Welcome all SME business owners. Today we’re going to discuss an important topic if you’re in the retail, construction, wholesale, manufacturing or the hospitality space. It’s the issue of outsourcing your accounts payable function and how you can transform your SME by doing this.
The accounts payable process is the most labor intensive process in any goods (inventory) related business. No doubt you’ve asked yourself whether outsourcing accounts payable is a viable option for your business at some point. If you’re dealing with a large number of supplier invoices, over-extended resources, operating on thin margins, and managing a number of vendors then it’s a reasonable question.
If you want the short answer, then yes, it’s a viable option for an SME. Accounts payable outsourcing can deliver more efficient results, improve the accuracy of invoice processing, cut down the time it takes to pay vendors and help you manage your cash flow more effectively.
If you want to discuss your ideas, we invite you to schedule a consultation to discuss your specific needs.
Or maybe you’re just getting started and want to understand how outsourcing the accounts payable process works, then please join us as we discuss this and more.
How do payable outsourcing services work?
There are a number of ways that external payable outsourcing companies tackle your accounts payable processes.
1. Consultation and Setup
The first step is to choose an accounts payable partner. Accounts payable outsourcing providers have different ways of offering their services to clients. Some will take on your whole process, while others will only do part of the process. This will depend on the core services they offer and also, to some degree, whether they use AP automation.
Contract with someone with a proven track record in successful AP management, references from current clients and the ability to meet your specific needs. It would be helpful if you could meet with your current AP department (if you have one) and discuss what aspects of outsourced accounts payable services interest you the most.
When you’ve made your decision, the external accounts payable team will go about setting up a process to follow. Before you agree on this process, make sure you’ve discussed AP tasks and criteria such as:
A documented AP process, agreed by both parties.
What accounting system will be used, and will you be adopting accounts payable software?
Payment and remittance management. This should include the approval of payments and who will be responsible for the invoice processing turnaround times. You can also discuss expectations around early payment discounts and who will be responsible for preventing payment fraud.
Whether they will be doing manual data entry or using AP automation. Also, will they receive paper invoices or require you to convert them to a digital format?
Vendor management. For instance, will you be fully responsible for communication with vendors, or will the accounts payable outsourcing service contact the vendors?
How they will secure your business information.
What process will be followed regarding document management? Here, you can discuss whether they have a cloud-based system and how much access you will have to the documents.
The potential cost savings for your business.
These are just some criteria you can use to start you off on the right track, but each business's needs are different and you shouldn’t be hesitant to discuss whatever needs you have regarding your AP process.
Hall Accounting Company offers SMEs the peace of mind that comes from knowing their AP functions are being well taken care of. Our vision is to assist SMEs to get back to doing what they love while we do what we love - accounting. We have also built our business from the ground up, and we know the kind of resources and effort it takes. Your ability to outsource to an accounting firm is one way of empowering your employees to work on things that really matter - like business growth.
Ok, let’s talk about my accounts payable functions
2. Transition
Once you have all the finer details ironed out, prepare for the transition to the accounts payable outsourcing provider. Many discussions would have taken place around this process by this time. This step is all about sharing information, testing and working out the teething problems. It may last for days or weeks depending on the volume of invoices you have to process.
3. Invoice processing
Depending on your agreement, invoices are either sent directly to the external accounts payable department or forwarded by your team.
The outsourcing partner then manages all aspects of the process, including:
Data capture - The recording of invoice data into the agreed system. This will be manual or by accounts payable automation.
Verification and matching - Ensuring invoices match purchase orders and receipt of goods/services.
Approval Workflow - Routing invoices for the necessary approvals based on predefined rules.
Payment Handling - After approval, the payable outsourcing company will sort payments according to your business’s cash flow management requirements. We will discuss this further in a minute, but this is one of the biggest benefits of outsourcing accounts payable.
4. Reports
Regular reports are generated for the SME that tells you exactly how each step in the process is going. These reports offer insights into spending, potential cost savings, vendor relationships, and early payments discounts. They also give you understanding about areas in your business that could be improved. This aspect of AP outsourcing is invaluable.
Now that you have more insight into what accounts payable outsourcing might look like for your SME, let’s get into how it can transform your business.
How will AP outsourcing transform your business?
At the start of this discussion, we said that accounts payable outsourcing is a viable option for an SME. What allowed us to make such a confident assertion? Let’s discuss seven benefits for your business.
Cost reduction
The one thing on everyone’s mind and lips. Every business needs to reduce costs, but your accounts payable is also seen as a liability to your business until your vendors are paid, so this process cuts through the heart of a goods-based operation.
Accounts payable outsourcing companies have fine-tuned the AP process into an art form. They know what works and what causes invoice processing costs to escalate. Their entire business model is built around cost reduction, efficiencies and speed, and they pass this all on to you.
I want to talk about how I can reduce costs with AP outsourcing
You can focus on your core business
Accounts payable is not a core business process, but it is also very important. What we mean is that it doesn’t generate any money for your business, which drains your business resources, including your cash. Sorry, we had to say it. That’s why this is the perfect process to outsource. Handing this over to a company that does this for a living and then shifting your focus back to your core business activities is a win-win for everyone.
Scalability
Referring to the point we made above, you need to be focused on what generates money. As your business grows, you won’t spend time trying to upskill and resource your AP department. The outsourcing company takes this on, and if your needs change, you can scale the services up or down. You don’t have to worry about increasing or decreasing staff numbers.
Tight internal controls and reduced fraud risk
We all know how this goes. Everything is ticking along smoothly and then you begin to grow your business and suddenly, there are all sorts of things falling through the cracks. Did you become careless overnight? Of course not, but keeping up with oversight of internal controls can quickly get away from you when you’re dealing with expansion. This critical time is also the most vulnerable time for SMEs because this drop in internal controls can lead to fraudulent invoices being processed.
Accounts payable outsourcing services have robust controls in place to prevent these scenarios because their business integrity depends on it. They also have advanced technology in place that can detect errors, duplicate payments, and approval exceptions.
Access to automation technology
You can benefit from the latest advancements in AP technology via your AP outsourcing partner. This effectively means you kill two birds with one stone. They set up everything and you take ten steps forward in process efficiency. How?
They will use automation tools that learn to scan, code and allocate items on invoices to the right accounts. This will reduce the risk of human error and improve invoice processing time. Furthermore, if the technology they use has a vendor portal, then your vendors can track the payment of their invoices electronically without calling you for updates.
Improved vendor relationships
Vendors are happy when their invoices get paid. That’s the secret to wonderful vendor relationships. Well, that and fair payment terms. The efficient payment of invoices will give you the leverage you need to negotiate early payment discounts, more favorable payment terms and better prices with the vendor. Some payable outsourcing companies will even do this for you if it’s part of your agreement.
Do you see great savings in time and money in your future? Because we do. But let’s cover the last item before we start celebrating.
Expertise and compliance
The most neglected benefit of outsourcing is this one right here. The AP process can be simple and extremely complex depending on the volume of transactions and the nature of the business. Outsourcing partners have the expertise to deal with both scenarios. Furthermore, they will stay up-to-date on regulatory issues regarding the handling of invoices, payments and fraudulent transactions. This is a portfolio all on its own and really tedious for most SMEs that want to concentrate on core business activities.
Are you feeling positive about this right now? Us too. If you’d like to get into the finer details of the outsourcing process, we’d love to hear from you.
In Conclusion
It’s our hope that this discussion has given you some much needed insight into accounts payable outsourcing. More importantly, that you’ve been able to answer the question: “Should I outsource my accounts payable function?”.
When you consider all the benefits for your business, it becomes clearer that you have to consider this option seriously. Let’s recap why this is a viable option for an SME.
Cost reduction.
Focus on core business activities.
Scalability.
Tight internal controls and reduced fraud risk.
Access to automation technology.
Better vendor relationships.
Expertise and compliance.
In a nutshell, seven great reasons for you to make the call now and we hope that you will.
Until next time, when we discuss more important accounting topics for SMEs.
Get back to doing what you love with Hall Accounting Company.