Business Process Outsourcing: Accounts Payable – Issues and Opportunities

The accounts payable function is a critical operation in an organization as it ensures the smooth flow of products and services by suppliers by ensuring they are paid in a timely fashion. Due to the complex and vast supply chains that are the norm these days, any slight disruption caused by payment delays or inaccuracies can bring the business operations of an organization to a grinding halt. As a result, there is usually a dedicated staff that handles the invoicing and vendor payments. The staff ensures that the invoices submitted by suppliers are accurate, conform to purchase orders and corporate purchasing guidelines, and meet any required government regulations.

The work load of the team that oversees the accounts payables is skewered towards month-end financial closings and lot of their times is spent on getting the invoices corrected and completed before the closing. As a result it is quite common to see the team putting in long hours before the month-end closings to get things in order.

Due to this cyclical, and at times, tedious nature of the work, more and more companies, big and small, have started looking to outsource entire or portion of this work to outside vendors. Normally this involves companies working with trusted partners who do most of the work of ensuring the accuracy of the invoices and payments, and resolving any related issues. Generally service provides get paid either on per-hour basis or per-invoice basis that they process. This greatly reduces the need for organizations to have full-time staff just to meet the month-end load and can therefore deliver meaningful cost savings.

Just like any other outsourcing initiative, transferring of accounts payable work to an external provider takes careful planning. This is a significant business process change in the client organization so therefore has to be properly communicated by the senior management and bought-in by all the effected people. Since the work that is getting transferred involves financial data, the client has to make sure that internal processes are very well documented and the provider is thoroughly trained and well-versed with those processes and guidelines.

The transfer of accounts payable function itself is not very complicated. With advance imaging technologies widely available these days and faster internet connections, both paper and digital invoices can be transmitted efficiently through secure networks. The provider employs stringent security policies to safeguard the data, process the invoices and payments, and field any questions or concerns that the vendors may have. In the end, the provider submits all the relevant data to the client organization which incorporates that into their financial reports before the closing period.

Once the process has been setup and is smoothly functioning, the long term cost savings are substantial and worthwhile.

This entry was posted on Tuesday, July 27th, 2010 at 7:24 am and is filed under Business Process Outsourcing (BPO). You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.