What are accounts payable?
Accounts payables refer to the amount owed to a supplier by a business after delivery of the purchased goods is made before the payment. Suppliers supply goods to a business on a credit basis, after which the business pays the debt at an agreed-upon time.
Accounts payable is considered a current liability in the balance sheet. In every business, accounts payable are carefully recorded. Proper records of accounts payable are important because-
- Proper records of accounts payables allow businesses to track when and to whom they have to make payments.
- Proper records ensure that the business is not late with its payments and is not accruing penalties, overdue charges, and late fees.
- Proper records of accounts payable and accounts receivable help manage cash flow on a timely basis.
- By keeping a proper accounts payable record, businesses can ensure no fraud or theft and that they are not making a payment twice.
The accounts payable recording process includes the following steps-
- Step 1- After receiving the purchase bill, scrutinize it for important details like the vendor's name, date, and amount owed.
- Step 2- Update the accounts payable ledger or the current liabilities account in the general ledger. Or, in case of accounting software is used, update the record.
- Step 3- The final step is to make timely payments and record the changes in the ledger.
What are accounts payable outsourcing services?
Accounts payable outsourcing services are third-party vendors hired by a business to process the accounts payables process. Companies that function on a wide scale and have a high volume of transactions require accounts payable outsourcing services. For example, logistics and transportation companies require accounts payable outsourcing services.
Accounts payable outsourcing services perform all of the functions that an in-house accountant would while processing accounts payable. And they also provide their customers with the following services-
- Data management and processing- Outsourcing services scan and record invoices received systematically. They also audit received invoices and process incoming mails.
- Manual and automated auditing- outsourcing services manually audit the data entries to reduce the risk of duplicate payments.
- Disbursement Services- Outsourcing services make timely payments.
- Documentation- Outsourcing services archive received invoices, proof of payments, and other important related documents.
Pros of accounts payable outsourcing services
- Timely payments- Accounts payable outsourcing services ensure that timely payments are made.
- Provide accounts payables report- Outsourcing services provide their clients with the option to access monthly, quarterly, and annual accounts payable reports.
- Better relationship with suppliers- Outsourcing services ensure that payments are made before the due date itself. Faster bill payments result in a better relationship with suppliers. Better relationships with suppliers can result in discounts which can increase profitability.
- Avoid payment duplication- Outsourcing services have put an auditing mechanism in place to weed out duplicate entries. This reduces the risk of making duplicate payments.
- Reduces the risk of errors- Outsourcing services use accounting software that ensures that errors such as duplicate payments or delayed payments are reduced. The accounting software also reduces the incidence of fraud.
- Enhanced efficiency- By outsourcing its accounts payable process, a business increases its efficiency because it can focus on other business operations.
- Adequate workforce- Outsourcing services have a big team of accounts payable processors. Therefore, if the person in charge of your account is absent, another person can take over for them.
- Tracking- Outsourcing services give their clients access to the software on which they process accounts payable. Therefore, it is easier for the client to track the payment against a receipt.
- Better software and technologies- Outsourcing services can justify the cost of expensive accounting software and technologies. Therefore, outsourcing services process accounts payable on up-to-date technology, reducing the risk of errors and incidence of fraud and duplication.
- Increased profitability- Outsourcing services ensure that timely payments are made to the vendors. This creates trust between the vendor and the business and fosters a good relationship. As a token of appreciation for timely payments, vendors can offer businesses discounts on goods, increasing profitability.
Cons of accounts payable outsourcing services
- Loss of control- A manager or a proprietor will experience loss of control. This is because you will be unable to inspect the progress of the accounts payable process and will also have to conform to the outsourcing services’ accounts payable workflows.
- Delay in communication- In case of an emergency, the issue will take longer to resolve because of a delay in communication. This is because there can be a clash between the working hours.
- Dependency- By availing of the services of outsourcing services, you become dependent on them. Issues with the outsourcing services’ daily functioning can hinder your company’s operations.
- Privacy concern- Like with most accounting outsourcing services, there is a huge privacy and data security concern with accounts payable outsourcing services. This is because you are entrusting a third-party vendor with the financial information of your suppliers.
- Flexibility- The way outsourcing services conform to processing accounts payable might not match your business. Due to the rigidity in workflow, businesses have to perform certain complex tasks themselves.
Pricing of accounts payable outsourcing services
The pricing of accounts payable outsourcing services depends upon the following criteria-
- Market rates.
- The volume of transactions that need to be processed.
- Pricing of accounts payable outsourcing services also depends on whether the service provided is processed manually or via software.
Processing accounts payable is an important yet tedious task that requires expertise and manpower. Companies that deal in a high volume of transactions, like logistics and transportation companies, outsource accounts payable processing because it saves their business money, time, increases productivity, and fosters a good relationship with suppliers.
While choosing an accounts payable outsourcing service, the business must ensure that they choose a legitimate service with proper safeguards to protect against data security breaches. Remember, don't choose a service just because it’s cheap; choose a service that has your best interests in mind.
Countless companies rely completely on outsourcing accounting firms for a long time. In this way, they have saved a lot of money as well as time. Hopefully, the article was helpful to you. And has helped you show all the positives of outsourcing accounting. For more details or any queries, reach us at email@example.com or 9310165114.