Accounts Payable Outsourcing: Pros, Cons, & Best Practices

Outsourcing accounts payable takes most of this workload off of your AP team supervisor. Even if some employees are absent, the stress of covering up does not land on a sole supervisor. Additionally, since the outsourcing team only works on your accounts payable, they can deliver results much faster. While you have to hire employees and spend time training them, you also need to purchase the tools required to do the job!

Accounts Payable Process: A Business Owner’s Guide

Inquire about their data security measures and compliance with regulations. So while implementing an accounts payable automation system in-house can help reduce invoice processing costs and improve efficiency, you will still have to have in-house employees dedicated to AP functions. Therefore it’s unlikely to provide the same level of cost reduction as outsourcing.

Enhance Efficiency and Productivity

1. Owners must consider the timing of cash inflows from accounts receivable and the cash outflows required for accounts payable.
2. With advanced technology and real-time reporting, you can track every step of the AP process, from invoice receipt to payment.
3. However, it can also operate as a debit once the money is paid to the vendor.
4. Companies are embracing business process outsourcing (BPO) as a strategic solution to overcome challenging economic conditions.
5. AP automation is possible when subscribing to a SaaS solution, adopting a dedicated accounting software, or adopting an ERP system on-premises.

Depending on the responsibilities accounts payable receives from a company, they might process requests and distribute funds to cover travel expenses. After business travel, AP would then be responsible for settling funds distributed versus funds spent and processing travel reimbursement requests. Accounts Payable refers to a business’s obligations to suppliers and creditors for purchases made on an open account. It specifically refers to any amounts owed expected to be paid within one year or less (usually due in 30 to 60 days). Additionally, Accounts Payable could refer to the department responsible for these expenses.

Accounts Payable Outsourcing vs Accounts Payable Automation

As we mentioned earlier, verifying potential AP outsourcing providers’ security and compliance measures is crucial to ensure that your organization’s sensitive financial information is protected. Evaluate the provider’s internal controls, anti-fraud measures, and adherence to accounting principles and regulations to gauge their commitment to data security and compliance. Outsourcing accounts payable processes can also give businesses enhanced visibility and control over financial transactions.

There are a lot of things the audit committee requirements that contribute to your small business’s success—recruiting talent, bringing creative visions to life, and generating leads, to name a few. Adding in the accounts payable process is a necessary step in effective business accounting, but with only 24 hours in a day, getting it done can become a big obstacle. Let’s say your chef makes tomato jam with the fresh tomatoes that you ordered. A local market down the road wants to stock their shelves with your product, so they place an order with for ten jars. You then invoice them for the order amount and send them their ten jars of tomato jam.

By partnering with an experienced outsourcing provider, your organization can benefit from their expertise and technology to streamline this function. AP outsourcing involves delegating tasks like invoice processing and vendor management to an external provider, leading to cost savings, improved accuracy, and better compliance. On the other hand, outsourcing accounts receivable services involve invoicing and collections, resulting in faster payments and improved cash flow. Data privacy and security are critical concerns when outsourcing accounts payable processes.

An aging schedule separates accounts payable balances, based on the number of days since the invoice was issued. Acme Manufacturing, for example, has $100,000 in payables from 0 to 30 days old, and $15,000 due in the 31-to-60-days-old category. To conserve cash, you may want to take more time before you pay invoices. If most of your invoices are due within 30 days, you can delay payment until you collect more money from customers. Accounts payable turnover is the total purchases on credit divided by the average accounts payable balance.