In-house vs. Outsourced Accounts Payable: The Lean and Mean, Cost-Saving Solution for Businesses.

Accounts payable is a critical component of any business operation. It involves managing outstanding financial obligations to suppliers and vendors, including invoices, bills, and payments. The accuracy and speed of the accounts payable process can significantly impact business performance and relationships with suppliers.

Therefore, it is very important to pick the right solution for managing accounts payable, with two primary options available: in-house accounts payable and accounts payable outsourcing services. In this blog, we will comprehensively compare these two solutions, giving readers greater insight into which option is best suited for their business.

Choosing between in-house and outsourcing companies is not straightforward and requires careful consideration of various factors. One of the critical considerations for businesses is cost, followed by scalability, complexity, control, confidentiality, specialized skills, and technology requirements. In the following section, we will analyze each of these factors in detail and give practical examples to offer readers a clear understanding of which solution best suits their business.

In-house account payable service provider, also known as AP, manages accounts payable internally using existing staff and resources. It is becoming less popular with businesses today due to the advantages that outsourcing companies offers. However, if the business is restricted or needs more control, in-house may be the better choice.

1. Direct Control

Managing accounts payable in-house gives businesses direct control over the process. This level of control lets businesses make changes quickly and respond proactively to issues that may arise. For illustration, if there is any sort of delay in payment or an urgent payment, the internal team can manage it more efficiently than outsourcing companies. With an in-house account payable service provider, businesses have access to the latest information about their financial transactions.

2. Confidentiality

Confidentiality is paramount to financial transactions, especially when it involves sensitive financial information. Dealing with sensitive financial information requires a high level of confidentiality, which can be better maintained in-house where internal protocols and security measures can be strictly enforced. Having the task in-house account payable service provider gives businesses a sense of security that their financial transactions are rigorously monitored by highly trained personnel.

3. Knowledge of the Business

Employees who work in-house will have an in-depth understanding of how the business works, allowing them to handle various accounts payable situations with greater autonomy. Because in-house AP staff are already working inside the company, they are already very much familiar with the inner workings of the company. This familiarity gives them more opportunities to recognize and provide alternative insights for the company’s existing AP protocols. 

1. High Cost

Recruiting, training, and managing an in-house accounts payable team can be an expensive undertaking, which is a burden for small and medium-sized businesses with limited resources. The high cost associated with in-house account payable service provider comes from the hiring process, employee training, the technology required, and employee benefits which can strain a company that is just starting. 

2. Limited Scalability 

As the business grows, so do the accounts payable requirements, which may exceed the capabilities of an in-house account payable service provider team. In-house accounts payable may lack the resources to handle the sudden surge of invoices and payments. When this happens, the company might be required to invest largely to hire additional staff and buy more equipment. 

3. Lack of Specialized Skills

Managing accounts payable in-house requires specialized skills and knowledge of financial software and tools that may not be available in-house. It’s much more expensive and time-consuming to train and employ account payable service provider with unique skills than to outsource the job to a team of experienced professionals outside the company.  

Outsourced accounts payable, or AP refers to hiring a specialized provider to manage the accounts payable process. These accounts payable outsourcing services providers bring years of expertise, technology, and knowledge of financial processes to help businesses manage accounts payable efficiently and effectively.

1. Cost Savings

Outsourcing accounts payable can be more cost-effective than recruiting and managing an in-house team that requires equipment, software, and ongoing training. With accounts payable outsourcing services, businesses only pay for the AP services used, which can reduce the AP expenses significantly. Moreover, these providers typically provide their staff, so businesses don’t need to hire more employees for AP tasks, cutting down on recruiting, training, and company overheads, among other things.

2. Increased Efficiency

Outsourcing accounts payable to accounts payable outsourcing services can lead to increased efficiency, effectiveness, and faster turnaround times, reducing the workload on internal staff. Since outsourced AP is not new, service providers have developed their process to the point that it makes them more efficient than in-house AP processing.  

3. Access to Specialized Skills and Technology

Outsourcing accounts payable provides access to specialized skills and techniques that may not be available in-house. This includes cloud-based platforms, automated workflows, and advanced analytics tools that can improve the accuracy and efficiency of the AP process. Accounts payable outsourcing services providers have specialized staff trained to handle all accounts payable, ranging from mundane tasks such as data entry to more complex and complicated tasks such as ACH payments and invoice scanning.

1. Loss of Control

Outsourcing accounts payable means businesses relinquish control over the AP process to a accounts payable outsourcing services provider. This can cause concern for some businesses because they may have less input into managing invoices and payments. Nevertheless, they can still monitor and manage this phase of their financial process by negotiating a contract outlining the outsourcing arrangement’s terms and requirements.

2. Security Concerns

Sharing sensitive financial information with an accounts payable outsourcing services provider may increase the risk of data and security breaches. Businesses must diligently select a reputable and experienced vendor who takes data security seriously. Security is a critical consideration when selecting a third-party AP provider, so choosing a provider with a significant reputation in the field is essential.

3. Communication Challenges

Working with an accounts payable outsourcing services provider may lead to communication challenges, particularly if there are language and distance barriers. However, service providers are aware of their client’s communication needs and typically provide a dedicated account manager who can smoothly act as a liaison between the business and the AP team. Clear communication protocols and a well-placed point person can help reduce communication barriers. 

The ultimate showdown – outsourcing companies and in house account payable service provider

Cost is one of the key factors businesses must consider when choosing between in-house and outsourcing companies. In-house accounts payable require substantial investments in recruiting, training, and managing an account payable team, in addition to hardware and software costs. The hiring process, employee training, and technology required may not only strain small or medium businesses with limited resources but supervising that all remains under company policies is also a crucial component of managing In-house Accounts Felt directly by the business owner. Accounts payable outsourcing services, on the other hand, require minimal investment in hardware, software, and training, allowing companies to save significant amounts of money. By outsourcing, a business can offer world-class service in the AP segment without investment in long-term costs. 

The accounts payable process can be time-consuming and complex, with the volume of invoices and payments increasing as the business grows. In-house accounts payable may lack the necessary resources to handle the sudden surge of invoices and payments, leading to extended processing times or errors. Accounts payable outsourcing services can quickly scale the accounts payable process according to a company’s growing needs, using advanced technologies to optimize invoice processing. This game-changer is when the company expands due to the provider’s expertise and software knowledge, bringing businesses a ‘lean and mean cost-saving solution.’

As businesses grow, their accounts payable becomes more complex, leading to increased demands on AP staff. High operational requirements can lead to difficulties in handling an increasingly diverse portfolio of financial documentation: from invoices to reimbursements. In-house AP may lack the necessary know-how to tackle critical situations and provide valuable insights into complex aspects. Conversely, an experienced accounts payable outsourcing services provider could be the cost effective solution for businesses with complex operations. By scanning a wide spectrum of transactions, AP providers have the data to understand financial patterns for the business, including the factors driving account payables.

Control and confidentiality represent significant concerns when handling financial transactions, especially when transactions entail sensitive financial information for companies. In-house AP account payable service provider can give businesses direct and proximal control over the process, enabling quick responses to invoicing or payment-bearing issues. In-house AP staff also provides knowledge of the business and its inner workings, allowing for a better assessment of the long-term financial implications of invoices and payments. Confidentiality is critical to financial transactions and may be better maintained in-house, where internal protocols and security measures can be strictly enforced, reducing internal risks.

Managing accounts payable requires specialized skills and knowledge of financial software and tools that may not be available in-house. Effectively hiring and providing training for AP professionals with unique skills may take more time and cost than outsourcing to a team of practiced professionals outside the company. Also, by taking help from outsourcing companies, reliable professionals will manage accounts payable, allowing the business owner to focus on core operations and have complete peace of mind, knowing that AP functions are well-managed.

Modern accounts payable demands a higher level of technological proficiency, from financial information and document management to an unerring emphasis on speed and accuracy. Lack of time, budget, or resources may constrain investment in technology necessary to manage AP processes. By engaging a third-party accounts payable outsourcing services provider, businesses gain the necessary access to the technology needed to improve the quality of AP operations and automate where possible.

To further understand the importance of the selection between in-house and outsourced accounts payable, we will analyze case studies to examine the selection criteria. 

For small businesses focusing on growth or core operations, it may not be feasible to hire and train A/P personnel or invest heavily in technology or software. However, accounts payable is a fundamental function that significantly impacts the organization’s financial wellness. The owners of a small and medium businesses may have to supplement existing staff with part-time accounting staff or outsource the entire A/P function to a third-party vendor. A small business can leverage the knowledge of a skilled AP provider and have access to advanced technology tools even with limited financial resources. 

As a business grows, the accounts payable function becomes more complex, resulting in more invoices, payments to manage, or legal compliance and regulatory requirements to fulfill. A midsize organization with a complex array of financial products may find it difficult to manage all aspects of A/P, along with growth-fueling decisions. 

In-house A/P might not have the specialized skills to handle complex situations that require a combination of technology and human input. By partnering with an experienced accounts payable services provider, such a midsize business can streamline an otherwise puzzling, draining, and time-consuming process.

For large corporations with multiple subsidiaries worldwide, managing accounts payable manually in-house could be highly error-prone and delay-ridden, leading to financial inefficiencies.

Furthermore, given the sheer volume and complexity of the A/P transactions, companies operating on a global level need to enforce stricter security and confidentiality measures. Experienced accounts payable outsourcing services providers specializing in managing complex and multi-functional international accounts payable could provide significant benefits in such circumstances. These include improving process efficiency, reducing fraud risk, and increasing productivity, all in a cost-effective manner, compared to handling transactions on an in-house basis across locations worldwide.

1. Understand your company’s current financial state

When choosing between in-house and outsourcing companies, it is essential to understand your company’s current financial state. Accounts payable outsourcing services providers could save costs, but In-house accounts payable can offer better control and knowledge of the business. Assessing finances will help you to determine how much investment the company can make without affecting core operations.

2. Assess the degree of complexity in your A/P operations

The degree of complexity of your accounts payable operations is another crucial factor that should influence your decision. In-house accounts payable may not be equipped to deal with complex and multiple transactions. Outsourcing to a more experienced provider with specialized knowledge in multi-functional A/P systems could be cost-effective and efficient in the long run.

3. Location matters

Take international business units, subsidiary locations, and legal compliance requirements or regulatory issues into account. If your business operates in multiple locations worldwide, handling accounts payable to the extent of legal compliance requirements or regulatory issues is essential. Outsourcing accounts payable to reputed outsourcing companies can offer significant benefits in managing international accounts payable management. They can help slash the risk of fraud, optimize your accounts payable functions, and provide expertise in compliance.

4. Focus areas

Focus on access to specialized skills, cost-effectiveness, efficiency, and accuracy. When outsourcing, providers offer access to specialized skills and technology, improved customer service, and the ability to optimize A/P throughput and audit performance. Additionally, outsourcing companies can improve productivity while reducing long-term costs.

5. Due diligence

Perform proper due diligence on selecting an accounts payable service provider. When it comes to choosing an accounts payable partner, you should at all times exercise caution. It is always necessary to perform due diligence when choosing a vendor, whether by vetting references, studying reviews, or obtaining referrals. Always ensure the service provider has a reputable track record to guarantee future accounts payable success.

As highlighted in this article, managing accounts payable is a significant function, and determining the right solution for your business depends on various factors. accounts payable outsourcing services provider offers access to specialized skills, technology, and interfaces that help improve cost-effectively. Conversely, In-house accounts payable processes offer greater control, business know-how, and the ability to manage confidential financial information strictly. 

Overall, we recommend that businesses with minimal financial resources or focus on core operations have complex or multi-functional A/P operations or need to manage diverse JV holdings across locations worldwide. Outsourcing accounts payable is a cost-effective solution, with benefits including access to specialized skills, cost-effectiveness in terms of technology and personnel, and greater efficiency and accuracy.

ARDEM provides Business Process Outsourcing and Business Process Automation Services to established companies to help them improve operational Efficiency and Reduce Costs.  For more information please reach out to us  at pricing@ardem.com or call us at 908-359-2600.