AP Outsourcing: What Are the Pros & Cons of Hiring Someone to Do Your Accounts Payable?

In today’s fast-paced business environment, organizations are searching for ways to optimize their operations while keeping costs down.

One strategy that has gained widespread popularity is hiring a company to take care of your accounts payable, a.k.a., AP outsourcing. This also reduces your day-to-day operational expenses and helps your in-house staff focus on more productive core activities. It effectively helps you streamline your cash flow while enabling you to bring liquidity to your business.

If you, like many other small and medium-sized businesses, have limited resources, being able to scale this function is essential. This can help you deal with a higher volume of data entry and invoicing.

Moreover, many businesses don’t integrate payables management and invoice data entry into their business functions. That’s when it can become lucrative to consider AP outsourcing.

In this blog, we discuss the pros and cons of AP outsourcing to help you make an informed decision about your business.

Let’s get started.

 

AP Outsourcing Explained: Assessing the Pros & Cons

If you’re wondering whether AP outsourcing is the right way to go for your business, examine these advantages and disadvantages.

The Pros of Accounts Payable Outsourcing

There are numerous reasons why you should consider AP outsourcing for your business.

1. Potential Cost Reduction
Outsourcing accounts payable can be cost-effective; otherwise, you need to hire a bookkeeper. You may also need to train them and invest in software and equipment – costs which can quickly add up.

On the other hand, outsourcing is more budget-friendly, as providers are typically paid on a per-invoice basis.

2. Reduced Errors and Fraud
Many AP outsourcing companies employ experts who use automated methods, ensuring fewer mistakes. An example of such errors would be vendor bills that are overlooked or lost, leading to duplicate payments. However, when you outsource your AP, you can avoid payment fraud with the right tools and capabilities.

Additionally, some organizations choose to outsource their AP to avoid dealing with complex legal obligations. By delegating these responsibilities to an AP outsourcing company, business owners are free to focus on more urgent matters.

3. Secure Invoice Processing
In an interconnected world, the complexities of sending vendor payments have grown. This leads to security concerns for small and medium-sized enterprises lacking a dedicated security team.

These security risks make it essential to look for a robust solution. That’s where outsourcing AP processing comes in.

A reputable provider can act as a bridge and provide cutting-edge technology and sophisticated security measures for different AP processes. This allows your outsourcing partner to reduce the chances of their client company falling victim to security breaches.

4. Improved Precision and Accuracy
When choosing AP outsourcing, third-party service providers typically use cutting-edge software with the potential to increase accuracy and reduce errors. Many also use automated processes to reduce the possibility of human error while ensuring payments are completed on time. This allows companies to outsource their AP process to avoid costly errors such as paying late or overpaying, which can damage their relationships with vendors and suppliers.

5. Better Management of Documents
With in-house staff, companies may misplace or lose important documents related to accounts payable as a result of negligence. However, when outsourcing AP processes, the third-party service provider will ensure that all documents have been kept carefully and can be tracked easily. This is possible, as such companies have procedures in place to track important documents. Hence, all of your statement and invoice copies will be processed properly and promptly.

 

The Cons of Accounts Payable Outsourcing

Outsourcing your accounts payable functions has a few disadvantages.

1. Less Control Over AP Processes
When accounts payable processes are done in-house, companies have more control over the systems and processes. Also, in-house employees are more accessible, so issues and questions can be addressed and resolved promptly. But when outsourcing AP processes to a third party, any questions or concerns need to wait for an answer.

2. Integration Irregularities
Managing accounts payable processes along with internal tasks can pose challenges. And there is a higher chance of this happening if your service provider employs diverse procedures and software. In case of discrepancies, this can result in data inconsistencies. Furthermore, it can lead to a lack of transparency in the accounts payable workflow.

 

While AP outsourcing may provide notable advantages such as cost reductions and efficiency gains, companies should weigh these advantages against potential drawbacks. Ultimately, the decision to keep your AP functions in-house or to outsource needs to be evaluated carefully, depending on your organization’s goals and requirements. However, vigilant service agreements and vendor selection are integral to ensuring the rewards of outsourcing. By determining the pros and cons of AP outsourcing, you will be well-equipped to make an informed decision.