10 pros (and cons) of accounts payable outsourcing for growing finance teams in 2024
Examining the drawbacks and benefits of outsourcing accounts payable.
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1 minute
September 16, 2024
When your business is just getting started, you probably aren’t paying that many vendors.
However, as your company scales, this can quickly change. Some businesses consider outsourcing the accounts payable (AP) process to manage increased payable volume.
This guide provides an overview of accounts payable outsourcing and when it might make sense for your business to consider this strategy.
Let’s get started.
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Accounts payable outsourcing is when a business contracts with a third-party agency or external freelancer to handle some or most of the end-to-end accounts payable process.
AP outsourcing can either be an alternative or complement to having in-house finance staff overseeing AP processing or using AP automation software.
For example, some businesses with an AP department might still work with an AP outsourcing agency, particularly if they have a significant month-to-month payment volume.
This list below provides a good summary of the different tasks involved in accounts payable that a business might outsource:
Receiving and filing purchase orders (POs), invoices, and other supporting documents, such as contracts, with the intent of facilitating payments.
Creating bills, entering invoice data into payment processors or spreadsheets, and reconciling data in the accounting system or ERP.
Comparing purchase orders (POs), invoices, and shipping documents, before payment is sent to ensure goods and services have been received as described.
Sending invoices, PO (if applicable), and/or shipping receipts to the appropriate approvers who are authorized to review and approve the payment.
Processing payments using preferred payment methods (ACH, check, credit card, etc.) and, where possible, securing early payment discounts.
The documents, communications, and journal entries must be stored and available for review.
Management needs reports to manage cash flow and to monitor productivity.
Outsourcing providers automate payable functions to speed up processing, lower the risk of error, and offer a competitive price for AP processing.
If you consider outsourcing some or most of your AP process, it’s important to establish clear ownership of each of these steps to avoid any delays or other payment issues.
Businesses use AP outsourcing solutions for several reasons.
First and foremost, businesses sometimes outsource accounts payable as a cost-effective way to save money by reducing headcount and AP processing costs.
Regarding employment benefits and back-office administration costs, AP outsourcing can be more affordable than increasing headcount costs by hiring a full-time staffer.
Moreover, the human capital needed to process a single invoice using a third party will likely be lower than when a CFO or AP clerk processes it.
Whether you have a one-person finance team managing 100 different fires or a robust finance organization, chances are that AP invoice processing is not top of the priority list.
AP processing is considered a low-value-add activity, so businesses will often outsource AP to free up their in-house finance staff’s time for higher impact responsibilities like month-end close.
An added benefit is that it can remove dependency bottlenecks and help your staff avoid feeling overworked and frustrated, a problem significantly impacting accounts payable departments.
Using an accounts payable outsourcing service provider can provide additional checks and balances that help your AP team process invoices on time, maintain positive vendor relationships, and enforce overall AP policy compliance.
Every year, the AFP (Association for Finance Professionals) publishes an annual payments fraud survey.
The 2023 survey finds that 65% of organizations surveyed have been victims of payment fraud, with paper checks being the biggest culprit. This can typically happen when finance teams process electronic or paper invoices that appear valid but are sent by criminal actors.
Having an extra set of eyes could also make your business less susceptible to this type of accounts payable fraud. In addition, accurate invoicing is a prerequisite to generating accurate financial statements.
A system that generates duplicate payments — or pays fraudulent invoices — is unreliable, and the total accounts payable balance is likely incorrect.
An AP process delayed by bottlenecks, payment discrepancies, or by lost data can quickly damage your relationships with your vendors, putting you at risk of losing key suppliers.
You never want to have to rush to find a new supplier before a major event or shipment simply because a lost check caused your vendor to end your business relationship.
By that same token, processing invoices on time and accurately could unlock opportunities for early payment discounts that boost your bottom line.
First, let’s cover the advantages of using an accounts payable outsourcing company.
Outsourcing AP provides an extra layer of reviews that help ensure that errors are caught ahead of time.
Even with accounts payable automation, the payment process can be time-consuming. Using a third party is often less expensive than hiring a full-time resource, like an AP clerk.
AP outsourcing agencies or contractors likely use AP automation and other financial technology to drive efficiencies and streamline the end-to-end AP process.
By extension, hiring an AP outsourcing third party would help an organization derive benefits from the software the AP outsourcing firm is using.
If all goes well, outsourcing AP means that your finance team is no longer spending significant hours managing payable workflows, which frees up time for them to focus on higher-impact work.
Working with an AP outsourcing partner can increase the likelihood that your payments are sent on time (or ahead of time), contributing to positive working relationships with your vendors.
After all, improving vendor relationships is just a game of making sure they get paid on time, which is something that vendor management software can help with.
By outsourcing many of the manual AP tasks, you have more time to examine the bigger picture – key dates you’re sending invoices, what your cash outflows look like each day, discounts offered by vendors, and more.
A trade-off you make whenever you bring on any agency or third party, AP outsourcing included, is that you tend to lose control over some of the process.
But in many ways, that’s the point. You free up time for yourself by outsourcing a function for others to manage, so you can focus on higher priority items and strategy.
By establishing clear communication and stringent reporting protocols with the outsourcing provider, you can maintain an appropriate level of oversight and thereby ensure a smooth operation.
When outsourcing AP, you must rely on the third-party provider’s security to protect your data.
That is why it’s essential that you collaborate with your IT and legal teams to ensure you and the AP outsourcing resource are following internal protocols for working with vendors.
To alleviate data security concerns, it's suggested to conduct routine audits, insist on regular security updates, and insist on stringent data breach protocols to be in place.
We’ve all been there. You hire an agency that promised the world, but they fail to deliver on that vision for one reason or another.
AP sourcing is no different. This is why it’s essential for you to do reference checks before you onboard an AP service provider and work closely with your third-party support to ensure your goals are being met.
An AP outsourcing provider might lack the situational nuances and understanding that in-house AP specialists possess.
This inherent lack of contextual knowledge can potentially limit their ability to successfully handle intricate financial procedures and anomalies, which could negatively impact the efficiency and accuracy of AP operations.
This is why businesses often lean more on full-time staff as they scale.
AP automation software digitizes and automates the end-to-end accounts payable process, allowing businesses to capture, code, match, and approve accounts payable data using fewer manual tasks.
As mentioned previously, AP outsourcing service providers often use AP automation software to support businesses they work with.
However, there are AP automation solutions that in-house finance teams can use to automate the end-to-end accounts payable process without having to lean on AP outsourcing firms.
With solutions like Rho, lean finance teams – from a sole CFO or business owner to a small team – can easily process thousands of invoices in seconds.
In a few clicks, you can:
Here's a breakdown of some of the best AP automation software on the market today.
Rho recently released AP automation built into Rho’s all-in-one finance platform.
In seconds, the Rho platform executes the entire payable lifecycle, processing thousands of supplier invoices at scale – all in the same fee-free platform where you can manage your expenses, banking, and treasury.
As Runway’s Head of Finance recently said, "Rho’s new AP capabilities are a game-changer for finance pros who want to spend less time on a traditionally manual business process."
Rho AP starts by capturing bill data sourced from invoices or your ERP, then schedules thousands of corresponding payments using supported payment methods (ACH, card, checks, and wires) in seconds.
Throughout the process, Rho’s multi-level approval process controls to enforce compliance with your spending policy.
Rho integrates with QuickBooks Online, NetSuite, Microsoft Dynamics 365 Business Central, and Sage Intacct. Rho also supports flat-file CSV exporting, so you can automatically tailor transaction categorization to your business needs.
The Rho platform is free, with no fees for users, domestic payments, accounts, or the overall platform. Rho only charges a 1% fee on FX payments and a wire recall fee.
Ramp is an expense management platform offering corporate credit cards, invoice processing, and vendor payments. Ramp’s services are designed to control spend and optimize finance operations, all on a single platform.
Ramp provides corporate cards, expense management, bill payments, accounting automation, and data to analyze spending. The company focuses on startups and the VC-backed community.
QuickBooks, NetSuite, Xero, Sage, and other ERP platforms
Some of Ramp’s basic features, like corporate cards and expense management, are free to use.
However, Ramp Enterprise offers paid features that are available for a cost. These include a dedicated account manager, ERP integrations, and customer permissions.
Vs Ramp, Rho fully integrates AP and banking, eliminating late payments, optimizing cash management, and improving visibility over all payment statuses – for free.
In addition, Ramp has rolled some advanced features like ERP integrations and AP automation into paid Ramp Plus and Ramp Enterprise plans. Meanwhile, Rho offers live customer support 24H Mon-Fri, 10-7pm ET on weekends at no additional cost.
Bill.com is a popular AP automation solution that SMBs and middle-market companies use to automate the accounts receivable and AP functions.
The company offers AP automation, vendor management, and AR automation. BILL provides checks, ACH, and other payment options, including international payments.
BILL's corporate pricing level integrates with QuickBooks Online, QuickBooks Pro/Premier, and Xero. The Enterprise pricing level integrates with QuickBooks Enterprise, Oracle NetSuite, Sage Intacct, Microsoft Dynamics, and other ERPs.
BILL’s corporate pricing level is $79 per user per month, and BILL offers Enterprise (custom pricing) for more complex organizations. Additional fees for some ACH, check, and wire payments can quickly add up depending on your payment volume.
Thanks to integrated banking, Rho gives users more control over payment timing and better payment transparency. BILL debits your third-party bank account, waits until the payment clears, and then pays your vendor.
Rho also offers corporate cards to consolidate all your spend – vendor and expenses – in one place for cleaner records and fewer manual processes at month's end.
Lastly, BILL can be expensive for organizations with significant payment volume, whereas Rho is free to use.
Tipalti is a payment automation and accounts payable software built for managing global AP workflows.
Tipalti’s software streamlines purchase requests, approval, and vendor selection with real-time visibility. The platform executes payments using various methods and currencies with automated payment approvals and fraud detection.
Tipalti integrates with NetSuite, Intacct, Quickbooks, Sage, Microsoft Solutions, Xero, and many other ERPs.
Pricing starts at $149 for the platform fee, which allows customers to use Tipali’s core product offering.
To access advanced capabilities, including W-8 tax forms, international tax IDs, and multi-entity accounting support, you must upgrade your Tipalti account. You must contact Tipalti’s sales team to receive a specific quote.
For US-based businesses looking to automate their accounts payable process, Rho’s accounts payable solution is a great, free-to-use solution that helps unify and scale your finance stack.
For businesses with complex global payment networks looking for a point solution, Tipalti can support your AP automation needs, assuming the high costs and implementation time are acceptable.
Stampli provides AP automation for companies that want to improve efficiency without reworking their ERP or changing existing AP processes.
Stampli’s platform is easy to navigate and provides integrations with dozens of ERPs. The Stampli solution can be deployed in a matter of days with no disruption to your business.
Stampli offers more than 70 ERP integrations.
Stampli uses month-to-month pricing that varies based on the needed services. You have to contact Stampli’s sales team for a specific quote.
Rho provides an all-in-one platform for spend and cash management. Stampli provides AP automation but does not offer cash or treasury management functionality. Stampli users must rely on other solutions for cash and treasury management.
As we discussed earlier, some businesses find AP outsourcing beneficial. It can help you generate cost savings, free up time for your finance team to focus on higher-impact work, and provide an extra layer of validation to ensure compliance and avoid mistakes.
However. Rho can help you achieve all of these objectives without the added cost of investing in an AP outsourcing firm.
Businesses like Willet + Cumro Innovations are using Rho AP to save 40 hours a month processing invoices – and all with better holistic spend control and cash management.
If you’d like to try out Rho AP too, schedule time with a Rho payments expert today!
Ken Boyd is the co-founder and chief educator for accountinged.com and owns St. Louis Test Preparation. He provides tutoring, podcasts, blogs, articles, and speaking services on accounting and finance. Ken is also the author of several books, including Cost Accounting For Dummies, Accounting All-In-One For Dummies, The CPA Exam For Dummies, and 1,001 Accounting Questions For Dummies.
Competitive data was collected as of October 26, 2023, and is subject to change or update.