Home » Outsourcing Accounts Payable (AP): What Are the Benefits?

Outsourcing Accounts Payable (AP): What Are the Benefits?

Rahul Maingi

By admin, July 2, 2024

Share this...

Many businesses outsource their accounts payable processes to increase efficiency and reduce costs. Accounts payable (AP) refers to the money a company owes to its suppliers for goods and services, for which invoices have been submitted. While outsourcing AP operations has become a strategic decision for many companies, several misconceptions surrounding these services persist.

In this post, Virtuous Accounting & Bookkeeping, a leading outsourced AP service provider, will debunk the myths surrounding outsourced accounts payable services and throw light on their benefits. By addressing these misconceptions, we hope to provide a better understanding of how outsourcing AP can benefit your business.

Let’s get started.

Debunking Misconceptions: Advantages of Outsourcing Accounts Payable Services

Outsourcing Accounts Payable Services

Here are some common misconceptions about outsourcing accounts payable (AP) services to help you make an informed decision for your business.

Myth #1: Outsourced AP Is Only for Large Businesses

One misconception is that outsourced AP services are tailored to large corporations with extensive financial resources. However, this notion is far from reality. Businesses of all sizes, from startups to mid-sized companies, can benefit from outsourcing their AP processes.

The advantages of outsourced AP services are undeniable, especially for small and medium-sized enterprises (SMEs). These organizations often operate with limited resources, making it challenging to maintain a dedicated in-house AP team. By outsourcing this function, SMEs can allocate their precious time, money, and personnel to their core competencies, fostering growth and operational efficiency.

Myth #2: Outsourcing AP Is Too Costly

As mentioned, outsourcing accounts payable services could strain a company’s budget and negate potential cost savings. However, this perception overlooks the substantial financial benefits that outsourcing can provide.

When comparing the expenses associated with maintaining an in-house AP department – including salaries, benefits, training, technology, and infrastructure – to the cost of outsourcing, the latter appears to be a more cost-effective solution. Outsourced AP service providers in Toronto leverage economies of scale, cutting-edge technologies, and streamlined processes to handle invoices and payments. These reduce operational costs.

Myth 3: Outsourcing AP Introduces Significant Risks

Another concern revolves around the risks associated with outsourcing accounts payable services. Some people argue that entrusting sensitive financial data and processes to a third-party service provider could expose the business to potential risks, such as data breaches, fraud, or mishandling of confidential information.

However, this perception fails to recognize the robust security measures and risk mitigation strategies that leading accounts payable outsourcing service providers like us employ. For example, we employ encryption techniques, adhere to data protection regulations (e.g. GDPR, PIPEDA, and PCI), and proactively implement measures to counter potential fraud or data breaches.

Let’s discuss them in more detail:

GDPR (General Data Protection Regulation) is an EU law that regulates data protection and privacy for individuals within the European Union and the European Economic Area. It also affects organizations worldwide that handle the personal data of EU citizens.

PIPEDA (Personal Information Protection and Electronic Documents Act) is a Canadian law that governs how private sector organizations collect, use, and disclose personal information during commercial activities.

PCI DSS (Payment Card Industry Data Security Standard) is a set of security standards to ensure that all companies dealing with credit card information, whether accepting, processing, storing, or transmitting, maintain a secure environment.

Businesses can benefit from enhanced security and risk management expertise by partnering with a reputable service provider.

Myth 4: Outsourcing AP Means Losing Control

Another misconception that arises when outsourcing the accounts payable process to a third-party provider is the fear of losing control.

Contrary to this belief, outsourcing AP does not equate surrendering control over your financial operations. Instead, businesses retain a significant level of oversight as well as decision-making authority throughout the process. The outsourced AP service provider works in close collaboration to ensure that processes are tailored to meet the specific needs of the organization.

Regular communication channels, reporting mechanisms, and escalation procedures further reinforce the collaborative nature of the engagement, fostering transparency and enabling businesses to stay informed and make data-driven decisions.

Myth 5: Outsourcing AP Will Lead to Job Losses

One key concern surrounding outsourced accounts payable services is the fear of potential job losses within the organization. This apprehension stems from the misconception that by outsourcing AP functions, companies are effectively replacing their existing workforce with external resources.

However, this perspective fails to consider the broader strategic implications and opportunities that outsourcing can unlock.

By streamlining the accounts payable process through outsourcing, companies can free up valuable time and resources that were previously dedicated to administrative tasks. These resources can then be redirected towards revenue-generating activities, such as sales, marketing, research and development (R&D), or customer service initiatives.

Ultimately, outsourcing AP is not about replacing employees; it’s about leveraging external expertise to drive efficiency and refocus internal resources on core competencies and strategies that fuel business growth and success.

Selecting the Right Outsourced Accounts Payable Provider

To maximize the value of outsourced accounts payable services, partnering with a qualified outsourced AP service provider is important. Here are some key considerations:

Industry Experience and Expertise

Look for AP service providers with a deep understanding of the regulations and challenges specific to your industry. Their specialized expertise can translate into more efficient operations, improved compliance, and better strategic guidance.

Robust Security and Data Protection

Assess the AP service provider’s security protocols, including encryption techniques, access controls, secure data storage systems, and adherence to relevant data protection regulations. Industry certifications, as well as accreditations related to information security and data privacy, are also important.

Comprehensive Service Plan

Ensure that the AP outsourcing service provider offers a customized service plan that aligns with your specific business needs. This plan should outline the scope of services, operational processes, service level agreements (SLAs), and performance metrics.

Service level agreements are contractual commitments defining the expected service delivery level, performance standards, and responsibilities between a service provider and a client. Performance metrics, on the other hand, are quantifiable measures used to assess and track the service provider’s performance against the agreed-upon SLAs, ensuring accountability and adherence to the established service levels.

Online Reviews and Testimonials

Explore online reviews, forums, and industry communities to gain insights from other businesses’ experiences with the prospective provider. Pay attention to recurring themes, such as service quality, customer support, and transparency in operations.

Outsourcing accounts payable (AP) services can benefit businesses of all sizes, despite common misconceptions about cost inefficiencies and risk exposure. In reality, outsourcing can lead to cost savings through economies of scale and robust security measures provided by reputable vendors. Choosing the right AP outsourcing partner is crucial. It involves evaluating their industry expertise, security protocols, tailored service offerings, and online reputation through client reviews. By thoroughly vetting potential partners, companies can make informed decisions and enjoy the benefits of improved efficiency, streamlined operations, and growth opportunities. For a comprehensive AP solution, consider Virtuous Accounting & Bookkeeping. We offer extensive invoice processing capabilities, allowing you to focus on core functions while handling all these transaction processing seamlessly.

The Virtuous Bookkeeping explores ways for entrepreneurs to enjoy independence and better run their business. Join over 10,000 subscribers and get our best articles delivered via email.

Book a Free Consultation