Accounts payable outsourcing is becoming increasingly popular among small businesses as we head into 2024. Projections by Business Research Insights indicate a significant rise in CAGR by 2028. This is quite an outstanding performance report and indicates that times are changing, and trends have shifted to where accounts payable outsourcing is becoming the default method of managing the accounts payable function in business.
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What is Accounts Payable Outsourcing?
As defined by Expertise Accelerated,
“Accounts payable refers to a business’ short-term obligations, i.e., the money owed to the vendors for purchases made on credit.”
Accounts payable outsourcing is when a business hands over the responsibility for managing and punctually fulfilling these obligations to a third-party accounting and bookkeeping company or accounts payable outsourcing services provider.
Why Businesses Need to Leverage Accounts Payable Outsourcing
However, even with this meteoric rise and star-studded success story, there still remains a good chunk of small businesses in the US that are not only missing out on the fruits of accounts payable outsourcing but in fact do not even have dedicated accounting staff on the team. Understandably so, given the extravagant salary and wage demands these days, but the point stands that these businesses are standing in the danger zone.
Think about it, while you are running your small restaurant accounting sub-optimally yourself, your competitor is spending just a bit more to have accounts payable outsourcing services handle his accounting.
Why does this make a difference?
Well, because the time you spend every night putting in extra hours to sort the books of accounts is being used by your rivals to grow and expand. Give it a year or two, and you will likely still be running from the same quaint building while everyone else in the market has invested time and effort into designing a better restaurant experience, as well as offering more variety and quality.
Pinching pennies on accounts payable outsourcing today while everyone else has caught on is setting yourself up for failure, and we want to prevent this exact scenario. The purpose of this blog is to start the discussion with any small business owners who are still hesitant, or even ignorant of accounts payable outsourcing, and educate them on the benefits and challenges of the prospect.
The Benefits of Accounts Payable Outsourcing
Cost Savings
The main reason why US businesses are turning to accounts payable outsourcing, and outsourcing in general as an alternative means to fill the workforce is due to cost reasons.
Living in the US grows more and more expensive by the day, and in-house professionals come with a price tag nobody but the big corporations can afford. In fact, even billion-dollar mega-corporations like Microsoft and Meta have forsaken in-house hiring, with 2023 ushering in a tidal wave of lay-offs in Silicon Valley.
You might think that these fabled cost savings are surely not as great as to warrant hiring an off-shore accounting and bookkeeping company for your accounts payable workload. But with firms like Expertise Accelerated offering up to 60% in payroll savings, and other equally enticing offers to help US businesses through accounts payable outsourcing, the reality becomes unquestionable.
On top of the inherent cost-friendliness of accounts payable outsourcing, a dedicated accounting professional managing your payables along with other accounting tasks will optimize your business’ workflow, resulting in better and faster cash flow, and overall higher profits for the business at a remarkably modest cost.
Expertise and Infrastructure
Accounts payable outsourcing not only offers highly affordable professionals, but said professionals are also experts at their job. Entrepreneurs can customize their outsourced accounts payable experience to include an industry expert with years of experience at the job, who can offer sage advice in accounting matters, as well as provide access to industry contacts and connections.
Infrastructure is another great bonus when opting for accounts payable outsourcing. An accounting and bookkeeping company will have access to the most advanced data security and accounting tools, which normally would be out of reach for a good chunk of businesses.
But with an outsourced accounts payable function, you can leverage not only the services of an expert but also said expert armed with the latest in accounting technology and methodology to provide gold-standard accounting excellence. Something which, for the longest time, has been gatekept from small businesses due to the cost.
Scalability and Risk Mitigation
Accounts payable outsourcing also offers great flexibility when it comes to scaling. As the business grows, your partnered accounting and bookkeeping company can expand the team as needed to deal with an increased workload. Similarly, if the business is forced to downsize for strategic reasons, the team can just as easily be rearranged to better fit the reduced workload.
Risk mitigation is another great bonus that you get with a professional on the job. Sure, you can do your accounts payable processing yourself, but many small business owners are not professional accountants. They do not have the requisite knowledge to properly manage everything, and as BusinessDIT has shown us, 60% of small business owners feel they aren’t knowledgeable when it comes to accounting. So why risk an accident happening with your payables, when you can just guarantee safety with someone equipped to handle the job?
Challenges Faced While Leveraging Accounts Payable Outsourcing
Data Security
One of the common concerns business owners have is the thought of handing over sensitive financial data over to a third-party accounting and bookkeeping company that they cannot directly control.
While this concern may have been valid five years ago, it is definitely not after the pandemic. Strict regulations and contractual binding make it so your accounts payable outsourcing services provider can’t just take your data and money and run. They will be contractually bound to work with you with integrity, and regulatory bodies will ensure that they are up to snuff in the security department.
Plus, you can very easily monitor and track every move your accountant makes in any accounting software today, which means even less chance of any funny business.
Of course, nothing is infallible, and even the tightest of security will falter at some point. Just by statistics, there is always a chance of things being breached, but by leveraging the enhanced and highly secure data management systems of outsourcing firms, businesses can actually greatly enhance their cybersecurity situation.
The Communication Barrier
By its very nature, accounts payable outsourcing entails hiring off-shore professionals to manage your business’ accounts payable function. This means there will be time difference to some extent, and in some cases as much as half a day. This can make communication difficult, but it only sounds that bad on paper. In reality, outsourcing service providers recognize this issue and set up their business hours to fit the client’s time zone.
So, your outsourced professional will be up and about working for you during your business hours, regardless of whether it is day or night where they live.
Hiring remote professionals also means that your communications are entirely dependent on technology, and a major power outage or internet disruption can create a significant issue. But even that problem has largely been resolved, with reputable accounting and bookkeeping companies providing backup infrastructure such as generators and internet services like Starlink for emergencies.
Conclusion
While the subject is certainly very enticing, we fear we must end the discussion there for now. Our goal in all of this was to bring attention to accounts payable outsourcing services, and alert entrepreneurs that they may be missing out on what appears to be the trend going forward, and we hope we presented our readers with some good food for thought.
