As businesses grow and expand, their accounting needs usually become more complex, particularly in the area of accounts payable (AP). AP is responsible for paying suppliers and vendors for goods and services purchased by the company, which includes managing invoices, payments, and vendor relationships. These processes can be time-consuming and costly for companies to manage on their own. There are two primary options for streamlining the AP process: outsourcing and automation. In this blog post, we will explore the pros and cons of each option to help you determine which may be the right choice for your business.
Accounts Payable Outsourcing
Accounts payable outsourcing is a subset of business process outsourcing (BPO) and refers to the process where a business contracts a third-party provider to manage and execute their accounts payable process. As the service ramps up, it reduces the need for a dedicated, in-house AP team and potentially frees up internal resources to focus on other areas of the business. Outsourcing can help businesses save time and money while reducing errors by providing access to best practices and tools that would otherwise be unavailable, but it comes with a price. Outsourcing can be expensive and also can lead to loss of control over the process. Here is a summary of the pros and cons for outsourcing:
- Reduced labor costs: Outsourcing AP eliminates the need to hire and train additional staff internally, which can be a big source of cost savings.
- Increased focus: Outsourcing can give businesses the freedom to focus on their core competencies.
- Access to expertise: Outsourcing firms specialize in AP management, which means they have the knowledge and expertise (as well as the tools) to handle complex AP issues.
- Improved employee morale: Outsourcing can help reduce stress and workload of internal staff.
- Cost: Replacing an entire department can still be expensive, especially during the transition. Furthermore, the outsourcing model typically relies on a “lift and shift” where local staff are replaced by an outsourced team with cheaper labor costs.
- No guarantees: Inefficient processes may remain inefficient. It is just no longer your direct team going through the steps.
- Lack of control and reduced oversight: Outsourcing AP means giving up control of the process to an external company, which can be a concern for some businesses.
- Security concerns: Outsourcing AP requires sharing sensitive financial information with a third-party company, which can be a security risk.
- Communication challenges: Outsourcing isn't always frustration free. Differences in time zones, language, or dialect could create obstacles in the process, which might lead to delays and/or errors.
- Implementation effort required: Implementing an outsourcing solution can still be a time-consuming event that requires significant effort.
- Partner compatibility: Finding the right partner that provides a good fit for your business can be a difficult and expensive process in and of itself.
- Some fundamental risks remain: Outsourcing does not eliminate the potential for human error (including duplicate payments) or potential fraud.
Accounts Payable Automation
AP automation involves using software to streamline and automate the AP process. Like outsourcing, automation can save businesses time and money by improving accuracy and efficiency. Unlike outsourcing, automation offers these benefits without losing control of the process or increasing the department size. Internal processes are improved through technology, which improves controls and increases visibility with real-time data access and analytics insights. Some of the advantages and disadvantages of using AP automation include:
- Improved efficiency: Automation can help reduce processing times, allowing businesses to pay their bills more quickly and improve vendor relationships.
- Greater accuracy: AP automation can reduce the risk of errors by nearly eliminating manual data entry.
- Greater visibility: Understand what is happening with the business and workflow through real-time data and analytics.
- Access to expertise: The best AP automation platforms are built by teams with deep experience and knowledge of AP processes and management, so their service will incorporate the ability to handle all levels of complexity around AP challenges.
- Upfront costs (in some cases): AP automation may require an initial investment in software and team training, which could be significant in some cases. That said, the benefits of AP automation can outweigh the costs and lead to significant savings (time and money) in the long run.
- Requires new behaviors: Cost savings are achieved by utilizing technology to replace inefficient processes with efficient ones. If staff aren’t onboard with the transition or stick to outdated processes, they could styme the realization of savings.
- Technical challenges: AP automation can be challenging to set up and maintain without technical expertise, which can be a concern for some businesses. A skilled AP automation vendor, like Nimbello, should be able to manage any technical complexities in the set-up and implementation process.
Which Is Right for You?
Both accounts payable outsourcing and accounts payable automation have their advantages and disadvantages, and the best choice for a business will depend on a combination of its unique needs and priorities. Budget, time, workflow/volumes, levels of control, information security/access, and management’s goals and objectives will likely all play a factor in the decision process. Companies that want to toss the keys to a third-party provider and solely focus on their core business activities may find outsourcing more suitable. On the other hand, automation may be the better choice for those who want to improve their processes while still maintaining control and direct visibility into their organization.