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Outsourcing Accounts Payable: The Pros and Cons

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Outsourcing accounts payable involves enlisting the services of an external team to handle the management of your accounts payable process. By doing so, your accounting department is relieved of some responsibilities, as tasks like managing creditors and short-term debts are delegated to proficient third-party AP teams. But the list of benefits doesn’t stop here. Using a third company to manage your accounts payable can turn out to be a real improvement for your business. 

While outsourcing accounts payable brings both advantages and shortcomings to a business, many companies lean towards using it as the benefits tend to be more than the shortcomings. 

According to a 2020 report by Grand View Research, the global accounts payable outsourcing market size was valued at USD 1.66 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 11.9% from 2020 to 2027. This indicates that an increasing number of businesses are adopting outsourcing accounts payable services as a strategy to optimize their financial processes and reduce costs. 

You’re likely familiar with the difficulties of using outdated methods such as paper invoicing and optical character recognition (OCR) to handle your accounts payable (AP) procedures in your business. Moving from outdated accounting systems to more up-to-date solutions can be expensive and require a significant investment of time. Examining all available options with a comprehensive understanding can result in improved business results. Now, let’s examine the advantages and disadvantages of outsourcing. 

Pros of Accounts Payable Outsourcing

The reasons to try accounts payable outsourcing are many, but ultimately, it will depend on the needs of your business. This is not a strategy for all businesses, even if it could turn out to be very beneficial for medium to large companies, in particular. 

Reduced costs 

Recent reports show that outsourcing accounts payable (AP) tasks can result in significant savings in both time and money for your company. The cost of hiring just one employee can amount to as much as $4,425. 

For larger companies, these costs can quickly accumulate. However, by outsourcing AP tasks, companies can avoid the costs and time associated with recruiting, hiring, training, and compensating additional employees. 

Better efficiency 

The manual processing of accounts payable is susceptible to errors in data entry, and the speed at which invoices can be processed is limited by the abilities and work hours of your staff. However, third-party accounts management companies have access to modern facilities and software that enable them to complete your tasks efficiently and accurately. 

Professional tools and technologies 

When you outsource your AP tasks to third-party service providers, you gain access to professional teams equipped with the latest tools necessary to complete the job. These service providers utilize excellent tools, including computer systems that come complete with customized invoicing, expense management, and other accounting software. 

Less workload 

By outsourcing accounts payable, your company can reduce its workload, allowing your AP team to focus on value-creation activities within the business. This will speed up the work process and give your team the possibility to cover more tasks in a shorter period of time. By doing so, you increase the growth of your business and reach your objectives faster. 

Increased business relationships and profit 

Outsourcing accounts payable solutions implement efficient systems that enable you to pay your vendor invoices on time or even early, which can improve your relationships with your suppliers. When your suppliers are satisfied, they may offer discounts for early payments, potentially increasing your profitability. 

Cons of Accounts Payable Outsourcing

While using accounts payable outsourcing companies can provide relief to your internal accounts payable department, there are also disadvantages to consider before you dive into such a strategy. 

Reduced ability to manage errors 

One of the challenges with outsourced accounts payable (AP) services is the potential difficulty in reporting errors. Due to the lack of physical presence to oversee tasks, errors may not be promptly addressed or even detected. Serious errors, such as invoice processing duplication and exception processing, may go unnoticed until it’s too late. Additionally, identifying payment fraud can be more challenging. 

You can’t control the third-party risks 

Outsourcing can be a beneficial strategy for companies looking to reduce expenses and enhance their services. However, relying too heavily on external providers can bring about additional risks. Although outsourcing can save costs, it is critical to have a high level of assurance to prevent potential problems or the need for remedial actions. 

Security concerns 

Sharing sensitive information like BPO and bookkeeping details with third-party teams as part of outsourcing accounts payable data can potentially create gaps in your business rules and data security systems. 

AP Automation vs AP Outsourcing

Instead of outsourcing your accounts payable function, an alternative option is to implement AP automation. This approach differs from outsourcing in several ways. When outsourcing AP, a third-party company takes over the management of your AP department. However, with AP automation, your internal accounts payable team utilizes a sophisticated platform to streamline your AP processes. 

AP outsourcing involves transferring tasks and responsibilities to an external company for efficient management. At the same time, AP automation employs business intelligence software to manage your internal systems, resulting in lower total costs for your business.  

AP automation software eliminates the need for your team to perform repetitive, manual tasks such as invoice data capture, 3-way matching, and vendor payments, allowing them to focus on more strategic work. This approach offers numerous benefits, including reduced costs, 24/7 operations, and lower third-party risks. 

What Businesses Can Benefit From Accounts Payable Outsourcing?

Accounts payable (AP) outsourcing can be beneficial for a variety of companies, regardless of their size or industry. However, it is particularly well-suited for companies that: 

Have high volumes of Accounts Payable transactions 

If your company has a high volume of invoices and payments to process, outsourcing AP can save you time and resources. 

Want to reduce costs 

Outsourcing AP can help reduce costs associated with hiring, training, and managing an in-house AP team. Additionally, outsourcing providers may be able to negotiate better payment terms with vendors, helping you to save money. 

To improve accuracy and efficiency 

AP outsourcing providers have specialized expertise and technology to streamline the AP process and improve accuracy, reducing the risk of errors and fraudulent activities. 

To focus on core business activities 

By outsourcing AP, your company can free up resources and focus on core business activities, such as product development, marketing, and sales. 

To scale their operations 

As your company grows, managing accounts payable can become increasingly complex. Outsourcing AP can help your company scale more efficiently, without the need to invest in additional infrastructure and personnel. 

Choosing The Best AP Outsourcing For Your Company's Needs

Choosing the best AP outsourcing partner for your company’s unique needs is a crucial decision that can significantly impact your financial processes. Several key factors should guide your selection process. First and foremost, consider the partner’s experience and expertise in accounts payable processes. Look for a provider that not only understands your industry but also comprehends the specific requirements of your business.  

Moreover, assess the technology employed by the outsourcing partner. Ensure they leverage modern tools such as automated workflows, digital document management, and cloud-based systems to optimize efficiency and accuracy. Service quality is another critical factor; evaluate their response times, data entry precision, and adherence to deadlines. Prioritize a partner with a proven track record of delivering high-quality services. Security is paramount, so verify their data protection measures, including encryption and secure data centers.  

Additionally, carefully evaluate the cost, encompassing all fees and potential hidden charges. A cost-benefit analysis comparing outsourcing to in-house management is imperative. Lastly, references and reviews from other businesses that have worked with the outsourcing partner can offer valuable insights to help make an informed decision. Making a well-informed choice in your AP outsourcing partner can lead to substantial benefits for your company’s financial processes and overall efficiency. 

Conclusion

Experience seamless financial efficiency with Rewardworks – your trusted partner for Accounts Payable outsourcing services. Let us elevate your business by streamlining your AP processes, reducing costs, and enhancing accuracy. Contact us today to unlock a brighter financial future. 

Cory Calavan
Cory Calavan
Cory is the Director of Product and Professional Services at Interopay. He has a passion for fintech innovation and more than 10 years of experience in the field. Cory led his team in a multi-year project to integrate into the American Express virtual credit card network which helped bring efficiencies, security, and transparency to Rewardworks users.

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