Feeling swamped by manual processes, attempting to juggle different invoice volumes, or worried about the increasing costs of internal AP management?
Every businessperson who knows that productivity needs to be at the top level tries to look for ways their operations can be streamlined and automated. Accounts Payable (AP) is a crucial aspect of a business but can be one of the most arduous and potentially headache-inducing tasks in an enterprise, dealing with key activities such as invoice processing and timely payment of invoices.
Read our guide to find out why you should choose in-house or outsourced AP and how to design the strategic decision that best meets your organizational objectives.
In-house Accounts Payable (AP)
The responsibility of processing and paying invoices is in the hands of the company’s internal accounts payable (AP) department.
Advantages
- Institutional Knowledge – You have in-house details about certain invoice forms, spending patterns of the business, and vendor relationships, which helps in making processes extra fast and detecting anomalies.
- Control– When you manage accounts payable yourself, you have complete control over the AP process to ensure that all legal requirements and organizational rules are met.
- Data security – The internal firewall of your organization can protect financially important data to a large extent and hence minimizes the risk of unintended intrusion from outside parties.
Disadvantages
- Specialized Knowledge: Not all small businesses have the expertise of experienced AP professionals and recruiting and retaining them can be a challenge.
- Technology Costs: The purchase and upkeep of AP automation software can add to overall operational costs and keeping internal teams up to date with regulations and best practices will also require ongoing training.
- Scalability: AP specialists are expensive to hire and scale up, especially for enterprises that have fluctuating invoice counts.
Outsourced AP (Accounts Payable)
Accounts Payable outsourcing is the process of an organization working with a specialized external service provider to process and pay their invoices.
Advantages
- Competence: The AP professionals of outsourcing partners are knowledgeable in industry best practices and trends, which help reduce errors and improve the performance of information processing.
- Cost Savings: The third-party firm offers cost-effective solutions because they make use of economies of scale. You pay a banded fee per invoice received, saving you money on internal staff, cost-effective perks, and software licensing.
- Scalability: Arguably the biggest strength of outsourcing AP is that these providers can customize their staff according to the volume of invoices it receives, hence assuring its customers uninterrupted and timely processing of invoices irrespective of the workload.
Disadvantages
- Vendor Management – In this case, the outsourcing partner needs to take on some of the responsibilities to manage the vendor relationship. In case of vendor trouble, they should have a reliable mechanism of de-escalation and communication stream.
- Businesses Unprepared: Outsourcing the accounting function leaves businesses with less autonomy in the handling of their finances. To provide star service quality, clearly spoken communication and well-defined SLAs are requisitese to meet the standards of the business.
- Data security: When it comes to data security, hiring a reliable outsourcing provider is the most important thing, as regular audits and compliance are mandatory for data protection.
The Best Option for You
We saw that both internal and external AP had pluses and minuses for their applications. The choice between in-house and outsourced AP works just as well and depends on your resources (business size, invoice volume, the industry you are in, financial resources/ investment in technology). Here’s a roadmap that can help you decide:
- Internal Expertise: The first question is, do you have a specialist AP working for you? Smaller organizations or those that lack in-house expertise may find value in the kind of specialized knowledge that an outsourcing firm offers.
- Invoicing: How many invoices on average do you receive over 3 months or month on month? In instances of large or reductive needs for service, outsourcing may have a persuasive argument simply due to its ability to scale.
- Financial status: Hiring an internal AP team comes with costs, including salary and benefits, software costs, as well as training costs. In case of outsourcing, based on the number of invoices a pricing structure can be fixed. This gives flexibility based on increase/decreaseincrease / decrease of volume.
- Managing Preferences: Do you actually want to manage the entire AP process? In- house AP provides the highest level of control, while outsourcing to an AP company requires very clear SLAs.
In this article, we discussed the pros and cons of an outsourced account payable vs. in-house so that you can make an informed decision that helps increase productivity, decrease cost, and ensure seamless financial operations. As a subtle recommendation, outsourcing accounts payable offers undeniable benefits and ease. Technology has made processes more efficient and faster, which doesn’t require much physical effort as compared to the past, and outsourcing partners know how to leverage technology well.
Specialized outsourced AP service providers like OBS (Outsourcing Business Solutions) cater well to your AP requirements, removing the burden from your head & making your work smarter & economical. OBS allows for significant cost savings, better security and reporting, and enables you to focus on growth and maximize cash flow.