Should I Outsource My Accounts Payable?

As the world of enterprise grows increasingly competitive, your company has to constantly strive to finetune its administration, improve its services, and ultimately stand out among competition in order to succeed. Outsourcing accounts payable can be a practical solution for businesses looking to thrive in a fiercely competitive environment, while simultaneously cutting down on costs.

Many companies are considering outsourcing accounts payable to specialized, external bodies. Their motivation for this is three-fold. Firstly, they hope to better identify areas where costs can be cut and therefore profit increased. Secondly they wish to improve general organization and efficiency in the business. And thirdly, they are seeking ways to better handle cash flow and capital.

If you identify with any of these motivations, then you’re in the right place. In this post, we’ll go over exactly what is meant by outsourcing accounts payable, as well as outline the pros and cons of outsourcing accounts payable. That way, you can make an informed decision about whether it’s the right option for your business.

What is accounts payable outsourcing?

Accounts payable outsourcing is the practice of using an external, third-party service to carry out administrative tasks related to invoices and bills. The exact duties that accounts payable outsourcing services perform vary, but most commonly relate to invoice capturing, purchase order matching, archiving payment records and payment processing.

Should I outsource my accounts payable?

Whether or not you should consider using accounts payable outsourcing services depends on a number of factors. Below we’ll outline some of the main reasons businesses decide to do so.

Your business’s accounts payable team is overwhelmed

When businesses grow at a very rapid pace, there tends to be a sharp increase in the volume of invoices and bills. A consequence of this is that the accounts payable team cannot keep up with their increased workload. This can be remedied by seeking outsourcing accounts payable.

Your invoice processing costs are too high

Manually processing invoices can be very pricey, costing as much as $30 an invoice. Combined with an inefficient working environment and communication difficulties between different departments regarding invoices, unnecessary costs can quickly add up. Looking into outsourcing accounts payable can help alleviate some of these costs.

Your accounts payable department is poorly controlled

If mistakes are commonplace in your accounts payable department, then you’ll likely be far better off using a third-party service to handle your accounts payable. This will help you avoid mistakes such as duplicate payments and missed or late payments, which ultimately end up increasing costs - not to mention taking up your team’s time.

You prefer to pay for an accounts payable outsourcing service than employ more of your own staff

Sometimes the costs of hiring and training new accounts payable staff exceeds the cost of outsourcing the tasks they would be performing. Hiring new recruits can also be a hassle in terms of time and office reorganization. In many cases, it might be simpler to outsource accounts payable.

How much does it cost to outsource accounts payable?

Exactly how much it costs to outsource accounts payable depends on the size of your business. Typically, it can range from $500 to $5000 per invoice for small businesses.

Pros and cons of outsourcing accounts payable

Before deciding on the right course of action for your company, it’s best to first consider the pros and cons of outsourcing accounts payable. Below are some of the main perks and drawbacks.

Pros

May reduce costs

Outsourcing means you don’t have to pay staff salaries, pensions, office space or office equipment. Depending on your situation and how much it costs to outsource accounts payable for your company specifically, you could significantly cut costs through outsourcing.

Better organization

Outsourcing generally improves business efficiency. Expert third party vendors will be highly efficient and use precise administrative and reporting methods. They will also be focusing on the singular domain of accounts payable, unlike a department which handles various tasks pertaining to invoices and bills. This means there is less room for error.

So, should I outsource my accounts payable?

In reviewing the reasons why other companies choose to outsource their accounts payable and taking note of the pros and cons, you should be able to come to a decision as to whether it’s a good decision for your business.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.