What's Accounts Payable Outsourcing?

What's Accounts Payable Outsourcing?

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Amy Deiko

February 12, 2024

Table of Contents

What’s Accounts Payable Outsourcing?

Chances are you may already know what outsourcing is about, basically, it’s a practice that some companies decide to follow, to reduce tasks from their workload by hiring the services of an external and experienced party, usually another company, to handle some specific activities for them. In the case of AP outsourcing, those activities include things like processing and paying invoices.

AP: A reminder

Just a reminder that accounts payable or AP is the concept accounting departments use to refer to current and short-term liabilities of a business that have yet to be paid.

Reasons to Consider AP Outsourcing

Too much work

The most logical reason applies not just to big companies but also to those businesses that have recently started and suddenly see themselves growing beyond their expectations. When there’s a peak in responsibilities, too much might be just… well too much indeed.

High invoicing processing costs

Manually processing invoices can be costly. A poor workflow not only costs time but impacts productivity, leading to a decrease in profits. Outsourcing might seem like the right option.

No control

For companies managing AP manually, this leads to no visibility and tracking. This lack of control means your company might pay twice for the same product unknowingly.

Poor supplier relationships

Companies overlook that suppliers can leave if they’re unhappy. Poorly managed payments often lead to dissatisfaction, particularly if payments are missed.

It’s cheaper than hiring more staff

While hiring more staff for the AP department could seem like a solution, this may require more time and money. Outsourcing can quickly become an appealing option.

Is AP Outsourcing the same as AP Automation?

No. Outsourcing means that a third-party will handle part of your AP operations, while AP automation involves software used internally by your own AP department. Automation features typically include:

The Pros of AP Outsourcing

More resources available

Many AP providers use automation to carry out your AP activities, offering benefits through specialized software.

Reduced costs

Choosing an outsourcing alternative might be more cost-effective than hiring and training new employees.

Tracking

AP providers give access to full-reporting functions, allowing precise status updates on accounts payable operations.

Accountability

With a single provider focused on your AP, there’s a higher degree of responsibility and accountability.

The Cons of AP Outsourcing

Lack of control

Significant downside as you may not be able to oversee operations directly, potentially mismatching your existing AP processes.

Depending on others

A dependence on your AP service provider can be a concern, particularly if issues arise on their side.

Loss of privacy

Working with AP outsourcing companies typically requires sharing sensitive financial information, which could be a security risk.

Communication challenges

Communication might not fit your budget, particularly if overseas staff are involved, potentially leading to delays.

Final Thoughts

Accounts payable outsourcing can benefit companies needing assistance managing their AP, but it comes with both advantages and disadvantages. Additionally, businesses can also opt for automated software to handle processes efficiently.

Key Takeaways