Pros and Cons of Outsourcing Accounts Payable Services
Table of Contents
- 1 Pros and Cons of Outsourcing Accounts Payable Services
- 1.1 What are Accounts Payable Outsourcing Services?
- 1.2 Pros of Working with Accounts Payable Outsourcing Services
- 1.3 Cons of Working with Accounts Payable Outsourcing Services
- 1.4 Final Thoughts
Organizations need to maintain a thorough account of all of their short-term liabilities to ensure their vendor payments are made on time and all their bills are processed regularly. This function is taken care of by the accounts payable department. As the company continues to grow, its short-term liabilities rise with them. This could be the number of vendors they work with, the number of employees in their company, and it could mean the rise in the number of short-term miscellaneous expenditures they have to take care of regularly.
As the number of payments that need to be made continues to rise with the size of the company, it becomes necessary to have a dedicated team of accountants under the organization who are responsible for handling the accounts payable services. It will help them be more accurate and thorough with their payments and ensure all their bills are paid on time. But this may not always be possible for small and medium-sized businesses because they might not have the financial resources to support an entirely new department. So what can organizations do in this case?
A good option for companies who want to scale up their services and grow without having the necessary bandwidth required to support an entirely new department is to invest in accounts payable outsourcing services. They offer a lot of different services under them and come with several benefits.
What are Accounts Payable Outsourcing Services?
When organizations decide to invest in outsourcing accounts payable functions at their company, they mean that they have decided to work with an external finance and accounting agency that specializes in these services. The run-of-the-mill organization that they choose to outsource this service to will provide the following functions for the company:
- They receive all the front-end invoices and process them accurately and on time
- They also help with vendor registration and verification every time a new vendor signs up with the company
- They provide invoice scanning and processing services
- They create and manage an entire online library of digital invoices so that they are properly cataloged over time
- They manage all the tax deductions to ensure no excess money gets spent
- They review all the vendor statements
- They also resolve any discrepancies with any payments that may occur
- They process all the credit memos on time
- They are in charge of processing all recurring payments
- They also produce monthly reports
Clearly, there are a lot of functions that accounts payable outsourcing services fulfill for their clients. These services come with their own set of pros and cons, which are discussed below.
Pros of Working with Accounts Payable Outsourcing Services
Some of the biggest benefits of outsourcing accounts payable to a professional agency include the following:
Companies Can Minimize their Errors
There is a lot of software available in the market today that can help manage accounts payable services for companies but they do not know how to operate it fully. So, they use dated platforms like Microsoft Excel, which can be effective, but unless it is used by an expert or a team of accountants who know what they are doing, it can lead to errors. Outsourcing accounts payable will help reduce the number of errors made with the management of accounts payable and outstanding payments and optimize the financial processes of the organization.
Improve the Relationship with Vendors
According to a recent report, 42% of all vendor payments are processed on time when they are automated and only 25% are processed on time when they aren’t automated. When companies outsource this service, this number is only bound to increase because it will be their sole responsibility to ensure timely payment and registration to all vendors. It will improve the relationship the organizations have with their vendors as they are paid on time and the quality of service companies will receive will also improve with it.
Improve the Efficiency of Operations
As organizations continue to grow, they need to focus on maintaining a standard with their operations, which involves dealing with external parties. If they do not have an in-house financing and accounting team, this can become difficult to manage. By outsourcing these services, companies can rest assured that all their invoicing and accounts payable services are standardized, thereby meeting industry standards and improving the efficiency of overall organizational operations.
Work with Experts
Outsourcing accounts payable services allow organizations to work with experts who have specialized in their field without having to invest heavily in infrastructure and recruitment. Companies can work with the best services without having to build them in-house. These experts have learned all the necessary skills and have ample experience to do their job thoroughly and well so that your accounts payable functions take place properly and efficiently over time.
Cons of Working with Accounts Payable Outsourcing Services
Although there are some great benefits of outsourcing accounts payable, it does come with its own set of drawbacks. Some of the cons include the following:
- Not having an in-house team can create gaps in communication because organizations are still working with an external vendor to handle a key operational function of their company.
- The communication gaps can also lead to fundamental errors in processing, which can in turn affect the vendor relationships the company has worked so hard to build.
- There is a loss of control when organizations outsource accounting functions of their company, which a lot of business leaders might not be comfortable with.
- There can be a lack of flexibility when working with an external agency because they have their own set of operations and processes while the organization hiring the agency will tend to have their own ones as well.
Even though there can be some gaps in communication and flexibility when companies decide to outsource their accounts payable processes, there are still ample benefits to it. Organizations such as Invensis offer many such finance and accounting services that can make the experience for small and medium-sized businesses easy, simple and seamless so that companies can focus on growth and building their organization.