Account
payable is basically the money that a business or a company owes to its
suppliers that features as a liability in the balance sheet of the company. It
is a type of credit that the supplier offers the company against goods or
services that have already been sent to the company and received by it.
There
are two types of payables – one is the Trade Payable which is payable against
purchase of physical goods that enter the inventory and the other is the
Expense payable which is payable for purchase of goods and services that are
expensed like advertising, travel, office supplies, utility bills etc.
Businesses need to maintain a log of this liability account and generally use accounting
softwareto keep a track of invoices that are pending payments and invoices that
are paid.
Why is it important to manage Accounts Payable
optimally?
·
The first reason is that it helps set a strong
long-term relationship with suppliers.
·
Optimizes working capital
·
Enables an organisation to develop cash saving
initiatives and sustain it.
·
Helps the organisation comply with regulatory
policies
·
Overall, helps the organisation maximize
profits and work in a congenial atmosphere
In
view of the above benefits, there is trend with more and more organizations going
in for outsourcing their Accounts Payable system where the outside agency helps
the organisation streamline their finances and accounting processes to achieve
set business goals in the most efficient manner.
Why outsource Accounts Payable?
All
business entities that consider Account Payable Outsourcing
to a third party vendor should first weigh the advantages and disadvantages of
doing so.
Advantages
of outsourcing Accounts Payable:
a. The
first and the most important reason to consider this option is the level of
efficiency that comes with an experienced and well-trained outsourced agency.
The agency has not only got the knowledge and required information of the
industry; it will also have access to the latest technology and processes in
the field. The work will not only get done accurately, it will also get done
fast because that is the core service area of the agency.
b. Evenwith
off-site Accounts Payable system of the outsourced agency, the business will be
able to track in real-time the accounts payable information. Hence even when no
permanent employee of the business is involved in operating the system, the
business owner is always informed of the current status of Accounts Payable of
his business.
c. Another
important pro of hiring an outsourced agency or Accounts Payable expert is the
reduced costs in doing so. While maintaining an in-house accounts payable
system implies hiring an appropriately trained staff along with expenditure on
the required software and hardware and training; outsourcing implies that all
the above part is handled by the agency. Overall, the expenses incurred in
going in for the first option is way high compared to the second option.
d. The
advantage of working with an experienced and professional outsourced firm means
that the chances of error are minimal. The outsourced firm will also offer
customizable services to its client so that the accounts payable system is
aligned perfectly to the business goals and strategies.
e. The
business owner can concentrate and focus on the core competency of his business
without having to bother about physical invoices, tracking pending payments and
managing it all.
f. Lastly
one important derivative of outsourcing Accounts Payable is that the outsourced
partner will work hand-in-hand with the business to make it stronger. Hence
they would advise on ways and methods to improve, suggest areas of improvement
and keep the owner updated on the latest technology available in the market,
benefits of the same etc. A professional outsourced agency will ensure that it
works with complete transparency and practices utmost flexibility when handling
their business clients.
In the same breath, there are people who might
argue about the cons of hiring an outsourced agency. One of the biggest
arguments would be that there are chances of data mix-up between different
clients. It is important to mention here that there are modern methods and
technology to ensure complete data security and confidentiality so that there
is zero risk of data of one company being shared with another.
