Accounts payable is one of the most significant current liabilities. It reflects the goods purchased on credit for which the payment will be within a year (usually between 30-90 days). Managing the payables is highly necessary for companies as they help firms maintain good relations with suppliers. Businesses need to account for and clear these dues on time. Accounts payable management aims at reducing operational costs and streamlining the functions. However, it can become troublesome when the payables get delayed, invoice information keeps having errors, etc. In such cases, firms might outsource accounts payable to a professional third party.
Outsourcing accounts payable services involve giving up the activities to an independent party to handle for a fixed time. These parties administer invoices and bill-related functions. Their services may include:
1) Capturing data and reducing paper workload
2) Data processing for proactive management
3) Controlling and auditing mechanism to correct inaccuracies and duplications
4) Disbursement services and floating costs management
5) Additional services, including utility, expenses, tax reporting, supplier, and special project reporting
When companies outsource accounts payable services, they help maintain timely flows, confidentiality, compliance, technology, cost-effectiveness, etc. However, the picture is not always rosy. Outsourcing these services also has some drawbacks. Let us see an in-depth analysis of the pros and cons of these services:
Pros of accounts payable outsourcing services:
- Better organization and documents management:
Businesses can have better structured, organized, and efficient document placement with outsourced accounts payable services. Companies can make prompt invoices and payment processing. The internal staff can sometimes miss, replace, or forget to maintain accurate and relevant documents. However, outsourcing companies enable proper documentation through a well-established procedure and standardization.
- Better resource access:
The outsourced payroll services provide professional expertise and access to the latest resources and technology. These firms have proficiency in using the latest accounting and bookkeeping software. It allows firms to conduct analytics and understand the areas that need improvement. Moreover, during the seasons when business transactions grow, these companies provide scalability. Without hiring employees and investing in accounting software, businesses can access specialized resources leading to enhanced productivity.
- Potentially reduced costs:
When firms outsource accounts payable services, they reduce the costs of maintaining AP infrastructure, employing and sustaining qualified employees, and other related overheads. There is no insurance, pensions, furniture, equipment, or such costs for businesses to worry about, making the process seamless and efficient.
- Better security:
Although accounts payable outsourcing involves giving up control of these activities, businesses can get better protection and security with outsourcing firms. These companies have advanced encryption and multifactor authentication, among other security measures. Moreover, they only allow authorized personnel to access the files.
Cons of accounts payable outsourcing services:
- Loss of control:
A business has to give up its control of managing accounts payable to enable an independent third party to provide these activities. Since the activities happen outside the business premises, firms do not get adequate control. They can monitor and supervise functions at negotiated times. However, the AP workflows get melded according to outsourcing partners' functioning than the business' needs.
When companies outsource accounts payable services, they become reliant on the outsourcing firm to deliver timely and efficient results. Any issues experienced by them may interrupt the firms' services.
- Communication gaps:
The off-site accounts payable activities can create gaps and variances in communication. It can lead to inefficient and inconsistent services, resulting in firms not getting deep insights to run their business smoothly.