Considering the Accounts Payable process is an example of an obvious candidate for outsourcing, why don't we all do it?
Accounts payable is a necessary process in organizations, but it does not have external visibility and it is not directly related to the company’s core activity,and it is ever changing in terms of regulations and standards. This being the case, why do we insist on investing in technologies, such as scanning or OCR, that are expensive to maintain and their use changes over time? In many cases, not accounts payable outsourcing limits the potential for evolution and development of the invoicing process as it is subject to the technology acquired.
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What is accounts payable outsourcing?
Accounts payable consist of debts incurred by a company as a result of the acquisition of goods and services.
Importance of Accounts Payable Outsourcing
When a company hires a third party to hamndle the entire accounts payable process of a company. A specialized accounts payable provider offers certain skills and know-how that do not exist in most internal departments, in relation to the benefits of applying best practices in all AP functions, giving the ability to execute the tasks efficiently, with maximum security and based on the latest standards and protocols.
Benefits of accounts payable outsourcing
Outsourcing the AP process to a specialized provider brings great advantages for organizations, which can be divided into two main groups:
Cost optimization and flexibility
Through outsourcing , companies can focus on their core activity, achieving an interesting margin that allows them to competemore effectively in the market. However, it must be taken into consideration that this reduction in costs derived from AP outsourcing will depend on the current level of efficiency that an organization has. For example, if an AP department already has an efficient vendor invoice automation strategy, it will obtain less cost reductions than a company that does not.
Additionally, undertaking outsourcing with a specialized provider allows for a faster adoption of new standards and formats derived from their specialization and experience in multiple similar projects.
On the other hand, outsourcing provides organizations with flexibility by enabling them to work with a variety of different cost models. An example of this is that the fixed cost of the AP function can be converted to variable cost when a transaction-based pricing model is adopted. Based on this, the number of full-time employees (FTEs) employed by the specialized accounts payable provider is irrelevant to the company, with the service level agreement being the main indicator that governs the service.
Maximizing process efficiency
As the AP process is necessary for the organization, in order to make it efficient and secure, it is important that the process itself is taken into consideration in the business continuity plan. Not all companies have certifications, such as ISO 27001, that guarantee this, and those that have the aforementioned certification do not usually include the supplier area in their plans as it is not a key process from a business perspective. Specialized companies define the response procedures to disasters and anomalous situations, such as the impossibility of accessing offices for long periods of time due to catastrophes, difficulty in accessing the systems, etc ...this being a guarantee that the organization will have a “24/7” AP process.
Another fundamental element is the automation of the AP process. Automation greatly improves the precision of data entry and helps avoid errors such as overpayments, duplicate payments, payments to incorrect suppliers, loss of discounts, late payment charges, ... which indirectly reduce operating costs and help to improve profit margins.
For example, outsourcing enables - in many cases - authorizations via the web, which drastically reduce the timecycle from invoice to payment, thus increasing the possibility of obtaining discounts for prompt payment, if applicable. The increase in electronic communication makes the remote carrying- out of AP activities possible. In addition, another key challenge for most AP departments is the workflow, the routing and invoice validation process that may involve interaction and monitoring by various employees in the organization.
A low level of workflow automation has a significant negative impact on process efficiency. Providers specialized in AP outsourcing services invest in the latest technologies, both for document management and workflow, and are able to exploit these advantages to make them available to their clients.
In this way, accounts payable outsourcing is not just a mere transferral of task completion that goes from being done in-house to being outsourced, but rather the completion of those tasks is changed and optimized using the corresponding best practices, such as promoting the use of electronic invoicing by suppliers.
