When it comes to modernizing the internal accounting workflow, accounts payable outsourcing becomes a strategic move. Organizations delegate their AP duties to specialized third-party services that cover a wide array of activities, from handling receipts to communication with suppliers.

Proper management of accounts payable is critical if you want to maintain a healthy cash flow and build a robust contractors network. Well-organized AP processes can prevent overdue payments, decrease discrepancies, and strengthen financial planning, ultimately supporting stability and growth of the venture. In this article, we’ll discover the primary pros of business process outsourcing (BPO) and what you should take into account when selecting a reliable service provider.

Understanding Accounts Payable Outsourcing

Supplier relationships can be very confusing and one overdue payment can cause multi-million dollar losses. To protect your business, you should be informed about all financial processes and control each report.

In simple terms, accounts payable is an element of operational management that incorporates tracking and handling a company’s short-term liabilities. It facilitates timely payments, improving cooperation with retailers, and cash flow management.

By contracting out these duties, companies can focus on their core operations while ensuring all financial obligations are under control. It’s an ideal option if you seek an end-to-end solution without the need to invest additional resources and spend time on reports. Deciding on which functions to contract out depends on your budget, business scale, and expectations. You can choose among the following tasks:

  • Invoice Processing: This is the most laborious area of AP, and it requires lots of time and attention if you do it on your own. It will be much easier if you find experts to manage receipts, bills, and purchase orders (POs), verify their accuracy, and enter them into the accounting system.
  • Payment Disbursement: Independent accountants will schedule and make payments to retailers or suppliers without delays.
  • Reconciliation: If you decide to contract out account reconciliation to external specialists, they will check all your transactions and fix discrepancies quickly.

The best decision for small entities and self-starters will be to outsource the overall scope of accounting work, including accounts receivable management, payroll, and expense management, because, in this case, you will be sure that all bills are under control and each number in financial reports is correct.

The procedure of delegating trade payables is simple. Typically, it involves several steps:

  1. Assessing your company’s AP needs and pinpointing which tasks to delegate.
  2. Selecting a reputable service expert with the necessary knowledge and software. For example, BooksTime has the expertise to perform such tasks for law firms, nonprofits, real estate companies, self-starters from various sectors, and many others.
  3. Transferring tasks to the provider may include data migration, documentation processing, or even AP automation.
  4. Developing contingency plans and strategies to alleviate risks of subcontracting, such as data security breaches, operational disruptions, or changes in regulatory requirements.

If you want to control the quality of work, you should set communication rules and basic metrics to control that your accountant meets expectations and accounting standards.

Is Accounts Payable Outsourcing the Best Choice for Business?

Pros of Accounts Payable Outsourcing

Deciding between hiring an in-staff accountant or outsourcing some tasks requires a thorough analysis of the pros and cons of each option. Recent research states that 90% of employers face difficulties when trying to hire accounting talent. That is why outsourcing is a good alternative for growing an internal team. Let’s dive deeper into the advantages of accounts payable outsourcing:

  1. Reducing labor costs: Statistics show that 59% of business owners choose contracting out tasks to minimize expenditures. Outsourcing accounts payable functions significantly lower labor expenditures due to eliminating the need to onboard, train, and maintain a large in-house accounting team. Additionally, it cuts overhead expenditures associated with office space, utilities, and employee benefits. These savings can be substantial, especially for small to medium-sized enterprises because they operate with tight budgets.
  2. Accurate reports: AP service suppliers use standardized procedures and all-encompassing automation solutions to streamline invoice processing and remittance flows. This reduces manual data entry and lowers the possibility of accidental mistakes. As a result you get faster and error-free financial transactions.
  3. Improved compliance and risk control: AP experts are well-versed in regulatory requirements. They stay up-to-date with changes in tax laws, reporting standards, and industry norms, verifying that all reports are compliant.
  4. Access to expertise and technology: External accountants bring specialized backgrounds and industry proficiency to the table. This ensures that AP tasks are handled efficiently and in compliance with the latest regulations. Service providers also use accounts payable software that might not be affordable for individual businesses and offer improved operational efficiency.

Advanced technologies used by service providers include optical character recognition (OCR) for automated data capture, ML algorithms for fraud detection, and cloud-based platforms for real-time access to data. All of them aim to improve the speed and accuracy of AP processes and exceed traditional in-house methods.

Moreover, external companies implement working risk management strategies, including regular audits and fraud prevention measures. They use advanced security protocols to protect sensitive data and execute all transactions in a secure environment. Such measures help lessen the perils associated with AP processes and enhance overall financial security.

Cons of Accounts Payable Outsourcing

One of the common concerns related to contracting out trade payables is the potential loss of control over financial processes. When an external specialist handles AP tasks, businesses may face challenges in maintaining supervision and ensuring that the processes still coordinate with their specific demands. To weaken these worries, it’s crucial to set transparent communication guidelines and robust monitoring mechanisms.

Relying on the service supplier in critical financial matters introduces risks, such as service interruptions, dishonesty, or worsening of service quality over time. Businesses become dependent on external experts, which can be a vulnerability if not managed properly. To reduce these risks, the CFO should conduct thorough due diligence when selecting an outsourcing partner, including evaluating their track record, financial stability, and customer reviews.

Finally, accounts payable outsourcing stipulates sharing sensitive financial data with third-party providers, which in turn raises concerns about privacy and security. Unauthorized access or data breaches will lead to significant financial and reputational harm. To safeguard your information, choosing companies with robust security protocols, including encryption, secure data transfer methods, and regular security audits, is essential. Implementing strict access controls and monitoring systems can further safeguard sensitive materials and reports.

Is Accounts Payable Outsourcing the Best Choice for Business?

Factors to Consider

Undoubtedly, outsourcing accounts payable functions might be a forward-looking tactic for organizations aiming to save money. However, several factors should be considered before embarking on this path.

  1. Begin by assessing your organization’s current situation. Estimate the amount of invoices processed, the complexity of transactions, existing inefficiencies, and readiness for AP automation. Determine whether outsourcing matches with your strategic goals and operational needs.
  2. Evaluate all possible money savings against the quality of service delivered by the potential provider. Ensure that cost reductions do not compromise service levels or introduce risks.
  3. When evaluating external accountants, examine their industry experience, reputation, and track record in handling AP processes. Look for providers with proven expertise in your sector and a strong commitment to security and service quality.
  4. During the selection process, ask about the companies’ capabilities, including their infrastructure, scalability, recovery protocols, and customer support.
  5. Assess the data security mechanisms and guidelines to safeguard your confidential financial information. Verify their compliance with GDPR or IRS requirements to alleviate possible problems.

By critically assessing potential accounts payable outsourcing services against crucial criteria and asking relevant questions during the selection process, you can make a well-informed decision. This approach aims to minimize risks and optimize profits by partnering with a reliable service provider.

Tips and Recommendations

Clearly outline your objectives for external accountants, whether it’s reducing costs, improving accuracy, or scalability. Align these objectives with your overall business strategy to maximize the profits of outsourcing.

Monitoring the performance of accounts payable outsourcing involves tracking key metrics to ensure effectiveness. Metrics such as invoice processing time, accuracy of payments, cost per invoice, supplier satisfaction scores, and compliance adherence offer valuable insights into operational performance. For example, measuring invoice processing time helps gauge efficiency, while cost per invoice reflects financial efficiency, and vendor satisfaction scores indicate relationship health.

We recommend utilizing resources such as industry publications, professional networks, and online forums to stay informed about tendencies in AP outsourcing and updated practices. Engage with peers and reputable experts to exchange insights or recommendations for updating outsourcing contracts. This proactive approach will help your outsourcing initiatives stay aligned with your goals and contribute to long-term success.

Final Words

The decision to subcontract AP involves weighing pros like expense reduction and full payment processing against cons such as loss of control and dependency risks. Take your time to determine your organization’s needs and select a service provider that aligns with your requirements and objectives. Moreover, it should be with specialized knowledge and experience in AP management within your field. Industry-specific knowledge ensures familiarity with regulatory nuances and operational challenges unique to your sector.

At BooksTime, we understand the complexities of AP management and offer tailored bookkeeping solutions. Our team has expertise in different sectors and works with various business entities, from startups to large companies. Book a call with our expert and explore how our services can transform your AP processes.