Not Outsourcing AP and AR? Maybe You Should Be.
by Erica Nelson on February 24, 2015
Many businesses are turning a cost burden into an advantage through outsourcing accounts payable and accounts receivable activities. By offering customized and competitive services, outsourcing AP and AR activities can be a smart choice for any business. The following are a few main benefits of outsourcing your business’ accounting functions.
Recent research conducted by the Aberdeen Group found that companies that leverage automation and outsourcing can process invoices as much as 59 percent faster than companies that don’t outsource. Using an outsourcing provider enables companies to do more, with fewer internal resources. Businesses are able to offload transactional functions and gain the ability to focus on other aspects of the business.
Accounts payable and receivable outsourcing can transform manual, paper intensive functions into a fully automated process. An outsourcing provider will have the resources necessary to customize and streamline accounts payable and receivable processes. Automating processes and reducing administrative work allows staff and management to concentrate more on growing the business.
A great way to start reducing costs is with your invoices. There are many ways to calculate your cost per invoice. The most popular way to calculate this important metric is to simply divide the cost of running the department by the number of invoices processed. For example, if it costs $20,000 to run your accounting department each week and they process 2,000 invoices – each invoice costs your organization $10. Switching to an automated, electronic invoice outsourced provider can generally reduce the cost per invoice to well below that.
Reducing costs by automating invoices is only the start. There are plenty of other costs that you should consider evaluating for accounts payable and receivables outsourcing, such as:
Upfront costs – In-house technology options, especially licensed software models, have an upfront investment along with ongoing maintenance expenses. In contrast, outsourcing providers usually charge per transaction based on transaction volume, which are payable over the period of the contract. Outsourcing not only enables companies to convert fixed costs into variable costs, but also allows them to defer costs over a longer period of time, freeing up capital for other purposes.
Labor costs – Companies that have high employee turnover or those that have seasonal or cyclical spikes in invoice volume, understand that hiring and training employees is an expensive and time-consuming task. In addition, temporary employees may not always live up to expectations. Even companies that do not fall under these categories have limited capital, human, and technical resources that need to be allocated appropriately. Hiring in-house accounts payable or receivable staff, as well as all the equipment and programs that are necessary for the process, can be very costly. Outsourcing is an appealing option as it allows companies to maintain steady internal staff levels and utilize experienced professionals doing the same job at a lower cost.
These are simply a few of the advantages of accounts payable and receivables outsourcing. Through outsourcing, companies improve compliance with internal controls and actually save money. A professional outsourced agency will have the resources necessary to streamline your accounts payable and receivables, leading to more efficient use of your resources towards other aspects of your business.