Any business owner/manager understands the importance of the accounts payable process. As a decision-maker who is primarily concerned with maintaining a strong bottom line, they are keenly aware that the accounts payable function doesn’t actually generate any returns. Nevertheless, it is an essential activity and if not run accurately it can have a detrimental effect on a business. On the other hand, a streamlined accounts payable process can be instrumental in keeping suppliers and partners satisfied.
This puts CFOs, FDs and MDs in a predicament since they comprehend the importance of accounts payable function, but they also know it won’t have a direct impact on profits. So should they really be investing resources in the accounts payable process? What steps can they take to make the process more efficient?
Obviously, a business cannot simply get rid of its accounts payable department; however, there are methods to reduce the costs associated with this non-revenue generating activity. By outsourcing the accounts payable (AP) function, a business can free up resources, allowing them to focus on more strategic accounting activities.
There are also many accounts payable problems that arise in most businesses such as keeping track of invoices and late payments. However, many of these can be addressed through automation and outsourcing. Let’s take a close look at how an offshore accounts payable team can improve the effectiveness of your accounts payable function.
At the moment you must have some staff or more likely, a dedicated department that looks after all the accounts payable processes. And many of these tasks, such as data entry and matching invoices to POs can be quite tedious and even a bit boring for the current staff. Now imagine outsourcing your AP process to a specialist. The staff that was previously tied up with tedious repetitive jobs can now be applied to revenue-generating or strategic accounting activities.
Many of the AP staff would have an intimate knowledge of business functions and can be trained up to take on greater responsibilities. You also have the option to limit the number of staff dedicated to AP processes which in turn would reduce overhead expenses. The costs associated with training and developing the accounts payable staff would also be reduced since specialists would now be accountable for this.
Businesses that are using outdated systems and tools such as Excel spreadsheets to record accounts payable probably already have errors in their processes. Any task that requires manual entry of data is bound to increase the chance of miscalculations.
Also, the cost of supervising and correcting errors made by the accounts payable department would be drastically reduced by implementing an automated system. The best outsourcing providers can now implement sophisticated software or automated systems that are able to recognise and extract information directly from invoices with minimal human involvement.
According to data collated by Aberdeen Group, businesses that were not utilising AP automation were processing about 5,886 invoices per month compared to about 24,171 for businesses that had adopted AP automation. In addition, Straight Through Processing is 63% more likely to occur with automation in place.
Efficiency will also be enhanced through Contracted Service Level Agreements (SLAs). A good SLA will make sure that the work is organised, reliable and meets the best global standards. They ensure that your business objectives are being met according to the parameters you put into place. AP outsourcing partners utilise project and process management methods that enhance overall performance as measured by time, expenditure, error rate, quality of work and internal control guidelines.
An added benefit of using an outsourcing provider is that they will be aware of the best practices in the industry and will apply them to your processes. This saves you having to research and figure out how to implement them yourself.
At the end of the day, it’s the bottom line figure that CFO’s and Managing Directors are concerned about. So how much money can a business save by outsourcing its AP functions? Well, this figure will vary depending on the size of the organisation and the number of transactions and vendors it deals with. Many businesses have saved costs ranging between 30%-50%. Add all the savings up and it’s a substantial annual saving to the business.
Early payment discounts are also a great opportunity to save money just by making the processes more efficient or implementing automation. For example, if a supplier is paid entirely within 10 days of issuing an invoice they will apply a 1% discount. Now, this may not seem like much, however, if its calculated over the whole financial year it can be a great unrealised saving.
By utilising the expertise of an experienced service provider a business can leverage the provider’s experienced staff in redesigning and streamlining the current processes, recognising inconsistencies between the current and desired state, and then offering a plan for executing improvements. An experienced provider will increase efficiency of your AP process by picking up flaws in the current process. A good finance & accounting outsourcing company will deliver valuable benefits which increase exponentially in the form of the learning curve effect.
Your accounts payable process has a huge impact on your cash flow, regulatory compliances and supplier relationships. But many companies still struggle with manual data entry of paper-based documents, leading to costly discrepancies and inefficiencies.
Our accounts payable outsourcing services have helped clients improve the entire payables process. We can deliver higher accuracy and decrease operations costs through process excellence, standardised accounts payable (AP) practices, and strategic use of automation.
We work with most of the major accounts payable software systems, and we can work with almost any software that you prefer. In addition, with the help of our in-house IT, we can help you integrate, implement, enhance and build systems and applications to streamline your processes. We also provide a dedicated Purchase Order system which can help your company digitize and automate supplier payments, where this will add value.
To learn more about how our team can help you, get in touch with us or call us on 0845 838 2592.GET IN TOUCH