hand, can help companies achieve many of the same positive business outcomes in terms of efficiency, accuracy, and profitability.