The Better Alternative to Accounts Payable Outsourcing Services: Automate Internally

52% of organizations surveyed by Deloitte outsource their finance functions — but Gartner predicts that by 2025, “60% of finance and accounting outsourcing contracts will not be renewed.” What’s the right choice for your business? Taking a look at the pros and cons of accounts payable outsourcing will help you decide what’s right for your organization.

All companies today feel the squeeze of rising costs, and the shift to remote/hybrid work models makes outsourcing feel like the natural next step to cut expenses.

Accounts payable outsourcing helps businesses:

• Streamline operations.
• Reduce costs.
• Improve efficiency.

However, companies tend to overlook this viable option: Automating accounts payable.

In fact, most AP outsourcing companies leverage automation software to enhance their own services.

If you’re thinking about outsourcing accounts payable processes to a third party, this guide covers everything you need to know:

• Key components.
• Outsourcing benefits.
• Best practices.
• How to choose the right accounts payable outsourcing provider.

What is accounts payable outsourcing?

With accounts payable outsourcing, you hire a third-party provider to take over some or all of your AP processes, including:

• Invoice receipt.
• Invoice processing.
• Bill payments.
• AP document management.
• Transaction recording.

Typically, accounts payable outsourcing services rely on advanced automation software to simplify these AP tasks and processes and complete them quickly and accurately.
AP automation:

• Eliminates most manual data entry.
• Reduces the risk of payment fraud.
• Improves cash-flow management.
• Prevents costly errors.
• Ensures timely payments.
• Streamlines all accounts payable processes.
• As a result, businesses free up their internal teams and resources for more strategic projects.

But these AP automation platforms aren’t proprietary or financially out of reach. Businesses often save money — and hassle — by cutting out the middleman and leveraging these solutions in house.

For example, Bushel uses Airbase to take their AP functions from mostly manual to almost fully automated.

“When I think of AP at Bushel now, I don’t think of it as a task because it’s basically all automated,” says Angie Twite, Bushel’s Controller.

Key components of accounts payable outsourcing services with AP automation.

Before you search for an accounts payable outsourcing provider, here’s a look at the different AP functions they handle.

Invoice processing.

When you outsource invoice processing, your paper and digital invoices go to your AP outsourcing partner. They verify invoice authenticity and accuracy and upload them to an accounting system.

An automated data capture tool that uses OCR (optical character recognition) technology processes invoices quickly and accurately. Since there’s little to no manual data entry involved with automated invoice processing, there’s minimal risk of costly human errors.

Payment processing.

Accounts payable outsourcing providers can also take over payment processing. Again, they’ll often use an AP automation solution to ensure timely payments and take advantage of early payment discounts. You save money, protect your cash flow, and keep your vendors paid and happy, which leads us to the next function . . .

Vendor management.

Nothing derails your procurement and supply chain faster than unhappy vendors. That’s why most accounts payable outsourcing companies use comprehensive vendor portals to manage supplier contracts, vendor statements, contact information, and more.

They help you maintain good relationships with your vendors, which reduces the burden on your in-house staff and keeps your operations running smoothly.

Compliance and risk management.

Finance departments have many rules and regulations to follow, and accounts payable is no exception. Accounts payable outsourcing companies stay up to date on changing requirements across various industries to ensure all of their clients are in compliance.

Since this is one of the more complex accounts payable functions, outsourcing it takes a huge burden off your team’s plate.

Plus, outsourcing providers often use comprehensive accounts payable automation software that offers built-in risk management tools for further protection from fines and legal issues.

When you hand off financial information to a third party, security is always a concern. In addition to provider reputation, look into their data security and privacy policies to see how they safeguard your information.

Reporting and analytics.

Nearly every business decision relies on data, so your financial data needs to be complete and accurate. By leveraging complete AP automation software, accounts payable outsourcing companies can deliver detailed reports and analytics for data-driven decision-making that leads to better financial health.

Pros and cons of outsourcing AP.

We’ve touched briefly on the benefits of outsourcing accounts payable processes, but here, we’ll explore the advantages and disadvantages in more detail so you can make an informed decision for your business.

Pros of outsourcing accounts payable.

Cost savings: To start, outsourcing AP saves you money on labor and operating costs since you don’t need to maintain and equip a full in-house AP department. But, thanks to the powerful automation tools that outsourcing services use, you also eliminate costly errors like duplicate payments or overpayments and reduce the risk of accounting fraud.

Improved efficiency and accuracy: AP professionals have the tools, experience, and expertise to streamline your accounts payable process for better accuracy and efficiency. They use established, tested workflows and advanced accounting systems that automate many of the AP tasks businesses handle manually.

Access to advanced technology: Accounts payable services providers leverage advanced technology to optimize your accounts payable process and give you more insight into your financial health and cash flow. This leads to more opportunities to invest in your business and the ability to make data-driven decisions.

Enhanced vendor relationships: Your provider pays your vendor invoices accurately and on time, leading to better supplier relationships. This puts you in a better position for vendor negotiations and can even lead to preferential treatment and discounts.

Scalability and flexibility: Outsourcing services are designed to accommodate businesses of all sizes, so they can scale with you as your business grows and your needs change. Instead of hiring additional headcounts to take on expanding accounts payable tasks, you simply adjust your service level agreement (SLA) and have your provider handle those growing responsibilities.

Cons of outsourcing accounts payable.

Potential loss of control: Adding a third party to AP transactions reduces responsiveness and control. For example, if a question from a vendor comes up, you may not be able to answer it quickly.

Risk of errors: The best AP outsourcing services won’t make errors very often. But when they do, they can be difficult to resolve. Mistakes still happen, leading to challenges validating issues with their outsourced provider. Limited access to the audit trail and lack of visibility into system changes can result in errors or duplications that go unresolved for weeks.

For these reasons, it’s crucial to assess whether the outsourced solution uses complete AP automation or relies on manual data entry, as this impacts efficiency and error management.

Continuity risks: Relying on a third party for an important function like AP can create some dependencies. If an outsourcing service stops doing business or experiences other disruptions, your own organization will be impacted. Keep in mind that late payments could affect your reputation or vendor relationships.

Security risks: Outsourcing AP gives third-party firms access to confidential financial data, which increases the risk of security breaches.

Risk of unnecessary payments: If an outsourcing service provider charges by the number of invoices, you may be charged twice for duplicate invoices. (Here’s the irony: you can catch those duplicate invoices easily in-house with the right AP tools.)

Factors to consider when choosing an outsourcing provider.

To get the most out of your partnership with an AP outsourcing provider, there are several factors to consider:

Experience and expertise.

If you’re outsourcing accounts payable services, you want to be confident that your provider has the knowledge and experience to successfully take over these tasks. Look for an accounts payable outsourcing provider with a proven track record, positive testimonials or customer reviews, and deep expertise in AP processes.

Technology and tools.

AP outsourcing providers who leverage accounts payable automation software will be much more effective, accurate, and efficient than those who still rely on outdated manual processes. Before you choose a provider, ask what types of accounts payable tools, methods, and solutions they use to make sure they’ll deliver value to your business.

Data security and privacy.

When you hand off financial information to a third party, security is always a concern. In addition to provider reputation, look into their data security and privacy policies to see how they safeguard your information.

You want a provider who uses advanced accounts payable software with built-in, role-based access controls and other strong internal controls to protect your data.

Service level agreements (SLAs).

Different accounts payable outsourcing providers have varying services and standards, and the service level agreement sets the tone and expectations for your partnership. You don’t want to sign a contract to outsource your accounts payable process, only to find out that your provider can’t hit the required metrics or meet your quality standards.

So look over the SLA carefully and make sure you understand both sides’ commitments and expectations, as well as your options for dissolving the partnership if it doesn’t meet your needs.

Pricing models.

Pricing structures vary significantly among accounts payable outsourcing providers, depending on their:

• Location.
• Services.
• Level of expertise.
• Tools and technology.

Some offer flat fees, while others use per-transaction pricing or another model. Choose an AP services company that fits your business needs and budget and offers the most value for the price.

Best practices for successful accounts payable outsourcing.

Follow these best practices for outsourcing accounts payable to make the most of your partnership and ensure a smooth handoff and operations:

• Establish clear communication channels.
• Develop comprehensive SLAs.
• Foster a collaborative partnership.
• Regularly review performance metrics.

Establish clear communication channels.

Effective communication is key to a successful outsourcing relationship — and it’s where most breakdowns and misalignments happen. Establish preferred communication channels and frequency up front and maintain open lines of communication to resolve any issues or inquiries quickly and efficiently.

Develop comprehensive SLAs.

The more detailed and comprehensive your SLA, the easier it is for both parties to meet expectations. For optimal alignment on both sides, create an SLA that outlines:

• Performance expectations.
• Responsibilities.
• KPIs and metrics used to measure performance.
• Issue-resolution methods.
• Penalties for non-compliance.

Foster a collaborative partnership.

To maximize your partnership and foster a collaborative environment, consider your outsourced AP team an extension of your business. Work closely with them to understand their needs and processes and share your business goals so they can tailor their services to help you achieve them.

Regularly review performance metrics

Finally, monitor performance metrics to ensure your accounts payable outsourcing service provider continues to meet expectations. The sooner you uncover any deficiencies or areas for improvement, the faster and easier it will be to make adjustments and get things back on track.

Outsourcing vs. automation: Making the right choice for your business.

There’s no doubt that outsourcing accounts payable delivers cost savings, improved efficiency, and streamlined AP processes. But it’s important to look at the why and how before you decide to outsource.

AP outsourcing companies use accounts payable automation tools to achieve these benefits. With Airbase, it’s easy and cost-effective to cut out the middleman and take advantage of AP automation in-house.

Airbase is a comprehensive procure-to-pay platform that delivers advanced automation tools to streamline, simplify, and optimize your AP processes. From automated invoice capture and processing to detailed reports and analytics, you leverage the same tools the pros use — and keep your AP department in-house.

That’s just what Curaytor did — which saved them money and cut their time-to-close in half.

Ready to see if AP automation is a better choice for your business? Schedule your free Airbase demo today.

FAQ.

Still have questions about outsourcing accounts payable? Check out these commonly asked questions and answers.

What is accounts payable outsourcing?

Accounts payable outsourcing is a common business practice that involves partnering with a professional third-party provider who takes over some or all of your AP tasks. For example, they can handle invoice receipt and processing, vendor payments, and reconciliation.

How much does it cost to outsource accounts payable?

AP outsourcing costs vary significantly among providers, depending on their:

• Location.
• Experience and expertise.
• Pricing structure.
• Services.

Most AP outsourcing providers use a per-invoice rate, which ranges anywhere from $1-5, on average.

What are the best AP Automation options?

The best AP automation solutions streamline invoice processing, approvals, and payments, reducing manual work and errors. Look for platforms that offer end-to-end automation, real-time spend visibility, and seamless integrations with your existing systems.

Airbase stands out by combining AP automation with expense management, procurement, and corporate card programs, helping organizations save time, improve compliance, and maximize efficiency.