The core of any business is cash flow. Maintaining relationships with your suppliers, vendors, and other stakeholders is crucial for sustainable business growth. However, businesses often complicate the accounts payable process. Managing the AP department in-house requires time and money, increasing your overall expenses. This is where accounts payable outsourcing comes in.

According to a report by Dataintelo, the accounts payable outsourcing service market is anticipated to grow at a CAGR of 12.3% during the period. In 2021, it was USD 4.59 billion and may reach USD XX billion by 2028.

What is Accounts Payable Outsourcing?

Outsourcing accounts payable is a practice where businesses delegate their AP process to third-party vendors. This service provider will handle all the bills you receive or send to your vendors. Typically, they perform functions such as invoice capture, matching purchase orders, archiving records, and preparing reports.

These service providers are fully equipped with the right skills, tools, and technology to not only streamline your existing accounts payable process but also integrate new capabilities. The best part of outsourcing accounts payable is that you will not lose control over the process but will experience improvement.

Reasons Why Business Seek Accounts Payable Support

Many businesses prefer accounts payable outsourcing for a variety of reasons, but the crucial ones are as follows:

• Poor Visibility

Manual handling of invoices and physical storage of vendor data, receipts, or invoices can severely hinder your ability to improve visibility. This can divert your focus from long-term strategies and increase the risk of errors, mainly when using Excel sheets for data analysis.

• Improper Vendor Management

Inadequate management of the accounts payable process can lead to vendor dissatisfaction and the quest for timely payments. Late payments and poor communication can not only damage your relationship with suppliers but also result in contract terminations. Maintaining good vendor relations is essential for business stability.

• Expensive Processing

If your AP department consistently exceeds budget expectations while preparing financial statements, it’s time to investigate. Failing to invest in accounts payable support can lead to higher long-term costs, primarily if your business relies on manual processing.
According to reports, businesses are paying $22 to process a single invoice. So, for instance, if your company manages 250 invoices every month, you are spending over $ 5,000 to process your payables.

Pros and Cons of Outsourcing Accounts Payable

Let’s begin with the positive aspect of outsource accounts payable.

1. Timely Invoice Processing

Leading accounts payable outsourcing firms implement effective systems enabling businesses to make prompt or on-time payments to their vendors. Speedier invoice settlement fosters stronger relationships with vendors and suppliers, leading to more discounts.
The rule-based nature of accounts payable procedures makes them well-suited for third-party management. Outsourced personnel are dedicated solely to managing a company’s accounts payable systems. Additionally, AP software can enhance on-time payment processing through automated triggers during matching and approval, virtually eliminating the possibility of human errors.

2. Screening for Duplicate Invoices

Advanced AP systems also serve to prevent invoice duplication, a situation that could result in double payments, increased expenses, and reduced profitability, adversely impacting cash flow management. One of the tasks of accounts payable outsourcing teams is to screen for duplicates meticulously. It’s akin to having an extra vigilant eye review of all vendor invoices before payment disbursement.
Furthermore, technology can take this a step further with accounts payable software that automatically screens for duplicates the moment invoices are scanned, even before data capture. The information is promptly flagged and rejected if an invoice already exists in the system.

3. Reducing Fraud and Improving Compliance

AP outsourcing introduces features and tools designed to deter payment fraud. Some businesses opt for outsourcing accounts payable functions to sidestep intricate regulatory requirements. Delegating these responsibilities to an AP outsourcing company allows businesses more time to concentrate on pressing matters and leverages their expertise in security and compliance matters.
Similarly, AP software is adept at memorizing intricate details, exceeding human capabilities, especially in areas such as tax compliance and adherence to global regulatory rules.

4. Eliminating the Need for Additional Hiring

As a company expands, the demand for in-house accounts payable staff often rises to manage the growing workload. However, enterprises seeking improved service levels while curbing hiring costs can reap substantial benefits by partnering with accounts payable outsourcing companies.
The pricing structure can prove more cost-effective and profitable than the overhead expenses associated with recruiting and training new personnel, mainly when manual processes are prevalent.
Accounts payable software can also streamline operations and automate tasks, reducing the necessity for additional staff. While technology isn’t designed to replace humans entirely, it complements existing personnel and enhances overall efficiency.

Let’s dive into the cons

5. Adverse Business Consequences

Inefficient AP processes can potentially undermine a company’s standing and disrupt its supply chain. When the third-party AP provider you engage with consistently makes late payments, it reflects negatively on your brand, with repercussions squarely placed on your reputation.

6. Addressing Error-Handling Challenges

While an outsourced company is expected to make fewer errors compared to an in-house AP team, human fallibility can lead to occasional mistakes. Businesses collaborating with an outsourced AP partner may encounter difficulties in effectively validating and reporting issues.
A separate, outsourced AP department may lack awareness of sudden system modifications, such as vendor transaction updates, potentially resulting in future errors or duplications. Conducting audits or tracing document trails may become a cumbersome task with limited access to pinpoint the source of an issue.

7. Vulnerability to Business Disruption

A company that outsources its accounts payable functions may become reliant on a third-party entity. This reliance poses a considerable risk, particularly if the outsourcing partner encounters financial instability or security breaches unexpectedly. Such incidents can jeopardize a company’s accounts payable processes.

8. Data Privacy and Security Apprehensions

AP outsourcing companies gain access to sensitive financial information, often storing a company’s data on internal servers and cloud storage. While these data storage methods enhance data accessibility for authorized personnel, they heighten the vulnerability of sensitive and confidential information to security breaches and unauthorized access.

How to Choose the Right Accounts Payable Outsourcing Partner

Selecting the right type of accounts payable outsourcing service provider can help you maximize advantages, but it requires a thoughtful approach.

Here are some guidelines to aid you in choosing the ideal accounts payable outsourcing companies:

Conduct In-Depth Research

Before entering into a partnership with an AP outsourcing firm, conducting thorough research is prudent. Seek information through testimonials, user reviews, and feedback, as these sources can shed light on the vendor’s track record and performance history. Analyzing previous projects can offer insights into their client handling, processes, and overall capabilities.

Internal Consultation

Engaging in internal discussions with management and staff is crucial before delegating AP processes to an outsourcing provider. This dialogue clarifies the specific requirements to be met and anticipates potential challenges. When the company, its vendors, and the outsourcing provider are aligned in their understanding, efficiency increases, and the likelihood of errors decreases.

Verify Privacy and Security Measures

Given that accounts payable outsourcing companies may be situated in different countries, it’s essential to scrutinize their privacy and security protocols. Before delegating your AP processes, evaluate the measures they have in place to safeguard the confidentiality of your financial data. This assessment helps gauge the associated risks and understand the extent of safety precautions implemented to prevent security breaches.

Top Trends of Accounts Payable in BPO that will dominate the Market

The accounts payable landscape is evolving at a pace. This clearly shows that the AP landscape will undergo a dynamic transformation. Let’s see some trends that will rule the market in the coming years.

  • Rise of automation
  • Role of AI
  • Significance Data Analytics
  • Impact of Blockchain
  • Growth of Mobile Invoicing
  • Evolution of Payment Technologies

Outsource AP Process to Accounting To Taxes

Accounts payable outsourcing is an ideal option for businesses today. If you seek an automated process with human validation, Accounting To Taxes will assist you. Our AP team is highly qualified and experienced in managing massive amounts of invoices efficiently. Request for our services and see how we can transform your process.