Benefits of Outsourcing Accounts Payable (ap) in Small Business

by : Mani Malarvannan

Accounts payable along with Accounts receivable is an important process in financial accounting, the first being a liability and the second a liquid asset. . Proper management of accounts payable and accounts receivable ensures the proper inflow and out-flow of cash. In other words the cash flow depends on the skillful management of these two. The companies have found managing this particular task a crucial but a time consuming process.

Accounts Payable In-house
In the present day the accounts payable department started doing more tasks like checking and approving of invoices and bills for all types of payments. It is a challenging task for small businesses where the invoices mount in number daily, keeping track of them, even with the latest innovations in accounting software, it has become a difficult task. This occurs because the small business owners have varied responsibilities and establishing a separate department may have to incur huge expenses and it also delays in execution and duplication of work. Also small businesses may not need to have an entire department dedicated to accounts payable and they may need it only during their accounts payable time. In these situations it is more economical for small businesses to outsource their accounts payable work.

Outsourcing Accounts Payable
Outsourcing accounts payable may enable the managers to concentrate better on their regular work. On many an occasion it is reported that the manger's valuable time is consumed in overseeing the regular administrative work. Next the HR may have to find the right people with the right qualifications and skills to manage such work. The infrastructure required to run such a department may have to be established. Many small businesses have realized the various benefits of outsourcing and have gone for small business accounts payable outsourcing. When small businesses outsource their accounts payable, they get relieved of the burden of doing the non-core works or oft repeated tasks.

For small businesses any lapse in accounts payable may end up in a loss. The losses may occur through penalties for delayed payments, loss of discounts offered for timely payment, and loss of goodwill. Accounts payable is accounts receivable to another company. Only when these two accounts are carefully managed the cash flow can be healthy. So companies allow discounts as incentives, when they get payment on time but collect penal sums when they are in default.

Following are some of the benefits of small business accounts payable outsourcing:
1. Paying the invoices on the due date as per the company's policies.
2. See to the accuracy and the authenticity of the invoices that fall due and make a one to one co- relation of checks issued and invoices that receive payment.
3. Monthly, quarterly, half-yearly and annual reports are easily made available.
4. Tax related work is done without loss of man-hours at the company level and they all get ready on time for the CPA perusal.
5. Compliance to Sox is automatically carried out.
6. New improvements are incorporated immediately.
7. The company can demand the best service at the lowest cost from the provider.
8. When outsourced to India or other countries the cost of maintaining such accounts is much less compared to huge expenditure and capital needed for in-house department.
9. Any reference to any particular account can be assessed immediately and action taken.
10.Need for continuous training of personnel is avoided.
11. The expenditure connected to the provider will remain constant for a particular period of time since it of contractual nature.
12. The managers or CEOs of small business will have a clear picture of their liabilities and the nature of cash flow since the provider and details keep the account payable picture up-to-date are readily made available.
13. The managers or CEOs of small business can plan future plan-outlays with certainty.
Small business accounts payable outsourcings have some risk
Outsourcing financial accounts payable even by small businesses has come to stay. Hence it is imperative to be aware of the risks involved in outsourcing any or all the accounts payable processes to an outside service provider. The understanding of the outsource service provider of the needs of the clients and the provider's quality of service may affect the performance of the small business. Other factors like the legal implications; the company has to take on the responsibilities for all acts-inclusive that of the outsource provider. Combined with this the lack of knowledge of the modern developments in accounts payable processes on the part of the provider may add to the problems to the small businesses. The loss of control is another risk that are faced by the small businesses. The outsource provider gets the information about the small businesses suppliers, cost, terms and conditions etc., this may be vital information for competitors.

By carefully doing their due diligence in selecting the outsource provider small businesses can completely avoid all the risks associated with the accounts payable outsourcing and at the end they will gain all the benefits of accounts payable outsourcing.