The Pros & Cons of Accounts Payable Outsourcing
If your accounting department is drowning in work, could accounts payable outsourcing help? Find out the pros and cons for your business.
In 2018 alone, over $30 billion has been spent on outsourcing accounting business processes. The figure is expected to rise in the coming years.
And there’s a good reason for the increase – companies want to stand out from their competition and improve service delivery without incurring extra costs.
Outsourcing accounts payable is one way to achieve this goal.
Managing your company’s accounts requires a lot of labor, and accounts payable outsourcing could be the solution to your staffing problems.
Nonetheless, you shouldn’t view outsourcing as a mere labor shift. With the right service provider, outsourcing this financial process can reap tangible benefits.
However, many companies are wary of the idea of trusting an outsider with crucial company data like accounts payable. That aside, outsourcing won’t always fit the needs of your company.
It’s therefore important to adequately consider the pros and cons of outsourcing and make the best call for your company.
Pros of Outsourcing Accounts Payable
Here are some of the advantages of outsourcing accounts payable:
1. Error Minimization
Human error is a common phenomenon with an in-house accounts payable workforce, especially if your company uses spreadsheets to track the accounting processes.
From Intelligent Character Recognition (ICR) to updated invoice tracking systems, outsourced firms have the necessary equipment and software put in place to ensure that there are no errors in your financial information.
Outsourced firms have automated accounting processes and tons of experience in what they do.
This translates to accurate and faster processing of your financial statements and invoices. As a result, all the other processes and departments in your company are streamlined, boosting productivity and growth.
3. Cost Effectiveness
Hiring in-house financial experts to handle your accounts payable is time-consuming and costly. Not to mention the cost of purchasing new hardware and software systems needed to manage your company’s accounts.
On the other hand, delegating this responsibility to a service provider allows you to work with experienced and well-equipped professionals at a lower cost. This eliminates the need of going through the tedious (and costly) hiring process.
4. Better Resources
A good outsourced partner should handle your accounts payable and provide you with analytics to help you streamline your financial processes.
Additionally, if your accounts payable firm is tech-savvy, you’ll be well-positioned to learn the latest trends in technology and accounting.
5. Real-Time Tracking
Although outsourced firms do their work off-site, modern technology and accounting software such as QuickBooks allows you to keep track of every step of the accounts payable process.
You’ll be provided with real-time access to all your financial data, so you don’t have to worry about missing out on such an important process.
6. Solid Control Measures
Outsourced firms usually have control measures put in place to ensure that none of your invoices is lost or overlooked.
Their control systems and processes will help you keep better track of your invoices. This reduces the hassle of searching and locating important documents when you need them.
7. Better Procedures Implemented
With hiring a firm, better bookkeeping procedures are created. This builds better relationships with your creditors as you’ll avoid penalties due to failed or late payments.
Cons of Outsourcing Accounts Payable
Even with all the benefits, there are a few downsides to letting an outside party handle your accounts payable. They include:
1. Time and Distance Constraints
The distance between your company and the service provider can cause logistical restraints.
If your service provider is located in a different time zone, operational efficiency may decline. With an outsourced firm, you lose the instantaneous correspondence provided by an in-house workforce.
To solve this problem, hire firms with established communication channels and a good reputation.
2. Loss of Operational Control
It’s easier for managers to directly control their accounts payable process with an in-house workforce.
This operational control is often compromised when you outsource your accounts payable. However, you can track their activities in real time to ensure that everything is running as you please.
3. Increased Risk
When you outsource, you trust your service provider with vital financial information. If the firm goes out of business or gets hacked, your company data will get compromised.
4. Invoice Duplication
If the outsourced firm charges by the invoice, you may need to be cautious of duplicate submissions.
Since many service providers lack the tools to account for duplicate submissions, it’ll be difficult to trace back the issue.
5. Conflict of Interest
The outsourcing firm is not legally obliged to disclose whether they’re in business with a competing company. This can cause a serious conflict of interest as your competition may access your data without your knowledge.
As such, it’s important to do a background research on your prospective accounts payable firm to find out if they have a good reputation for upholding confidentiality.
6. Exceptions Processing Issues
Many companies have special exceptions when it comes to their bookkeeping processes.
If you outsource your accounts payable, the firm may neglect these exceptions because their business models are built to minimize costs per invoice. This will mean that you’ll have to handle the exceptions processing yourself, which is a waste of time and money.
Is Accounts Payable Outsourcing Right for You?
While accounts payable outsourcing presents its fair share of challenges, the right provider can ensure that you enjoy the benefits of this decision without any risks or challenges.
For accurate and precise invoice tracking, invoice processing, accounts auditing, and PO matching, feel free to contact iTech, regardless of your company’s size. We’ll be glad to help!