Understanding the Advantages of Outsourcing Accounts Payable

According to the AICPA's 2023 National Management of an Accounting Practice (MAP) survey, almost 25% of participating businesses now outsource their accounting functions offshore, and for good reason. 

Every month, numerous companies spend countless hours manually entering data, chasing approvals, and cutting checks. These hidden operational costs add up fast. Your accounting needs are bound to become more complex as your business expands. 

If you're spending too much time on AP, tax prep, or payroll, consider outsourcing. The advantages of outsourcing accounts payable are aplenty. But as with almost everything, the process is not without its challenges.

In this article, we’ll provide a balanced and objective analysis of the pros and cons. Give it a read and decide if outsourcing is the right move for your business.

What Is Accounts Payable Outsourcing?

Before we highlight the advantages of outsourcing accounts payable, it's important to make sure we're on the same page about the basics. By definition, outsourced AP is the practice of hiring an external company to handle your accounts payable functions rather than managing them in-house with your staff.

Most AP outsourcing forms typically offer the following solutions:

Now, let’s try to understand why businesses prefer to outsource AP services objectively. 

Why Do U.S. Businesses Outsource Accounts Payable?

The reasons are three-fold. First, nearly 57% of accounting firms in the USA decided to hike their fees in 2024, making professional accounting services increasingly expensive for small to mid-size companies. These businesses simply can't afford to keep up with rising local costs.

Secondly, there is an acute shortage of qualified accounting professionals all over the country. According to Fortune, the USA is currently short of 340k CPAs. The gap continues to widen. 

Third, offshoring to a developing nation is both practical and cost-effective because:

• Countries like India offer a vast pool of accounting professionals with degrees from respected institutions and extensive training in U.S. accounting standards and tax regulations. 
• Offshoring AP services helps U.S businesses save substantially compared to hiring locally, all while maintaining quality service.
• The time zone difference actually creates a workflow advantage. An India-based AP team can complete the due task overnight while your U.S. team sleeps, resulting in faster processing times and reduced backlogs.

Also read: Top 5 Benefits of Outsourcing Bookkeeping to India for USA Businesses.

Advantages of Outsourcing Accounts Payable to an Offshore Team

Dealing with an acute shortage of talented CPAs in the U.S. market is a challenge in itself. Add to that the rising salary expectations and limited availability, and the problem compounds. 

However, staffing issues are not the only reason to consider outsourcing. There are multifaceted advantages of choosing an offshore accounting firm for your AP tasks. Here’s a detailed summary:

1. Industry Expertise

Offshore AP teams consist of dedicated professionals who have received specific training in accounts payable processes and U.S. accounting standards. They stay up to date with best practices and compliance requirements that your in-house team might miss. 

This expertise is particularly valuable for handling complex situations like three-way matching, vendor contract compliance, and tax reporting requirements that small business owners often find confusing.

2. Cost Savings

By outsourcing, you can save on hiring, training, and retaining in-house AP staff. The cost difference between hiring locally and outsourcing to a developing nation can be significant, providing a much-needed boost to your bottom line.

3. Enhanced Accuracy and Fewer Errors

Outsource accounting firms have standardized processes and multiple verification steps that significantly reduce errors. Their sole focus is accounts payable, unlike in-house staff who often juggle multiple responsibilities. 

This specialization naturally results in lower error rates. Fewer errors mean fewer payment issues, happier vendors, and cleaner financial records.

4. Increased Efficiency

Outsourcing accounts payable allows your team to focus on core business functions instead of daily AP tasks. You no longer need to worry about managing AP tasks on a day-to-day basis, allowing your team to focus on strategic initiatives. 

This leads to greater productivity and ensures that your business can grow without being bogged down by administrative tasks.

5. Improved Cash Flow Management

Professional AP management helps your business optimize payment timing to take advantage of early payment discounts while maintaining a healthy cash flow. Your outsourced team can analyze vendor terms and prioritize payments strategically. 

They can also provide regular cash flow forecasts based on upcoming payables, giving you better visibility into your financial position and helping you make smarter business decisions.

6. Scalability and Business Continuity

As your business grows or experiences seasonal fluctuations, your AP needs should and will change. An offshore accounting team can scale up or down quickly without the disruption of hiring or layoffs. 

At VJM Global, we also build redundancy into our staffing models to ensure your AP processes continue without interruption even during employee absences. This continuity is difficult to maintain with a small in-house team.

7. Access to Premium Tools

Offshore AP providers invest in enterprise-grade accounting software, automation tools, and security systems that would be prohibitively expensive for small businesses. You benefit from advanced OCR technology, payment automation platforms, and fraud detection tools without the hefty price tags. 

These premium tools process invoices faster, reduce manual data entry, and provide better financial insights through sophisticated reporting dashboards.

Now, it’s time to look at the other side of the coin - the potential drawbacks.

Disadvantages of Outsourcing Accounts Payable Services

While the benefits are substantial, outsourcing AP isn't without potential drawbacks. Before making your decision, consider these possible challenges:

• Communication barriers: Time zone differences and language nuances can sometimes lead to misunderstandings or delayed responses when urgent issues arise. This can be frustrating when you need immediate answers about vendor payments.
• Loss of direct control: When you outsource, you're delegating an important financial function. Some business owners find it difficult to relinquish hands-on control of their payment processes and approval workflows.
• Integration challenges: Connecting your existing systems with the provider's technology can sometimes require technical adjustments and temporary workflow disruptions during the transition period.

Looking at these points objectively, most disadvantages can be mitigated by choosing the right provider and establishing clear communication protocols. The key is finding a partner whose working style aligns with your business needs. But how?

How to Decide If Outsourcing Accounts Payable Is Right for Your Business?

Weighing pros and cons theoretically may not clarify whether outsourcing is right for your specific situation. To get a better sense of whether you need to outsource your accounts payable function, ask yourself the following questions:

• Is AP processing taking too much of your team's time? Calculate how many hours your staff spends weekly on invoice processing, vendor communications, and payment execution. If it's more than 10-15 hours, outsourcing could free up significant resources.
• Are errors and missed payments causing vendor problems? Review the last six months of vendor communications. If you notice patterns of complaints about late payments or incorrect amounts, your AP process might need professional attention.
• Does your current AP process give you clear financial visibility? Can you easily see upcoming payment obligations and their impact on cash flow? If not, outsourced AP services with better reporting might improve your financial planning.
• Are you paying premium prices for local accounting help? Compare your current AP processing costs (including staff time, software, and banking fees) to quoted outsourcing prices. The difference might be surprising, especially when you factor in hidden costs like error correction and missed discounts.
• Can you effectively scale your AP department? If your invoice volume has doubled but your team size hasn't changed, you're likely experiencing processing delays, missed discounts, and frustrated vendors waiting for payments.
• Do you need your finance team to focus elsewhere? Small businesses especially need their limited accounting resources focused on growth initiatives rather than data entry and check writing.

So, while you gauge the advantages of outsourcing accounts payable, be sure to factor in your unique situation and requirements to make an informed decision. 

How VJM Global Can Help You Streamline Your AP?

VJM Global is an India-based accounting services provider with a proven track record of excellence. Our team of 100+ accounting professionals serves over 15 industries with a remarkable 95% client retention rate. We've helped more than 500 businesses transform their accounts payable processes from bottlenecks into strategic advantages.

We create customized AP solutions that align with your specific business policies and workflows. Here’s how we can help you:

Our team of 100+ accounting professionals ensures efficient and accurate AP solutions tailored to your business needs.

Here’s how we can help you:

• Invoice Scanning & Automation: We use technology to capture and process invoices, reducing manual input and errors.
• Customized Payment Terms: Our team adapts payment schedules to fit your business policies for more flexible AP management.
• Timely & Accurate Reporting: We provide detailed reports to help you monitor your expenses and manage cash flow effectively.
• Vendor Management: We take care of vendor relations, ensuring timely and smooth payments, which strengthens your supplier partnerships.
• Compliance & Accuracy: Our experts make sure your AP processes meet regulatory standards, helping you avoid costly mistakes.

Our transition process is smooth and straightforward. We start by understanding your current workflow, then build a custom implementation plan to ensure nothing falls through the cracks during the handover.

Ready to transform your accounts payable function into a strategic advantage? Contact us today to discuss your specific needs.

Frequently Asked Questions

1. What industries does VJM Global serve?

Ans. We serve over 15 industries, including retail, healthcare, technology, finance, and manufacturing, providing tailored AP solutions to businesses of all sizes.

2. How does VJM Global ensure accuracy in AP processes?

Ans. We use advanced automation tools and employ skilled professionals to manage your AP process, ensuring timely and accurate payments while maintaining compliance with regulatory standards.

3. Can VJM Global customize payment terms to match my business needs?

Ans. Yes, we work closely with you to set up customized payment terms that align with your specific business policies, offering flexibility and efficiency in managing payments.

4. What reports will I receive from VJM Global for my AP?

Ans. We provide detailed, timely reports that give you a clear picture of your accounts payable, helping you track outstanding invoices, vendor payments, and cash flow.

5. How do you ensure the security of our financial information?

Ans. We implement bank-grade security measures, including 256-bit encryption, multi-factor authentication, and strict access controls. Our facilities and systems comply with international security standards, and we sign comprehensive confidentiality agreements. 

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