A company’s accounts payable (AP) department processes payments and invoices related to any purchasing done from vendors or suppliers. In short, it handles liabilities which a company needs to pay within a limited period. Any mismanagement can lead to a missed or late payment, incurring fines and losses. As your business grows, so does the challenge of managing AP in-house, not to mention the expense of hiring more staff to do so.
However, by outsourcing the process, you can successfully automate the entire transaction of payment, document management and other services related to disbursement. But it is an important decision that should only be made after evaluating all the pros and cons.
Outsourcing has many advantages, including saving money and being able to focus on your business’s core tasks, rather than working on non-core activities such as finance, catalogue management or data entry processes. One such significant process is accounts payable.
The most obvious benefit of outsourcing AP is the upfront cost-cutting. Hiring in-house staff to handle accounts payable is expensive, not to mention getting the necessary (and costly) equipment and programs that go with it. By contrast, outsourcing experienced, equipped professionals gets the job done at a much lower cost. Additionally, when you outsource AP, you pay by the invoice, not the hour, thus saving a lot of transactional costs.
When you outsource accounts payable, you know that they have access to automated processes and relevant experience. This is because Business Process Outsourcing (BPO) service providers engaged in such activities use the latest technologies to provide better experience and reporting. AP automation ensures greater efficiency and better cash flow. Also, the processing of invoice copies and statements gets done much quicker since it is their core business. As you can see, outsourcing is the best way to get your work done with more speed, efficiency and accuracy.
Thanks to a better reporting structure, tracking documents becomes easier too. In this way you gain better control over your accounts payable. The best part is that you do not have to worry about employee negligence since the BPO takes full accountability.
Pushing your employees can lead to lower efficiency. When you hire a vendor to do this work, you don’t face such challenges. Seeking help from an accounts payable BPO, therefore, pushes your processes that are not performing so well.
As BPOs are outside firms, they take full responsibility for every action they take. This nullifies any chance of fraud since internal employees have very limited control over this process.
The Standard Operating Procedure (SOP) documents all routine business processes. This is standard procedure for any accounting department, regardless of the number of employees. The SOP for accounting consists of many directives for accounting document management, assessing of taxes, legal expenses and even confidentiality agreements. Travel and entertainment expenses, bank account reconciliations and credit card policies are also included.
This entire process is only possible with updates. Since internal updates of SOPs are not always feasible, outsourcing documentation is a better option.
You need a supervisor to manage, schedule and handle employees when you have an in-house AP department. By comparison, outsourcing firms cross-train multiple employees on accounts while maintaining a common standard. Therefore, need not worry about coverage.
You may wonder how you can keep track of outsourcers working off-site. Thanks to modern technology, you can now track each step of the accounting process and have constant, real-time access to your AP information.
Any human error in a business can lead to costly consequences. You cannot be sure that your current spreadsheets have no errors. Automated processes and experienced AP professionals reduce the chance of such common mistakes.
To sum up, some of the major benefits of outsourcing accounts payable include:
Despite the advantages of outsourcing AP, many finance and accounting professionals still believe that it needs to be processed internally for greater control. And business process outsourcing does have its downsides. While some of these are inherent to the outsourcing process, others depend on the quality of your service provider.
Having in-house employees to do all your tasks, both core and non-core, gives you better control. Outsourcing your accounts process gives you some control and visibility, but you do not have direct control over how the AP process is handled.
Find out whether the BPO you are hiring has a dedicated support system, accompanied by real-time monitoring tools. Also, ask how reporting is done before choosing. Since you also need to consider time zone differences, it is best to look for providers with 24/7 support.
This is a major concern when you are thinking about outsourcing accounts payable to a third-party service provider. It is common to doubt whether you should rely on them entirely. If you carefully analyze their process regarding cheques and audits, you can protect yourself against any invasion of privacy.
When you pay your outsourcing provider by the invoice and not the hour, some extra precautions need to be taken to avoid duplication. Many outsourcing providers do not have the resources to tell you how the duplication happened, leaving you feeling helpless. Therefore, you need to get vendors or AP employees on board with the idea of changing their submission systems to avoid this problem.
The downsides of outsourcing accounts payable are minimal and can be avoided if you choose the right provider. Since the pros of outsourcing far exceed the cons, outsourcing your non-core activities will prove advantageous to your business when you choose a reliable and experienced service provider.
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