What Is Accounts Payable Outsourcing & Should You Outsource AP?

Accounts payable outsourcing is a practice used by organizations to simplify and speed up the accounts payable processes, where the organization hires a third party to manage and execute their AP processes. Whether or not accounts payable outsourcing makes sense for your organization depends on how much bandwidth your organization has for managing AP processes. It can be incredibly helpful for companies who lack the means and time to manage their own AP processes.

These accounts payable outsourcing companies are business process outsourcing (BPO) providers equipped with the tools, skills, and technology essential to streamlining a business’s accounts payable systems.

A growing company may require more in-house accounts payable department personnel to manage its increasing accounts payable needs. Businesses that want to improve their service levels while cutting down on hiring costs may benefit from partnering with accounts payable outsourcing providers. 

Outsourcing accounts payable processes calls for extensive supervision to avoid errors and ensure the efficiency of accounts payable systems. 

The rules-driven nature of accounts payable processes makes these procedures appropriate for third-party management.  The assigned outsourced personnel are focused solely on the business’s account payable systems. 

Top accounts payable outsourcing companies help enhance an organization’s capital and cash flow. These skilled outsourcing firms make AP processes more efficient, thereby reducing costs and maintaining strong vendor relationships. 

Some businesses choose to outsource accounts payable tasks to avoid having to deal with complicated regulatory requirements. Delegating these tasks to an AP outsourcing company gives a business more time to focus on other pressing matters.

The benefits of outsourcing accounts payable are promising. However, the main issue is whether businesses can entrust their company’s most essential financial processes and highly confidential data and documents with a third-party firm. 

Hence, a business should weigh the pros and cons of outsourcing accounts payable before deciding on outsourcing accounts payable functions.  

What Are Accounts Payable?

Accounts payable are liabilities that include short-term debts to vendors and suppliers for goods and services that the company has purchased on credit.

Accounts Payable Outsourcing vs. Accounts Payable Automation

AP outsourcing is different from AP automation. When a business decides to outsource its AP, a third-party company runs their AP department.

Meanwhile, companies that prefer AP automation use a third-party company’s business intelligence software in streamlining their in-house AP systems.

Pros and Cons of Accounts Payable Outsourcing

The Pros

Increased Profitability

Accounts payable outsourcing solutions implement efficient systems that allow businesses to pay their vendor invoices earlier or on time. Faster bills payment means better vendor and supplier relationships.

A satisfied supplier could provide the company with early payment discounts that will increase the business’s profitability.

Better AP systems also avoid invoice duplication. Duplicates could result in double payments, which are not profitable for a company.  

AP efficiency could require companies to add more AP staff. However, accounts payable outsourcing pricing could be more cost-efficient and profitable than the overhead expenses necessary to hire and train new personnel. 

When a company avails of accounts payable outsourcing services, it pays for the services of experienced professionals who do not need training. Outsourcing companies may also be more profitable as they charge per invoice, not by the hour. 

Meanwhile, ineffective AP processes could compromise a business’s supply chain, the network between a company and its suppliers. 

Access to More Resources and Updated Tools

AP outsourcing companies are equipped with the latest tools and technology to optimize AP processes. 

Businesses that hire a third-party firm get access to technology and tools without manually searching and paying for these.

Enterprises should partner with outsourcing firms that invest in accounts payable software development. 

Companies that acquire updated AP solutions without outsourcing firms are faced with the challenge of training their employees to get on board with the new tools. These training sessions can be time-consuming. 

Reduced Errors and Increased Fraud Mitigation 

Outsourced companies that provide AP solutions have experienced professionals who use automated processes to ensure that AP errors are reduced. These errors include lost or overlooked vendor invoices that could result in delayed or duplicated payments.

AP outsourcing also provides features and tools that may help avoid payment fraud.

Outsourced AP services encourage companies to go for paperless invoices, receipts, and checks, which are the documents typically involved in payment fraud incidences. 

Increased Efficiency and Productivity

Outsourced AP service providers offer automated systems that may help expedite invoice processing. Because these outsourced companies focus on a business’s accounts payable, they can deliver work faster. 

When a separate party manages AP activities, a company’s in-house teams may focus on other core tasks, such as budget improvement and vendor relationship management. 

Better task delegation, with the help of outsourced AP companies, may increase employee productivity and efficiency.

Constant Coverage

When in-house AP employees are unable to attend work, financial supervisors, like chief financial officers (CFOs) handle their employees’ workload. However, this situation may be challenging to supervisors when the work to be done is extensive.  

Outsourcing AP companies have employees that are cross-trained under high standards to cover for absent, in-house employees. Plus, these outsourced firms have automated tracking features that allow partner businesses to track every step of the accounting process as needed. 

The Cons

Less Control Over Processes

The main advantage of in-house accounts payable departments is that businesses have control over processes and systems. In-house employees are more accessible, so questions and issues may be directed to the concerned parties right away.

An outsourced AP department is not easily accessible. They may be doing a company’s bookkeeping from a thousand miles away. Outsourced companies do not necessarily guarantee more efficient communication and transparency. 

Error-Reporting Issues

Businesses working with outsourced AP service providers may face challenges when validating issues or errors with an outsourced firm. A separate and outsourced AP department does not guarantee transparency when it comes to reporting errors and problems.

Separate AP departments are also not privy to sudden system changes, such as vendor transaction updates, which may result in future errors or duplications.

Dependence

A company that outsources its accounts payable may grow dependent on a third-party firm. This dependence may be risky, especially if a business’s outsourcing company partner suddenly faces bankruptcy or security breaches.

Such incidences may put a company’s accounts payable processes at risk. Switching to another outsourced accounting services provider may be time-consuming and costly. Hence, choosing a credible outsourcing company to work with is essential. 

Duplication Issues

Most outsourcing companies charge by the number of invoices. Hence, duplicate invoice submissions incur additional costs and increase risks for more errors.

Several AP outsourcing firms do not have the tools to detect duplicate submissions. Hence, a company is responsible for educating its vendors and AP employees on changes in the submission systems to avoid invoice duplication. 

Privacy and Security Concerns

AP outsourcing companies get access to confidential financial information. Typically, these outsourcing firms also store a company’s data on internal servers and cloud storage.

While these data storage approaches increase the accessibility of the data to the concerned parties, they make pertinent and confidential information more prone to security breaches and unauthorized access. 

Tips on Accounts Payable Outsourcing

High-caliber AP outsourcing service providers manage AP tasks and improve processes and systems to make them more efficient. Here are some tips when choosing the best outsourcing company to partner with:

Research Before Partnering With an AP Service Provider

The same standard that a company employs when hiring in-house personnel should be applied when a company is seeking a partner outsourcing firm. 

A company should research reviews and testimonials to better assess how an outsourcing AP enterprise operates. Feedback from other clients helps outline an outsourcing company’s strong points and issues. 

Some companies include an accounts payable outsourcing case study on their website, which may speak volumes about how the firm handles clients and projects. 

Other firms list their previous projects to showcase high-caliber work to potential clients.

A company must review the security policies and measures of a third-party AP firm.

Security policies should be stringent and aligned with the company’s systems to ensure that quality work is delivered without the risk of security breaches. 

Discuss Changes With In-House Teams

Before the outsourcing company is brought onboard, business owners and management should discuss the AP changes and new systems to their employees.

The delegation of responsibilities should be part of the discussion’s agenda. The outsourced company’s new role should be made clear to the in-house team.

Modern AP software, such as QuickBooks, should be introduced to the company’s employees to boost productivity. It is important to note that employees need time to familiarize themselves with the new software and systems.

Changes in submission systems should also be discussed with employees and vendors. These changes are required to streamline a company’s AP processes.

When a company’s employees, vendors, and the outsourcing firm are on the same page, coordination is more efficient, and errors, such as duplication of invoices, may be reduced.

Monitor an Outsourcing Firm’s Performance

A company may face issues in monitoring an outsourced AP department’s performance. For example, accounts payable outsourcing companies in India may be harder to monitor if the company it works with is in the United States.

The company may be unable to verify the productivity of its outsourcing partner teams. These outsourcing staff could also be accessing non-work websites, and the company’s billing might cover their idle time.

The use of performance monitoring tools guarantees that outsourcing firms are productive and able to deliver high-quality work.  

Accounts Payable Outsourcing Services

The proliferation of BPO services has made outsourcing accounts payable to India and other countries a standard business practice. 

Accounts payable processes that are commonly outsourced include sending purchase orders, accounts payable administration, and invoice discrepancy resolutions.

Other firms also offer outsourcing accounts payable and receivable services.

Accounts receivable refer to the money owed by debtors and customers to a company. 

The accounts payable process begins when the AP department receives the vendor invoice. This invoice is subject to methods that verify its validity and prevent duplicates.

    Once the invoice is approved, vendor payment is then processed. 

Optimizing Accounts Payable

Given the pros and cons of AP outsourcing, some companies still prefer to work with an in-house AP department. However, instead of hiring new staff, some companies find optimizing their AP processes more cost-efficient.

Third-party firms, like Tipalti, may offer accounts payable services, updated software, and collaboration with a partner company’s in-house AP department.

Such a partnership allows companies to have direct control over their AP processes while getting the best practices from third-party partners. These outsourced firms, such as Tipalti, may offer the most updated tools, software, and excellent professional assistance.

Tipalti’s current systems have been designed to enhance a company’s accounts payable process while the company remains in full control. 

These are some of the services that Tipalti offers:

• Touchless invoice processing – Tipalti believes in going paperless. Paper invoices may result in document management problems. Tipalti’s built-in optical character recognition (OCR) technology scans, captures, and processes invoice data effortlessly.
• Simplified purchase order (PO) automation – Tipalti offers software that automates 2-way and 3-way PO matching. This streamlined automation reduces overspending and strengthens a company’s financial controls.
• Tipalti Pi™ – Tipalti has an integrated payables intelligence platform that assists controllers in their tasks, thereby reducing process risks and errors proactively.
• Tipalti Detect℠ – Part of Tipalti’s services is offering an integrated fraud management solution. Tipalti’s detailed payee monitoring tracks a variety of data points that could help uncover potential fraudsters.
• Tipalti integrated supplier hub – Tipalti offers services that streamline manual data entry. Part of the data collection responsibility is shifted to vendors to guarantee and maintain accurate supplier data.
• Programs that promote payment reconciliation and cost savings – With Tipalti’s streamlined processes, businesses do not need to stitch bank statements and spreadsheets to reconcile payments. With this upgrade, companies can focus on speeding up their financial close, resulting in fewer costs and added savings. 

Accounts Payable: Hire, Outsource, or Optimize?

An accounting system is essential to any organization. However, as the company grows, the need for accounts payable solutions that enhance processes also grows. 

Such systems streamline AP procedures, like invoicing and disbursement of vendors.

A company should find the most effective and cost-efficient approach in enhancing its accounts payable systems. It should first decide whether it should hire, outsource, or optimize AP staff.

If a company has a budget for the salary and benefits of a new hire, an addition to the team could be advantageous to a company. However, this approach is more costly and time-consuming compared to other options since it will involve training the new hire. 

Outsourcing a whole AP department takes a significant load of work off the company. An outsourcing firm can also give a company access to systems and software that enhance AP for much lower costs than hiring AP staff. 

One problem with outsourcing accounts payable is monitoring performance. It is hard to keep track of an outsourced team’s productivity.

Private financial data is also being shared with a third-party company, so there could also be an issue of trust. Hence, a company should partner with credible outsourcing AP organizations only. 

Companies that prefer to have their own AP department may opt to optimize their existing accounts payable resources. They may partner with third-party companies that streamline their AP processes and collaborate with their back-office efficiently, such as Tipalti.  

Credible third-party companies, like Tipalti, reduce processing costs while ensuring that it adheres to the client’s existing AP department’s business rules.