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The Pros and Cons of Accounts Payable Outsourcing: What You Need to Know
The business environment is getting more and more competitive with the advent of technological advances. There are, however, instances where incorporating new employees is not the most favorable scenario for your business. This is where accounts payable outsourcing comes in. This essentially means outsourcing your accounts payable activities to manage your expenses.
In addition, when a business is experiencing expansion, it becomes critical to manage your expanses. Moreover, if you are having space problems in your work area, the best solution is to cut off some employees and outsource the accounts payable process.
Understanding Accounts Payable Outsourcing and Automation
Accounts payable is the process of utilizing the services of an outside vendor to organize your accounts payable processing invoices. Accounts payable outsourcing brings forth a new and easy way to easily manage your accounts payable with ease and accuracy.
This process involves a credible and robust vendor that can electronically process its clients invoices, pending payments and accounts payable. This reduce a significant workload from your in-house which can be beneficial in improving accuracy.
Accounts payable service providers have all the expertise when it comes to the relevant skills, technological innovations, automation and all the accounts payable functions.
It is also important to note that not every business can benefit from outsource accounts payable function. This is because some companies deal with highly sensitive information that can compromise the credibility that some accounts payable services offer.
Reasons to outsource accounts: payable service
Following are some of the reasons to consider outsourcing of accounts payable services:
Better visibility
A manual accounts payable process isn’t much beneficial when it come to improving the visibility which is contrary to your long-tern aims and objectives. Better visibility can be achieved by giving your accounts payable service with vendors that can store information, receipt and invoices correctly.
Therefore, when assessing the data using physical paper or Excel, there can be a likelihood of limited visibility regarding vendor prices or inconsistencies for expenditures.
Improper vendor organization
For small businesses, managing their accounts payable correctly requires a great deal of work. This means that your vendors will be constantly calling you looking for payments if not managed properly.
Because, at the end of the day, everybody wants to get paid for the services they provide. The suppliers are always looking to get their payments on time as they have to answer elsewhere in terms of payments. This means that untimely payments and poor communication can cause suppliers to end their contracts with you.
In this regard, an outsourced accounts payable provider gets your suppliers paid in time and if there is a delay, they communicate it beforehand. Accounts payable outsourcing leads to timely pays and rapid payments. The situation can be even better if your outsourced accounts payable service provider uses automation as human error is unavoidable.
Expensive Payment Processing
The accounts payable department normally spends more time when it comes to payment processing. If you are thinking of not investing in accounts payable processing, it can cost you in the long run especially if you are a small business or a startup.
Therefore, accounts payable solutions are not only for businesses that are corporations, but it is a better way for smaller businesses to manage their expenses as well.
Accounts payable outsourcing, in contrast with accounts payable automation
There is a vast difference between both terms:
Automate accounts payable
This is done by an accounts payable software that is essentially a SaaS add-on in terms of your ERP and accounting system. It is made to provide a seamless system for your work operations and manage a mass payment in a reasonable time.
An accounts payable automation software usually provides an auto service supplier portal for smooth tax compliance and easy user adoption.
It also provides a screening option for fraud or duplicate payments and completely automates the end-to-end process for a smooth approval process. It also provides payments for not only the U.S. but also cross-border payments.
Accounts Payable Outsourcing
When a business outsources its accounts payable, an outsourced vendor manages your business’s accounts payable department. Nowadays, most accounts payable outsource service providers incorporate automation to achieve maximum efficiency.
Pros and Cons of Outsourcing Accounts Payable
Following are some of the merits and demerits of outsourcing your AP process.
There are numerous benefits of outsourcing your ap process. The main issue lies where a company has to make the decision of outsourcing ap which involves their important and essential data and they are trusting this to an ap department of a third-party vendor.
Benefits of outsourcing accounts payable process
Convenient Invoice Processing
A timely accounts payable process allows a company’s accounts payable departments to timely pay their vendor invoices. This convenient ap services seeks to develop a good relationship with your vendor which is important for future endeavors and supplies.
The accounts payable outsourcing companies use ap solutions in terms of software’s that can make outsourcing a great option because of their accuracy.
Get rid of duplication.
Accounts receivable process by an ap vendor helps to avoid invoice duplication practices. Duplication means double payments, which increases expenses and decreases profits and cash which can affect your payroll affecting the cash flow management. The prevention of ap duplication is an important task for an outsourced ap service provider.
In this regard, accounts payable software can allow for achieving consistency in terms of avoiding duplication of accounts payable.
Helps to stay compliant
Outsourcing tasks brings forth many other benefits, like avoiding payment fraud and staying compliant.
Many small businesses have little idea about how to tackle and cater to compliance and regulatory issues with respect to labor laws, taxation laws, etc. Furthermore, by entrusting these accounts payable tasks to an outsourced accounting service, a company can focus on other important matters related to production and operational issues. Additionally, AP outsourcing firms mostly have a robust level of access in terms of providing data safeguarding and compliance.
No need to hire additional staff members
When a firm is experiencing expansion, there accounts payable requirements will increase as well. This is due to the additional workflow that is pertaining due to more clients on board. The purchase orders increase as your business now uses additional resources.
The accounts payable processing costs uses a lot of employees and it keeps adding up a lot of burden as vendors demand to be paid on time. Therefore, allowing an outsourced third party firm to help get vendors paid on time is a great way to manage your ap needs. No need to hire interns for cost cutting benefits or train graduates as well.
Cons of accounts payable outsourcing
The following are the cons of AP outsourcing:
Not choosing the right outsource service provider.
This essentially means that not choosing the right outsourcer is important. Inconsistent ap processes can affect your businesses reputation and suppliers can black list your business. Always invest your money in the best-outsourced service provider to maximize your efficiency.
Reduced authority over your AP Processes
If you have been managing your AP processes in-house, you may miss the control your department used to have over accounts payable processes.
Additionally, there is a communication gap in most cases and you have to wait for a while to get answer upon your query. As previously you were keeping a rapid communication with you in-house ap department. To get rid of this, you can use an accounts payable software that makes sure that you have the complete authority of your accounts payable process.
Risk in terms of business financial disaster
This refers to a situation where a business depends upon a third-party payroll handler. Imagine if this third-party firm suddenly is on the verge of bankruptcy or data breaches. This means that your payroll and important employee data are at risk, which puts your entire accounts payable data at risk. Therefore, it is recommended to select a credible and industry-leading outsourcing service provider that saves you from problems like business financial disasters.
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