Accounts Payable Outsourcing: Streamlining Your Finances for Success

Finance teams are always busy, with a multitude of tasks such as record-keeping, preparing financial statements, reports, and budgeting for the entire year. As a result, accounts payable might take a back seat. In such cases, outsourcing your accounts payable functions to accounting firms might be a good idea. 

What Is Accounts Payable Outsourcing?

Accounts payable outsourcing means entrusting your payables-related accounting functions to an external vendor. These functions may vary from invoice digitization, 3-way matching, to payment processing and reporting. These third-party vendors are generally accounting firms equipped with trained personnel and accounts payable tools tailored to meet your business needs.

Why Consider Outsourcing Your Payables?

Outsourcing is not suitable for every company, as many prefer to manage finance functions in-house. However, there are several reasons why you might want to consider outsourcing:

High invoice processing costs

Accounts payable processing demands a substantial amount of resources. Managing a high number of invoices usually requires the use of OCR software for digitization and payment software for processing payments. Additionally, paying vendors by check incurs additional costs in the form of printing and mailing checks, further augmented by labor expenses. If your company struggles with managing varying payables costs, outsourcing your payables for a fixed cost might be a viable option.

Increasing headcount and hiring costs

If your company is experiencing growth and scaling rapidly, your invoice volume will also increase significantly. This surge in volume can create a challenge for your existing accounting team, and coping with it effectively might require hiring additional accountants, demanding a considerable investment of both time and money. This is where outsourcing can be advantageous. By opting for accounts payable outsourcing, you can circumvent the need for extra investments as your chosen vendor will efficiently manage the growing invoice volume on your behalf.

Poor vendor management

Struggling vendor relationships due to a lack of communication, constant late payments, or missed invoices are telltale signs that your in-house accounts payable processes are becoming difficult to manage. For the sake of fostering better vendor relationships, outsourcing payables might be a more viable option.

Inefficient processes

Most manual processes are susceptible to errors, and inefficiencies in these processes can result in significant financial losses due to duplicate payments, late payment fees, and missed discounts. Furthermore, the absence of a proper audit trail can adversely impact your finances and render your company vulnerable to fraudulent activities. By outsourcing payables, you can effectively address these issues and alleviate the burden they place on your organization.

Benefits Of Accounts Payable Outsourcing

Accounts payable outsourcing can be beneficial to your organization if you struggle with any of the aforementioned issues. Here are some advantages of outsourcing your accounts payable: 

Reduce costs

Accounts payable outsourcing enables you to manage an otherwise variable cost with a fixed amount of money. Most outsourcing vendors charge a fixed consulting fee for processing and managing accounts payable, in addition to the payments made. This approach minimizes surprises related to the number and monetary value of processed invoices.

Timely payment processing

Outsourcing payables to a third-party vendor ensures that you receive top-notch deliverables. This encompasses timely payment processing and, in some cases, the ability to capitalize on a significant portion of early payment discount options, which can aid in minimizing monetary losses and maximizing financial gains.

Eliminate the need for hiring

Scaling your business means an increasing number of vendors and subsequently a larger volume of invoices. When outsourcing your accounts payable processes, you don't need to worry about hiring, onboarding, and training costs for new accountants. Your vendor manages the increase in volumes themselves, for a little additional fee, reducing the burden on your hiring and finance team.

Improve efficiency

Taking the load off your finance team by outsourcing manual and repetitive accounts payable tasks allows them to focus on more strategic business activities, thereby improving productivity and efficiency. With accounts payable taken care of, you can now look into optimizing your business functions, better budgeting, and cost optimization within your organization.

Disadvantages Of Outsourcing

Accounts payable outsourcing might be a good option for reducing the load on your accountants' backs. However, there are also some disadvantages to consider:

Lack of control

Handling accounts payable functions in-house means having complete visibility and control over your funds. Outsourcing can mean visibility into your processes is largely dependent on communication with a third-party vendor, reducing control over your sensitive information and potentially causing security issues.

Risk of increased external reliance

Outsourcing accounts payable amplifies your reliance on a third-party entity. Your vendors may not always handle finances in the same manner you would, or they may be unwilling to invest extra hours to meet tight deadlines. Furthermore, vital communications could be delayed due to inefficient communication channels.

Lack of business knowledge

While accounting firms excel in managing accounts payable functions, they may lack an in-depth understanding of your specific business needs. Critical information, such as which vendors to prioritize and which funds to retain, might not always be readily available to them. Unfortunately, this knowledge gap could potentially impact your financial well-being adversely.

Data privacy concerns

A data breach within your vendor's company could result in the leak of sensitive information, leaving your data less secure compared to managing accounts payable in-house. Entrusting your data to a new vendor from another country also introduces potential risks. Additionally, the lack of visibility exacerbates this problem, as you might remain unaware of any misuse of your funds.

AP Outsourcing Vs AP Automation - ClearTech

If scaling your accounts payable needs without the disadvantages of outsourcing is something you’re looking for, AP automation might be a good choice for you. AP automation ensures you can scale functions without adding headcount, or depending on a third-party vendor. This makes your finance functions more under control, and less prone to breaches. 

Most AP automation software, such as ClearTech, allows you to reduce the manual workload on your accountants, allowing them to process funds seamlessly. ClearTech also provides you full visibility over your spend with smart AP and spend dashboards, and control over your finances with configurable approval policies. ClearTech automatically creates payment runs based on the invoice due dates to ensure that your invoice is paid on time. With ClearTech, you can scale your business without worrying about your bottom line.