What is Accounts Payable outsourcing?
Most of us are familiar with the experience of calling up a customer support number, only to discover that the person on the other end of the phone is actually located half a world away.
Whilst sometimes the experience is a positive one, on other occasions it can be a source of frustration.
Either way, outsourcing business processes is here to stay!
The fact of the matter is that many organisations rely on outsourcing to keep costs down. Ultimately that results in lower prices for consumers.
However, it isn’t just customer support that is getting outsourced. Many back office functions are also outsourced. One such back office function is Accounts Payable (AP).
Organisations may opt to outsource their AP function in whole or in part. An outsourced team can handle a range of Accounts Payable tasks:
- Verifying information in supplier invoices
- Invoice capture and encoding invoice data into your ERP system
- 3-way matching with Purchase Orders and Receiving Reports
- Managing supplier queries
- Preparing payment files for processing
- Reporting requirements
Outsourcing your AP function offers a range benefits, as well as numerous challenges. Each organisation must weigh up all of these to determine if it’s the right strategy.
What are the benefits of outsourcing Accounts Payable?
· Helps in-house team
With staffing constraints a major challenge for Australian AP teams, it stands to reason that outsourcing parts of your AP function will significantly benefit your in-house team.
Since the emergence of the pandemic, many organisations have struggled to fill accounting roles, putting unnecessary pressure and stress on existing staff. By outsourcing some of the more routine AP tasks, you’ll reduce the stress levels impacting your in-house staff, allowing them to focus on more complex and challenging duties.
This will help you manage your AP function with less in-house personnel, and will improve retention rates among existing staff, which will ultimately benefit your bottom line.
· Reduced costs
According to the Australian Taxation Office (ATO), the cost of processing an invoice ranges between $27 and $30 for both paper and emailed PDF invoices. For any organisation processing hundreds, if not thousands, of invoices each year, the costs can be staggering.
Much of that cost stems from the amount of time staff need to spend checking and processing invoices.
By outsourcing some of your AP tasks to other jurisdictions with lower labour-costs, you will be able to enjoy significant savings, which can be passed on to your customers or invested in growing your business.
· More staff
As mentioned previously, finding qualified and experienced accounting staff in Australia has become a significant challenge since the pandemic, in part due the inability of overseas trained accountants to relocate to Australia as a result of travel restrictions.
When you outsource part or all of your AP function to specialist outsourcing providers, this problem is usually solved.
Many overseas jurisdictions have abundant staff that are trained in accounting practices – meaning that you will have access to as many experienced personnel as you need to handle your AP requirements.
· Efficient reporting
Reporting is a time-consuming, but essential component of any AP function.
Accurate and up-to-date reports are needed for a range of compliance and auditing purposes. Without such reports, proper management of your organisation’s financial resources would be all but impossible.
An outsourced AP function can do the leg-work required to produce accurate daily, weekly, monthly, quarterly or annual reports. These can then be sent through to your in-house team for checking to ensure everything is correct.
This will save your in-house team a significant amount of time, allowing them to attend to other important priorities.
· Dedicated resources
In many organisations, in-house staff need to handle a range of other accounting tasks apart from AP.
However, because AP can be time-consuming, corners are usually cut somewhere along the line. Often this means that payment controls, such as call-backs, are not implemented properly, putting you at risk of fraudulent or erroneous payments.
However, when you outsource your AP function, you will have access to dedicated staff who only focus on AP – so they will ensure that all your payment controls are implemented fully.
What are the challenges of outsourcing Accounts Payable?
· Less direct control
Needless to say, when you keep your entire AP function in-house, you retain full control over everything. Outsourcing necessarily means that you lose some control over your AP.
Outsourced teams may have their own workflows that don’t conform exactly to your in-house workflows. Also, if problems arise that require staff to work overtime to address, an outsourced team may not go the extra mile like an in-house team would.
Ultimately, one member of your in-house team will need to invest time and effort overseeing the outsourced function. That individual will need to liaise with them on a regular basis, possibly daily, to address problems or questions, and to make sure things are running as per your requirements.
· No decision-making authority
Outsourced teams can be good when it comes to following your instructions to the letter – but you should not expect them to take initiative or make their own decisions.
Over time, in-house staff develop an understanding of how you would want certain matters to be handled. This will make them comfortable taking the initiative to solve problems without always needing to revert back to you.
However, outsourced workers will not have the deep understanding of how you would want certain matters handled. Any such matters will likely be left unaddressed by them, and they will send them back to your in-house team for handling.
It is to be expected that from time to time errors will occur.
When this happens in your outsourced team, it will be a challenge to identify what precisely went wrong. You are unlikely to have full access to paper or email trails. Outsourced staff will want to protect themselves from any negative repercussions and are likely to try and sweep matters under the carpet.
· Lacking insights
Feedback from front-line AP staff is essential to identify and solve any potential problems.
However, with an outsourced AP team, you may not have the insights that you are used to having from an in-house team.
Given their geographic distance from you, they are unlikely to provide you detailed information about problems with various AP processes, difficulties with various suppliers or other matters that are impacting the efficient functioning of the team.
· Maintaining Standards
Your organisation will have certain ways of doing things and certain standards it adheres to. These may be hard to maintain with an outsourced AP function.
For example, if you outsource communications with suppliers, you will need a mechanism to ensure that suppliers are being handled in a way that is appropriate and meets your standards.
What are the security risks when outsourcing Accounts Payable?
· Data Security
AP functions are privy to large volumes of confidential data. This usually includes supplier information, details of your organisation’s finances, and a range of other potentially sensitive information that can be gleaned from the goods and services you are procuring.
It is critical that you have controls in place to protect this sensitive data. Outsource service provides should have mechanisms to restrict access to data on a need-to-know basis. They should ensure that data cannot be emailed externally, or saved to USB drives. Likewise, mobile devices should not be allowed into the workspace, to prevent AP staff photographing sensitive data.
· Maintaining Controls
Robust internal controls are critical throughout the AP process.
Ensuring that your outsourced AP team is correctly implementing all internal controls is a challenge. It will require someone from your in-house team to closely monitor how the outsourced team is operating.
· Phishing, Malware and BEC
AP team always receive large volumes of emails containing attachments. Typically these are PDF invoices that are sent via email. Not only this, but AP teams have a large degree of control over outgoing funds.
Cyber criminals know this and therefore deliberately target AP teams.
Typically, malicious actors will send AP teams emails containing dangerous links or attachments. These may be phishing emails, in which the criminals seek to deceive AP staff into revealing their login credentials to your organisation’s systems. Alternatively, these dangerous emails may install malware that can do all sorts of damage, from compromising data to executing ransomware.
Increasingly, malicious actors are also targeting AP teams through Business Email Compromise (BEC) attacks. These see criminals attempting to deceive AP staff into sending funds to a bank account controlled by the attackers. BEC attacks may involve manipulating supplier invoices, or using an executive’s email that’s been compromised to issue false payment instructions to the accounts team.
Preventing such attacks requires extensive staff training, as well as close monitoring of your systems. This may not be easy with an outsourced AP function – thereby putting your organisation at significant risk.
Outsourcing vs Automating
One alternative to outsourcing your AP function, is to embrace greater automation.
By automating many of the routine tasks conducted by your AP team, you may be able to achieve many of the efficiency and cost-reduction benefits you are seeking. However, there are still many aspects of AP that cannot be fully automated. For example, a human being is still required to communicate with your suppliers in order to resolve any issues surrounding outstanding invoices.
However, it is probably best not to think of automation as an alternative to outsourcing. In many respects, automation can help you optimise outsourcing your AP function.
Embrace automated tools that enhance your oversight of the outsourced AP team and strengthen your resilience against the security risks that are associated with outsourcing. You may find that automation is actually complimentary to outsourcing.
How Eftsure can help you with Accounts Payable outsourcing
For any organisation that is already outsourcing its AP function, or is considering doing so, Eftsure can help you ensure outsourcing is not putting your organisation at risk.
With Eftsure sitting on top of your accounting processes, all outgoing payments being processed by your outsourced AP team will be verified in real-time against our database comprising over 80% of active Australian corporate entities.
You will gain full visibility over outgoing payments, with any potential fraudulent or erroneous payments being flagged. This gives you a level of visibility over your outsourced AP team that would not otherwise be possible, and will protect you from the risk of substantial financial losses.
Contact Eftsure today for a full demonstration of how we can help you embrace outsourcing with security.