According to the 2024 Accounts Payable Automation Trends Report, 52% of AP teams still spend over 10 hours each week processing invoices, and 60% continue to manually enter invoice data into their accounting systems.
For businesses relying on traditional accounts payable (AP) methods, this means that your team may be spending countless hours reviewing, verifying, sorting, and inputting each invoice. As business scales, this method often turns into a bottleneck, affecting everything from efficiency to team morale.
Besides being slow, manual AP processing is costly. Studies estimate that each invoice can cost between $12 and $15 to process manually, with some reaching $30 or even $40. On top of that, manual workflows lead to errors, late payments, and other issues that can affect vendor relationships and financial health.
These challenges lead many businesses to consider outsourcing AP, hoping to cut costs and increase efficiency. But is outsourcing really the best option?
To help you find the answer to this question, we will discuss the benefits and drawbacks of outsourcing your accounts payable. By the end of this article, you’ll have a clear view of whether AP outsourcing fits your organization’s needs – or if another solution might serve you better.
Let’s get started!
What is Accounts Payable Outsourcing?
Accounts payable outsourcing is the process of hiring a third party to handle various AP functions to reduce organizations’ in-house human and financial workload.
These specialized companies have the knowledge, resources, and technology required to execute and improve the organization’s current AP procedures. They are in charge of documenting invoices, reviewing the details of bills and invoices, making payments, keeping records on file, and reporting.
Outsourcing accounts payable means your accounting department will have fewer tasks to accomplish since activities such as managing short-term debts are conducted by qualified third-party AP teams. Your in-house finance department can then focus on higher-level tasks and handle essential business operations.
This of course comes with many benefits. Some of them will be discussed in the following section.
Pros of Outsourcing Your Accounts Payable
Outsourcing AP functions is a popular procedure as it helps companies streamline their business processes and build stronger relationships with their vendors or suppliers.
Below we discuss four benefits companies can experience by outsourcing their AP operations:
Cost Reduction
Outsourcing AP processes can help businesses save money by reducing or eliminating the need for in-house staff to handle these tasks. In fact, 62% of all AP expenses are labor-related.
Outsourcing eliminates costs related to recruiting, hiring, training, compensating and maintaining a dedicated AP team.
Enhanced Efficiency
Outsourcing accounts payable can also lead to improved efficiency in the processing of invoices and payments.
Professional AP teams have the training and knowledge necessary to complete these activities quickly and accurately, which leads to shorter turnaround times and fewer mistakes.
Access to Better Tools and Skilled Resources
Another important benefit of outsourcing is access to the latest tools and technologies to optimize AP processes.
Third-party AP service providers have in-depth knowledge of the latest best practices and technologies in the field, helping businesses stay up-to-date and improve their overall AP workflows with the latest software or tools.
Improved Cash Flow Management and Profitability
Finally, outsourcing AP can assist companies in better managing their cash flow by freeing up time and resources to concentrate on the most crucial facets of the company.
Additionally, these solutions allow supplier invoices to be paid on time, enhancing vendor relationships. A satisfied vendor is more likely to offer discounts due to early payments, which increases the company’s profitability.
Outsourcing is a tempting alternative for organizations that want to remove the hassle of processing accounts payable. It cuts down costs, eliminates errors, and avoids the pain points of a traditional process, like manual data entry, document storage, and training new employees.
However, outsourcing your AP is not as problem-free as it seems. There are some drawbacks businesses must pay attention to.
Cons of Outsourcing Your Accounts Payable
Outsourcing your AP is a significant decision that should not be made lightly. Before choosing a third-party service, it is crucial to consider the potential disadvantages carefully.
Here’s a list of some of its drawbacks:
Less Process Control
One of the potential drawbacks of outsourcing accounts payable is the loss of control over these processes. When a business outsources AP to a third-party provider, it relies on the provider to handle AP tasks accurately and efficiently according to their own terms and schedules.
This lack of transparency can be a concern for companies that want to maintain tight control over their financial operations and regulatory compliance.
Communication Issues
Besides the lack of control and transparency, outsourcing AP may also hinder communication between the company and the service provider, due to language barriers, cultural differences, or physical distance.
This can lead to delays in the processing of invoices and payments, as well as misunderstandings and errors.
Over-dependency
Another potential disadvantage of outsourcing accounts payable processes is the risk of over-dependence on the service provider.
If a business relies heavily on a single provider for these tasks, it could be at risk if that provider experiences challenges such as security breaches or bankruptcy. In such cases, the business’s AP processes could come to a standstill, potentially damaging vendor relationships and other aspects of the business.
Privacy and Security Concerns
Finally, outsourcing AP can lead to a loss of privacy. When a business outsources accounts payable processes, it is providing access to sensitive financial information.
While often subject to rigorous security protocols, third-party providers are always prone to data breaches and other security risks. This can be a concern for businesses with strict privacy regulations.
If your company handles sensitive financial data and is hesitant to outsource a third-party team, implementing an AP automation solution to keep full control over the AP process may be the best option.
Should You Outsource Accounts Payable?
As a business owner or a financial manager, it’s crucial to find the best way to manage your accounts payable processes. As we have seen before, outsourcing your AP means hiring a specialized third-party provider to manage all your accounts payable functions. It saves your company time and money processing large amounts of invoices and bills from suppliers.
However, losing control of the AP processing workflow is very easy. Furthermore, companies can compromise their privacy by granting access to sensitive data. To avoid these drawbacks, companies implement innovative software to automate their accounts payable processes.
AP automation refers to the use/ integration of software and technology to streamline and automate the accounts payable process. The accounts payable software can be used to automatically process invoices eliminating dreaded tasks such as data entry, verification, and digitization.
This makes the invoices accessible, easy to track, and most importantly paid on time, which results in an up-to-date overview of the AP workflow.
With an AP automation solution, companies are able to improve efficiency and accuracy, reduce manual labor and errors, and save time and money, while still having control over the accounts payable processes. Besides that, no important and sensitive data is shared with an external provider.
By automating tasks within accounts payable, like invoice processing, payment management, and reporting, businesses can focus on more important tasks and make better use of their resources, thus empowering their accounting departments.
AP Outsourcing vs. AP Automation: Which Solution Fits Your Business?
Both AP outsourcing and automation bring unique benefits, and the best choice depends on your organization’s needs and goals:
- Outsourcing is ideal if you want to offload AP responsibilities to a trusted provider, benefiting from specialized expertise and streamlined processes.
- Automation is better for companies that want to keep full control over AP workflows while reducing manual effort.
With Klippa, you don’t have to choose between the two. We offer both AP outsourcing and automation, allowing you to select the solution that best aligns with your company’s priorities.
Now, let’s explore how our AP automation solution, Klippa SpendControl, can elevate your AP processes.
Automate Your Accounts Payable Using Klippa SpendControl
Automating accounts payable can be a game changer for your business. With Klippa SpendControl, you can easily manage your AP to have a clear overview of your payments and ensure that all of your bills are paid on time.
Klippa SpendControl uses advanced OCR technology to automatically extract and process key information from invoices with automated data entry, and speeding up the overall turnaround time. Watch the video below to see how our solution works in more detail.
By using Klippa SpendControl, you can save time processing invoices, reduce errors and increase efficiency. It also prevents AP fraud by detecting duplicate invoices and cross-checking IBANs on invoices with existing databases.
You can seamlessly integrate it with your existing accounting software, allowing you to easily manage your accounts payable process without having to switch between multiple systems.
Curious to know more about Klippa SpendControl? You can simply schedule a demo below or contact our team of specialists. We’ll be happy to answer all your questions!