If you're struggling to manage a complicated, manual AP process, it can be tempting to outsource it. You might consider hiring an accounting service or a fractional finance team just to get that towering stack of paper off your desk and get those hours back every month.
Before you can make that decision, you need to balance the pros and cons of hiring outside help—weighing them against the possibility of automating your own AP process to keep your payments, information, and documentation in-house.
If you're concerned about the dwindling efficiency of a ballooning AP department, automation can help with that too.
This article will walk you step-by-step through the process of making that outsourcing decision, explaining what accounts payable outsourcing is, why companies do it, the pros and cons, and the possible alternative of AP automation.
What is accounts payable outsourcing?
Accounts payable outsourcing is just what it sounds like—outsourcing your AP process to an external service. But how does it work?
Key aspects of accounts payable outsourcing services
Accounts payable services can take many different forms, but at the end of the day, they all share a few essential elements in common:
- The outsourced team needs a way to receive your bills and invoices
- They need to provide bookkeeping services to enter that data for you
- They need to get your approvals for those bills and make payments for you
- And those outsource accounts need to mesh back up with your own accounting software
Outsourcing to a manual accounts payable process
Imagine doing all that with manual AP processes. You'll see immediately that it wouldn't make sense. The implementation alone would be a nightmare, not to mention extremely costly.
You'd be so busy shipping papers back and forth, making sure nothing slipped through the cracks of those manual systems, that you'd be no better off than you were before.
What does that look like? If your AP outsourcing vendor also uses manual processes, those AP tasks aren't going to be much easier.
Yes, you're outsourcing AP data entry, pushing those manual data entry headaches onto someone else, but that invoice processing will still involve a lot of paper. You'll have to either ship or scan those paper invoices and receipts to get them to your AP outsourcing team.
If that team is working manually too, it won't improve cash flow management or other accounts payable functions. Approvals will be just as tough if not worse, and keeping your data up to date in your accounting system will take even longer thanks to that added shipping or scanning time.
Outsourcing to accounts payable processes with AP automation
That's why financial outsource industries and businesses have switched to AP automation.
Bills and payments are processed electronically and stored digitally. And the accounts payable outsourcing service usually has remote access to your accounting software to keep your general ledger and expense reports up to date.
An AP outsourced business solution might sound like it operates more efficiently, so it can improve your bottom line. That’s often true. But as a general rule, that's because they're using more efficient technologies.
Making a fair assessment for AP outsourcing
That isn't to say outsourcing is bad. Not at all. Many companies outsource their AP for a variety of reasons that make perfect sense for their strategic situation.
The point is simply this: If you're considering outsourcing your AP, don't compare apples to oranges, meaning don't compare your current manual process to someone else's automated one.
Instead, understand what automation could do for your own process. Then decide whether to outsource.
AP outsourcing: Accounts payable automation vs accounts payable services
As we established, outsourcing to an accounts payable service versus using accounts payable automation are different things. Let’s break down the differences to help you decide what your next steps are.
Who completes the work?
With most accounts payable services providers, all accounts payable tasks are completed by the vendor’s team. Day-to-day tasks like invoice capturing, matching, and processing payments are being completed outside of the business.
To make this happen, work needs to be done to create a seamless flow of information (including invoices, vendor, and payment) from the business to the accounts payable services vendor. A combination of email and mail forwarding needs to be established to make it a completely hands-free process.
This also creates vulnerabilities as sensitive information will be passed through an external vendor.
Accounts payable automation keeps the control within the business. While there is still some work that needs to be done by someone on staff, all information is kept internally and completely within your control.
Where is the data held?
Outsourcing to accounts payable services company requires trust with the vendor as they’ll have access to sensitive information about your business. By providing them access, there’s a risk that they could forge invoices or payments with what they have.
Automation keeps all data in-house, including your payment information. The data is secure and you maintain privacy while still minimizing your workload.
What are the costs?
It’s best to shop around and compare the pricing structures of various accounts payable services. Some opt for a price per invoice while others may use hourly or flat rate pricing.
For per invoice pricing, you’ll typically find options around $2.00 per invoice processed. What’s important about this is that as your invoice count increases, so do your costs. If you go from 100 invoices per month to 200, your costs balloon from $200 to $400, something to be especially mindful of if the business is seasonal with months of high activity.
The software used in accounts payable automation is typically a flat, per month subscription amount. No matter how many invoices you process, the cost remains the same making it easier to budget and plan for.
Are there protections against fraud?
Invoice fraud puts businesses at risk by requesting illegitimate payments and hoping the business doesn’t notice until it’s too late.
When you use an accounts payable service, you trust that they’re doing their due diligence on every invoice received including confirming vendor information, vetting the source, and matching against purchase orders.
But even then, there are instances of invoice fraud that may not be noticed without an intimate knowledge of the business, its purchase history, and the relationship with the vendor.
By automatically matching vendor invoices to purchase orders and prompting for approvals from designated stakeholders, accounts payable automation saves time while also ensuring the invoice gets in front of the right eyes. And with a clear paper trail that can be referred back to, you’ll know what caused the problem so it doesn’t happen again.
In both cases, outsourcing accounts payable can help capture invoice fraud before it affects your bank account.
What’s the implementation process?
Getting set up with an accounts payable service comes with outside help: the vendor will be there to walk you through the process and grant them access to what they need. It may take time, but you’ll have peace of mind that the setup is done correctly.
It may take more time to get setup on accounts payable automation software as you won’t have the same level of technical support. Not to mention, there’ll be integrations that need to be completed to keep information flowing smoothly from platform to platform.
Both will take time to set up, review, and trial to confirm it’s working correctly. But more will depend on you if you choose to go the automation route.
Why outsource your accounts payable?
Many companies outsource their back-office accounts payable and/or accounts receivable tasks because they don't want to increase their headcount.
Plus, an accounts payable service or organization can serve each customer in a fraction of the time because they're specialists. They have a lot of AP experience, and they dedicate every resource to that one job.
That might be true, but it isn't the whole story.
Outgrowing manual accounts payable processes
Companies that are worried about headcount expansion are often struggling with an equivalent increase in paperwork. More physical bills and invoices. More hand-signed approvals. More hand-signed checks.
The manual AP system that worked when they first started isn't working anymore.
Instead of changing the system, they require more and more people to manage it—to perform data entry, to track down each approval, to catch human errors. It's just not functional.
So, to reduce costs, they find an AP supplier and hire those services out. In short, they finally change their system by letting someone else handle it. And, to make sure both the customer and the AP team benefit from the relationship, that outsourced AP team is probably using automation.
Now, depending on how efficient that service is and how many hours you need from them, they still might be more cost effective than automating your own AP processes and maintaining a lean AP team. But, again, you should compare apples to apples to make that decision.
To do that, let's look at the pros and cons of outsourcing versus automating your own AP and keeping it in-house.
AP outsourcing: the pros and cons
Many of the most valuable aspects of outsourcing your AP are actually shared between both of these choices: you get the pros whether you automate your own system or hire someone else.
First, let’s compare manual AP processes to AP automation.
Manual AP tasks vs automated AP tasks
The real AP outsourcing decision
Each advantage on that list is actually a benefit of automation, not outsourcing in and of itself.
Still, that outsourced team didn't have to be trained, right? Many business leaders expect a huge headache in switching from a traditional AP system to a more practical automated one.
But with the right automation solution, switching to automation isn't a headache at all.
Paying your first bill takes anywhere from a few minutes to a few days, depending on the size of your AP department and processes. Even with an enterprise solution, it doesn't have to take weeks or months.
So, why would you really outsource your AP? Here are a few scenarios in which outsourcing might make more sense than automating in-house.
Accounts payable outsourcing vs AP automation software
How much does it cost to outsource accounts payable?
Because accounts payable automation is so efficient, the real cost savings here are less about outsourcing and more about the benefits of the accounts payable software. Data capture, document management, approvals, and payment processing are far less time-consuming for your own AP team with AP automation.
When you automate accounts payable processes, you may find that your existing accounts payable functions take fewer hours—to the point that you aren't feeling the need to outsource anymore.
Accounts payable outsourcing alternative: BILL Accounts Payable
One of the best things about BILL is that you can choose our intelligent business payments platform as your AP automation solution whether you decide to automate your own processes or outsource them. In fact, BILL is used by over 80% of the top 100 U.S. accounting firms.
Whether you hire someone or automate your own in-house system, you'll enjoy the same intelligent data capture (resulting in fewer duplicate entries and other human errors), the same insight into each purchase transaction, the same efficient tools and utilities in the same web and mobile app.
You'll also enjoy similar time savings. BILL customers reported saving, on average, 50% of their time spent on AP. You'll benefit from the performance improvements of automation whether you keep your payable processes in-house or hire a professional.
Better visibility in the accounts payable process
In addition, you'll enjoy the same availability of your data, the same control over compliance workflows, the same detailed invoice and payment tracking, with the same standardization of your AP process.
You'll know when you were billed and for how much. You'll know every approval workflow was checked and applied automatically. You'll know where every document is located. You'll know which early payment discounts you benefited from.
Digital payment processing and integration with AP automation software
And you'll have the same ability to pay or get paid by ACH, virtual card, international wire, or paper check. They're all available electronically in the BILL app. We'll even print and mail those checks for you.
You'll also have the same ability to integrate your automated AP seamlessly with your accounting software: QuickBooks, Sage Intacct, Oracle NetSuite, Xero.
So if you're ready to make AP easy, while getting paid for your sales 2x faster, set up a personalized demo with one of our product experts or start your risk-free trial right now.
See for yourself how easy your in-house AP could be, and then decide whether you still want to outsource it. Either way, we're here.
"We transitioned from a paper file system for payables to BILL four years ago and have never looked back. Switching to BILL has ensured we never lose an invoice again, never forget to pay, and have greater visibility into our payables - both in detail and in summary. It has made actually paying our bills a breeze, cutting down on time spent printing and mailing checks. Now all it takes is a few clicks of the mouse, and our vendors are paid in full and on time, and a perfect workflow to prove it. In this unprecedented period when we are all working remotely, BILL ensures we don't miss a beat." — Katherine Harvey, CEO and Co-founder Bare Bones Broth
