Accounts Payable Outsourcing: Pros, Cons, & Best Practices 

Know your options: AP outsourcing, In-house AP, AP Automation & Shared Services Centers. 

The accounts payable department is responsible for managing any invoices or due payments for vendors and suppliers the business works with to provide material, products, services, or other goods. Besides managing the invoices and ensuring the payments are made promptly, the accounts payable department ensures a smooth relationship between the business and the vendors, so vendor relationship management is an essential side of this function.  

Outsourcing accounts payable relies on a third party to manage this crucial accounting function. Accounts payable outsourcing can benefit the business in many ways, such as cutting down the costs of hiring an in-house team, increasing the efficiency of internal operations, removing the burden of managing an in-house team, and alleviating the risks of fraud and non-compliance with financial regulations.  

When executives consider outsourcing accounts payable, they usually come across keywords such as in-house teams, AP automation, SaaS services, or shared services centers. The differences between these options are essential to note in this article to help businesses pick the right partner for them and their growth goals. In the following, we will discuss the pros and cons of outsourcing accounts payable services compared to having an in-house accounts payable team, AP automation, and the shared services center. 

1- In-house Accounts Payable

In-house accounts payable is the traditional way of handling a business’s accounts payable and invoice-to-payment processes. It’s a team of resources that are hired and managed internally. Despite requiring complete management and retention of the in-house account payable department, in-house accounts payable allows full control of all the transactions and overall financial performance of any cash-out.  

2- Accounts Payable Automation (also known as AP Automation)

Businesses resort to the automation of their accounting processes and transactions, especially AP automation, to ensure that payments of vendors are happening smoothly and automatically with the least number of errors and risks. AP automation is possible when subscribing to a SaaS solution, adopting a dedicated accounting software, or adopting an ERP system on-premises.  

While an ERP system can include and automate many functions other than accounting, such as logistics, procurement, and human resources, to name a few, accounting software is specifically made to handle accounting tasks only, automating the functions of bookkeeping, general ledger, chart of accounts and accounts payable and receivable.

Feature	Accounting ERP	Accounting SaaS
Deployment	On-premises/ Cloud	Cloud-based
Cost	Costly setup and maintenance fees	Subscription fees
Implementation	Complex	Easy
Maintenance	Requires in-house dedicated IT maintenance team	Operated entirely by the SaaS solution provider
Scalability	Can be challenging to scale up or down	Easy to scale up or down through upgrades and downgrades of packages
Security	Requires a robust IT security infrastructure setup	Managed and secured by the SaaS provider
Updates	Requires manual updates	Managed by the SaaS provider
Integration	Can be challenging to integrate with other systems	Easy to integrate with other systems if it is includes with an API integration option

3- Accounts Payable Shared Services Center 

A shared services center (SSC) is a centralized and consolidated business unit that provides services for multiple units within the same organization and/or numerous entities simultaneously. Accounts Payable SSC is a unit that handles all accounts payable transactions for more than one business unit within the organization, and sometimes, they control the invoice-to-payment processes for several entities. 

Accounts payable outsourcing and accounts payable SSC are usually seen as similar options offering almost identical models to businesses, but there are also some notable differences to clarify here.  

Feature	Shared Services Centers (SSC)	Account Payable Outsourcing
Ownership	Internal	External
Staff	Employees of the organization	Outsourced expert accountants provided by the outsourcing partner
Location	On-site or off-site	Nearshore/ offshore locations
Control	More control over operations	Less control over operations/Managed Services Model
Flexibility	Less ability to adapt to changing needs	More flexibility to adapt to changing needs (e.g., seasonal demand, layoffs, or scaling up)
Cost	More expensive to set up and operate	Helps reduce the costs of hiring and managing a team internally
Expertise	Less ability to scale or grow expertise with less exposure to experience outside the organization	Diverse set of expertise with the ability to leverage knowledge-backed solutions from the outsourcing provider

4- Accounts Payable Outsourcing

Accounts payable outsourcing enables businesses to rely on an outsourcing provider’s expertise to handle any volume of day-to-day transactions related to invoicing, payment processing, installment management, vendor relations management, and communication. Businesses usually assign these tasks to an outsourcing accounts payable team to achieve the utmost accuracy of the invoices and the delivery of payments, leading to smooth and steady interactions with the suppliers and vendors.

Characteristic	In-House AP	Outsourced Accounts Payable	Shared Services Center	AP Automation
Capacity	Tight scaling options / limited capacity	High flexibility to scale up and down / tailored capacity according to need and demand	Handles transactions of diverse business units and sometimes different entities	ERP: Hard to scale / high automation capacity  Accounting SaaS: Easy to scale / lower automation capacity
Efficiency	Less efficiency with little room for acquaintance with technology updates	Higher levels of efficiency can be achieved as operations shift to focus on core tasks	Medium level of efficiency is achieved through standardized processes and the centralization of the unit	High level of efficiency through rapid automation and high visibility on accounts payable transactional data and results
Control	Complete control by the organization	Full control by the outsourcing partner (managed by SLAs)	Shared control between the SSC unit and the organization	ERP: Complete control by the organization  Accounting SaaS: Shared control with the SaaS provider
Operations	Weighs on the operations and requires close management	Saves the management house and frees operations from the operational burden of running the AP tasks	Shared responsibility and operational efforts between the organization and the SSC unit leaders	ERP: requires internal IT efforts to maintain operations  Accounting SaaS: relies on the SaaS provider’s capabilities
Cost	High costs of hiring, retention, benefits & space	Significant cost reduction compared to in-house AP and SSC & installing in-house ERP	High costs of hiring, retention, benefits & space (less compared to in-house AP)	ERP: High cost (setup & maintenance)  Accounting SaaS: Subscription fees

When should you consider accounts payable outsourcing?

It is great for businesses to look inside their organization and evaluate the number of challenges their internal teams face before switching to external support. The following are some of the challenges companies might face; therefore, this list can be considered a checklist for switching to an outsourced accounting provider:  

• Increased transaction processing, reducing focus on core activities and offering financial insights about the operational performance.  
• Business growth leading to growing partnerships and an increased base of vendors and suppliers that pressure the accounts payable team with no clear hiring plans.  
• Increased costs of hiring calibers (salaries, compensation packages, training & development) in key markets, a foreseen shortage of accounting and finance professionals in the USA, and the increased number of retiring and change-of-career professionals.  
• Weak service levels and lack of standardized processes resulting in overwhelmed and slowed operational tempo.  
• Limited access to enabling technology and advanced accounting tools for decision-making insights and reporting and a lack of understanding of the changing competitive landscape.  
• Organizational mergers and acquisitions (according to Deloitte). 

What are the best practices to hire an accounts payable outsourcing provider?

There are many providers of outsourced accounts payable out there, and they might look like they are offering the same thing at first glance on their services and benefits. However, some practices can be followed to ensure that businesses partner with the proper accounts payable outsourcing provider.

Consider the following when evaluating the accounts payable outsourcing provider:  

• Ability of the provider to adapt to the business size and the operations.  
• Ability to size up and down with flexibility to seasonal demand and changing needs.  
• Ability to operate from different locations across the globe.  
• Provider’s substantial clientele base and track record of success with similar accounts.  
• Access to advanced technology and insights tools and reporting.  
• Provider’s ability to promote a clear and solid brand value proposition to attract strong talents.  
• Provider’s ability to establish a functional work environment for the outsourced calibers.  

On the business side, you must also consider the following best practices before partnering with any accounts payable outsourcing provider:  

• Assign clear and solid vision goals for the outsourced accounts payable team.  
• Define a clear service delivery model and agreement.  
• Study the market of the accounts payable outsourcing partner and their locations.  
• Study the cost and saving plan in light of the packages of the accounts payable outsourcing partner.  
• Consider any implementation barriers on both sides.

Challenges to the success of an outsourced accounts payable partner 

It is worth mentioning the challenges to achieving a successful outcome from the outsourced accounting partner can be found within the existing processes and systems of the organization, resistance to change, and setting unrealistic expectations, among others.

FAQs 

What is accounts payable outsourcing?  

Accounts payable outsourcing means hiring an external partner to do all related accounts payable tasks and activities, including invoice processing and payment, maintaining vendor relationships and sound AP records, and compliance with tax rules and regulations.  

How do you find a good accounts payable outsourcing partner?  

In order to find the right accounts payable outsourcing partner you should understand their ability to match the size of your business and its operations and ensure they can scale smoothly as you achieve growth. The accounts payable outsourcing partner should also have robust expertise working with a substantial clients base with proven track record of success in your market. The provider’s ability to operate from different locations is a huge added value to cater for the needs of your operations and the varying demand in different sites and time zones.