There can be problems caused when accounts payable is outsourced.
These days almost every company is out to reduce costs. Outsourcing the accounts payable operation is often touted as a solution.
But is it? Maybe this whole notion of outsourcing deserves a closer look.
Let’s start by agreeing what we’re talking about when we talk about outsourcing. When I refer to it in regard to accounts payable, I mean that your entire accounts payable operation would be completed by another company and not your own staff.
Many if not most of these companies are based in low-cost countries or have their operations there. They might call it “offshoring” or “near-shoring” but it’s all about relying on cheap labour to offer services at a dramatically lower cost.
Cheaper is better, right?
At first, this would seem like a no-brainer. After all, what could go wrong with having the same functions performed for less?
Plenty. I will discuss some of the problems caused when accounts payable is outsourced that you may encounter.
Communicating with an offshore supplier can be difficult and time-consuming. It’s hard to pinpoint exactly where a particular invoice is in the process particularly when yours is not the only company they are dealing with. Your staff is tied up trying to get answers and so is the offshore supplier’s. And they won’t put in the extra time for free.
And wages in the current low-wage countries have only one way to go:
Up.
For example, I was at a business conference recently where I spoke with the operator of a back-office service for American physicians. He told me the rise in wages in India, where his processing is done, meant that he now had to pay nine dollars an hour to the Indian workers. Since the hourly wage for such work in America was ten, the attractiveness of outsourcing was quickly wearing off – especially since he could avoid the complications of having work done half a world away.
Supplier’s side economics
And because there can often be delays in paying suppliers, they may increase their prices to compensate for the delayed payments or demand cash on delivery payments.
That is, if they continue doing business with you at all.
Where’s that invoice?
Not knowing when an invoice was received or where it is in the process makes it difficult to hold the outsource company to its key performance indicators. And when the usual answer to the question of “Where is it?” is “We’re waiting for one of your people to give us more information before we can proceed” … it can be difficult to figure out just where the problem lies.
The job you outsource …
But perhaps the greatest argument against outsourcing is this: by outsourcing the work of your department you could be outsourcing your own job. Somebody in your company’s management might well figure that they could save even more money by having a low-cost provider do your job.
Advantage: automation
So how do you prevent all that from happening? The answer could be automation. Automation takes away the outsourcer’s cheap-labour advantage and levels the playing field.
According to the Accounts Payable Benchmark Report, the average accounts payable staff member processes 503 invoices per month.
But with a fully automated AP department, that same staffer can process 2,492 each month.
Summing up
Clients I’ve talked with say that outsourcing has indeed reduced their cost – at least, for now. But it has increased their problems.
So before you invest in outsourcing your accounts payable, consider an investment in automation instead. You’ll be benefiting your company and your local economy.
And you’ll be saving a few jobs.