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These Are The Major Pros and Cons Of Accounts Payable (AP) Outsourcing

AP Outsourcing

Published on August 16th, 2019

As competition in the business world increases, business CEO’s are tasked with staying one step ahead while minimizing or cutting company costs wherever viable. A common target for cost cutting in most companies is the accounts payable department, which, perhaps ironically, is responsible for ensuring that company costs including payroll, purchases, and other company-related expenditures are all processed and recorded punctually and accurately. In recent times, companies have found that while having an onsite AP department has its benefits, outsourcing AP tasks to external firms can save money or free up funding to be redirected to other departments and expenses within the company.

As such, AP outsourcing is becoming the norm for businesses, companies, and firms. At the same time, however, many do not fully trust outsourcing a vital financially-rooted component to an external entity. Additionally, there are some times where outsourcing may add to the company expense instead of minimizing it. It is important for companies to realize that outsourcing isn’t a “one size fits all” solution; while it has benefits that might mitigate costs for one company, it also has cons that could detriment another company. Corporate decision-makers should measure the pros and cons of outsourcing against their company’s current and foreseeable situation.

Outsourcing Pros

As stated above, outsourcing a company’s accounts payable tasks to an external entity has its benefits. The most obvious is the reduction in cost. Outsourcing accounts payable means one less department full of personnel to keep on a company’s payroll. The company will instead have one cost to pay to the firm that they have outsourced the AP tasks to. Any AP personnel will be on the outsource firm’s payroll, not the company’s. Outsource firms dedicated to AP, will have more access to automated resources and more personnel dedicated to fulfilling AP tasks. This means better AP efficiency and productivity, as well as fewer inaccuracies since there are more eyes to perform double checks. AP-dedicated firms can also perform deeper analytics for the parent company and give them a clearer picture of what costs and services the parent company should keep, and which ones should be reduced or eliminated.

Outsourcing Cons

While all of the above benefits can help a company, there are some negative aspects to outsourcing AP tasks. For one, by delegating the tasks to an external agency, the parent company gives up a measure of control over how AP is conducted. The practices and methods used by the external agency may not completely match with the parent company’s own policies. The parent company cannot directly control this a they would if AP were performed in-house. Furthermore, if an error with AP does occur, the parent company is unable to directly resolve it in a timely fashion as they now have to go through the outsource company to do so. Additionally, placing accounts payable tasks with an outside company shackles the parent company to that entity’s fate in a way.

If the external company experiences a hardship, or goes out of business for some reason, the parent company will need to find an alternative to meets its AP needs. Also, if the external company suffers a security breach, cyber-attack or is otherwise compromised, the parent company’s files will be at risk as well.

Overall, outsourcing AP tasks is a prospect that can have big corporate benefits as well as several downsides that aren’t necessarily good for business. The decision to outsource AP is one that should be weighed against the company’s current and future financial well-being.