Getting the Most Out Of Your Accounts Payable

Getting the most out of any team requires knowing when, what and to whom to delegate. Getting the most out of any accounting division requires knowing the difference between those functions that require “hands on” and those that don’t. Noncore functions and business processes, such as those within the accounts payable (AP) division, are increasingly being outsourced to protect core functionalities and staff. AP outsourcing (APO) has gone from nascent trend to standard operating procedure, as companies fight to stay solvent and competitive. Taking a proactive approach to minimizing unnecessary costs can enable companies to get a leg up and offer better and more sustainable business value to their customers.

Examples of Noncritical AP Functions

• Reporting and analysis: standard and custom reports, and audit trails.
• Invoice receipt: opening envelopes, removing stamps, sort, batch invoices, inserting separator pages.
• Document imaging: invoice scanning, image enhancements, work queue management
• Approval workflow: approval routing, multiple levels of approval -escalation/alerts/notifications.
• Content management: invoice image storage, invoice meta data storage, search and retrieval.
• Data extraction: OCR/OMR/ICR indexing/data validation/manual data entry.

There are several reasons for outsourcing noncore AP functions, especially front-end, namely.  Of those listed above, entering invoices (prepping and scanning invoices) into an enterprise resource planning (ERP) system or an accounting system adds no value to the end game (the approval and payment process). Also, even if automated data capture is deployed rather than manually doing so, this requires continuous monitoring which can be cost-prohibitive for small businesses.

Second, even if an organization decides to use automated data capture to extract data from paper documents instead of relying on manual data entry, such tools need continuous monitoring and are often cost-prohibitive for small companies. The low value of the process, coupled with the complexity of advanced tools, makes it appealing to leverage the expertise of an outsourcer. Outsourcing companies can provide service-level agreements that guarantee a 99%-plus accuracy rate in data extraction and quick turnaround times.

Reaping the rewards of outsourcing

The multitude of benefits achieved through AP outsourcing goes far beyond cost containment and includes the ability to:

• Reduce upfront costs - In-house technology options, especially licensed software, have an upfront investment followed by ongoing maintenance expenses. In contrast, outsourcing providers usually charge per transaction based on transaction volume, payable over the period of the contract. In this way, outsourcing not only enables companies to convert the fixed costs into variable costs, but also allows them to defer the costs over a longer period, freeing up capital for other purposes.

• Deploy systems sooner - As a service delivered via a Web browser, outsourced AP automation can be deployed more rapidly and less expensively than software that requires extensive integration with enterprise and legacy systems. These Software as a Service (SaaS) models eliminate the need to purchase hardware and software, an important consideration for buyers who are eager to bring the benefits of automation into their organizations as quickly and painlessly as possible. Another compelling advantage of outsourced AP is that the buyer is not burdened with the periodic expense and effort of upgrading to new versions of the software and paying annual maintenance fees. SaaS solutions are automatically updated without the need for IT resources or new software.

• Go live quickly - Even after implementation, it can take considerable time to go live on technology projects because the system needs to be tested and users need to be trained. Depending on the complexity of the system and the technical savvy of the end users, this process can take anywhere from a few days to many months. However, outsourcing solutions can go live almost immediately because most of the staff used on the project are trained employees of the outsourcing service provider who are already familiar with the technology and only need minimal training on the client's specific business processes.

• Increase efficiencies - The rationale for outsourcing is that it is usually better for an expert service provider to perform non strategic activities than to manage these repetitive, low-value tasks in-house. Using an outsourcing provider enables companies to do more with fewer internal resources. Under the outsourcing model, organizations leverage a third-party provider's technology and expertise to offload transactional functions and gain the ability to focus more sharply on higher value and analytical activities. An outsourcer's economies of scale and cost structure can deliver a valuable competitive advantage to companies, particularly in low-margin vertical industries.

• Decrease labor costs - Companies that have high employee turnover or seasonal or cyclical spikes in invoice volume and need to bring in temporary employees understand that hiring and training is an expensive and time-consuming task. Furthermore, 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. Such companies would find outsourcing appealing because it allows them to maintain internal staff at steady levels.

More on accounts payable

Every technology investment carries the risk of not functioning as expected or being more expensive to maintain than planned. Changes in organizations' business environments and government regulations, as well as technological advances, increase the risk involved in implementing automation in-house. With outsourcing, the third-party provider assumes and manages the technology risk.

Manage solution provider relations

One of the biggest barriers that hinder AP automation initiatives, especially for electronic invoicing and payments, has been supplier adoption. Persuading suppliers to change their processes to align with buyers' needs can be costly and time-consuming, and success depends largely on the buyers' ability to present a compelling value proposition to suppliers. Many buyers fail to effectively communicate the value of AP automation initiatives to their suppliers and, as a result, struggle to generate the expected results. Outsourcing supplier onboarding and enablement allows buying organizations to leverage the best practices and expertise of the provider. In addition, it provides the necessary resources to communicate to your suppliers while letting you focus on daily tasks.

Beyond cost reduction

Companies are looking for ways to harness value from consolidation and automation that goes beyond cost reduction to include accessing and building capability, scalability and flexibility that support the company's core business strategy. In fact, more companies are incorporating outsourcing as a strategy in their business planning. It's a strategy that lets the company focus on improving client service -- producing better products -- and do a better job overall, in a more cost-effective way.

Sources:

1. “Process Tracking System for Accounts Payable (PTS-AP) for SAP Finance,” Dolphin Corp., http://www.dolphin-corp.com/business-process-management/accounts-payable-for-sap.

2. Laresa McIntyre, “10 Best Practices for Accounts Payable,” Proformative,  https://www.proformative.com/blogs/laresa-mcintyre/2013/08/24/10-best-practices-accounts-payable.