Despite the fact that organizations around the globe are gearing up for digital transformation, many AP teams still heavily depend upon costly and antiquated systems such as paper invoices and checks.
There are several tools that teams can use to move away from these manual and expensive processes. For example, many businesses incorporate AP automation, e-invoicing, and other digital tools to quickly gain an edge over their competitors. Offloading and outsourcing AP tasks to avoid retraining teams or hiring more staff is another method used by finance teams to modernize their back office.
This blog breaks down the differences between automating and outsourcing AP, explaining the various reasons why teams opt between the two models. We’ll also outline the benefits of partnering with a payment services provider and highlight how this third option enables teams to reap the most benefits for their AP workflow. Keep reading to learn more.
Key takeaways
- AP automation can significantly increase efficiency, reduce errors, and streamline the approval process for invoices, making your business more productive.
- Outsourcing AP offers cost savings and allows teams to focus on core business functions, but it comes at the cost of losing control and oversight.
- Fraud prevention is critical—AP automation offers enhanced security measures with features like vendor validation and real-time monitoring, while outsourcing relies on third-party controls that may not provide the same level of visibility or control.
The state of accounts payable today
In recent years, recession and inflation have been noted as top challenges for CFOs looking to keep companies profitable. Since the back office is one of the first places to get hit with budget and staffing cuts, some teams looking to reduce costs think that they must decide between reducing their AP team size or totally outsourcing AP. Fortunately, AP automation offers a simple alternative that helps the bottom line, while increasing overall team productivity and efficiency. In fact, according to the latest State of AP Report, four in five finance professionals believe their organization needs more automation to improve effectiveness and reduce inefficiencies caused by manual processes.
What are today’s challenges in accounts payable?
Many AP teams today are overwhelmed and understaffed. This dynamic, coupled with ongoing threats related to recession and inflation, result in numerous challenges for accounts payable teams. This includes:
- Enrolling vendors
- Vendor inquiries
- Fraud risk
- Recruiting and retaining finance talent
Enrolling vendors
Vendor enrollment is a time-consuming and tedious process. When done manually, verifying contact and payment information is extremely susceptible to human error – especially amongst overworked and stressed AP staff.
Payment service providers such as MineralTree, can help alleviate the stresses associated with enrolling vendors by taking over your vendor outreach. Our team encourages suppliers to adopt digital payment methods, which can add more money to the bottom line for AP teams. According to the VP of Forge Biologics, “Thanks to MineralTree, we’re on pace to earn at least $80,000 in virtual card rebates this year – a significant amount that completely offsets our platform fees and puts money back into our general funds.”
Vendor inquiries
50% of AP staff spend over 6 or more hours per month responding to vendor inquiries. The most common vendor inquiry is related to the status of payment. For companies who still rely on paper-based processes, this information can be difficult to find.
An AP automation tool makes it easier to find these answers. However, payment services from MineralTree can offload this challenge entirely. MineralTree provides ongoing vendor support, fielding payment inquiries and providing prompt, professional service to suppliers. By combining these two services, AP teams can better manage the relationships with their vendors without any additional time commitment.
Fraud risk
Understaffing AP teams increases the likelihood of fraud, especially in regards to ACH payments. When it comes to ACH payments, it’s not only a hassle for your team to collect and update vendor bank account information, but this process also exposes your business to greater fraud risk. As a result, AP teams must proactively protect their businesses and minimize ACH payment fraud.
According to one study, 80% of companies reported being victims of payments fraud in 2023, with reported losses from Business Email Compromise reaching a staggering $2.9 billion in total and an average of $137,000 per successful BEC incident based on the Internet Crime Report by the FBI. Without the proper processes and controls in place, it’s relatively easy for a fraudster to impersonate one of your vendors, spoof an email account, and send a request to update the payment information with a fraudulent account. This has been made even easier due to the rise of remote and hybrid working environments, and teams in general being more distracted and overworked.
Recruiting and retaining finance talent
Attracting and retaining skilled finance professionals is a major challenge for accounts payable teams. With high demand and intense competition, businesses often struggle to recruit top talent. Once the right team is in place, it is equally important to retain them. High turnover can disrupt workflows and raise costs. To keep employees engaged, companies should offer competitive salaries, opportunities for career growth, and a positive work environment. Additionally, utilizing automation tools like MineralTree can help ease the workload, allowing finance teams to focus on more valuable tasks and improve job satisfaction.
What is accounts payable outsourcing?
Accounts payable outsourcing is the business practice of partnering with a third-party AP outsourcing firm to fully offload the handling of your organization’s AP processes. These outsourcing firms are equipped with the tools, skills, and technology necessary to manage your existing accounts payable functions.
Outsourcing accounts payable has certain advantages, including cost savings, more time for value-added core business functions, and solving capacity issues. However, outsourced AP still has the disadvantages of human error, duplicate payment risk, and fraud. Outsourcing AP also gives teams significantly less control and oversight into their payables. As a result, many companies turn to AP automation with managed/payments services to better manage their accounts payable workflow.
What is accounts payable automation?
Accounts payable automation refers to technology that streamlines and automates accounts payable processes, such as invoice processing and approval routing. It removes manual tasks and provides better visibility and control over important financial data. By relieving the burden of manual data entry and other routine, repetitive tasks, reducing costs and negating inefficiencies, automation solutions help accounts payable teams increase productivity and focus their efforts on adding value to the organization.
AP automation typically begins with digitally capturing invoice data through a scanning or capture method, such as optical character recognition (OCR). With a platform like MineralTree, invoice capture is combined with human review for 99.5% accuracy.
The AP automation software then manages invoice coding and routing through your customized business workflow before integrating with your business’s enterprise resource planning (ERP) system and seamlessly syncing the data into a single interface. Accounts payable automation also significantly reduces fraud-risk by providing both management and AP staff with heightened visibility into the flow of invoices and transactions across the organization.
That said, AP automation can be made even more efficient with payment services from MineralTree. These services extend the capabilities of your own AP team to address pain points such as vendor enrollment and inquiries.
Pros and cons of outsourcing accounts payable
Outsourcing accounts payable (AP) can seem like an appealing solution for businesses looking to streamline operations and reduce overhead. However, while outsourcing comes with certain benefits, it also has notable drawbacks—especially when compared to the advantages of AP automation. Here’s a look at the pros and cons of outsourcing AP, and why automation may be the better choice for your business.
Pros of outsourcing accounts payable
A few of the pros of outsourcing accounts payable include:
- Cost savings: Outsourcing AP allows businesses to save on staffing costs, as they don’t need to hire and train an in-house AP team. This can be beneficial for smaller businesses or those looking to quickly reduce costs.
- Time savings: By outsourcing AP tasks to a third-party provider, businesses free up valuable time for their internal teams to focus on higher-value activities, such as strategic decision-making and growth.
- Expertise and efficiency: Outsourcing firms specialize in AP processes, so they bring expertise and experience to the table.
Cons of outsourcing accounts payable
While outsourcing accounts payable can help lower costs and free up time, it can also introduce new challenges to AP processes. These can include:
- Loss of control: When you outsource your AP processes, you lose direct control over how payments are handled, which can be risky, especially if your vendor is slow or makes errors. In contrast, AP automation keeps your business in the driver’s seat. With automation, you maintain full control over payment timing, approval workflows, and vendor communications, ensuring everything aligns with your company’s priorities.
- Human error and fraud risks: While outsourcing may seem efficient, it’s still reliant on human involvement, which introduces the risk of mistakes and fraud. Outsourced providers may not have the same level of oversight or internal controls as your own in-house team. AP automation, on the other hand, significantly reduces human error and fraud risks by automating tasks like invoice matching and vendor verification.
- Limited visibility and transparency: Outsourcing your AP functions can create a communication gap between your team and the outsourced provider. This can make it difficult to track payments, analyze data, and ensure that processes are being followed correctly. With AP automation, your team has real-time access to data and reports, giving you full visibility into your AP workflow.
- Inflexibility for scaling: As your business grows, so do the complexities of your AP needs. Outsourcing firms may not always be equipped to scale quickly, and there could be delays or service interruptions when changes are needed. With AP automation, you can scale your processes without adding extra staff or complexity.
- Vendor relationships: Managing vendor relationships is a delicate balancing act, and relying on an outsourced provider can sometimes lead to misunderstandings or delayed payments. AP automation software allows you to maintain strong relationships with vendors by ensuring timely and accurate payments. You can manage and track all interactions through the system, offering transparency and reducing the chances of disputes.
AP outsourcing vs. AP automation
While there is some overlap, AP outsourcing is different from AP automation. When a business decides to outsource its accounts payable processes, a third-party runs their AP department. On the other hand, AP automation involves using a third-party company’s business intelligence software to streamline their in-house accounts payable processes.
Below are some differences between the two:
- Data analytics
- Amount of control
- Business scalability
Data analytics
When you automate your own in-house AP process, you can turn accounts payable into a strategic partner for your business by forgoing pain-staking manual data entry, creeping invoice processing costs, and having to hire more AP clerks during peak seasons. With a platform like MineralTree, all invoice data is available to use in data analytics, upon invoice capture. Teams no longer need to wait for the invoice to be posted to the ERP. As a result, financial leaders can leverage more accurate cash forecasting models based on better information.
Amount of control and visibility
Outsourcing AP forces many teams to forfeit the ability to optimize and strategize how and when they pay vendors in order to maximize cash flow. Meanwhile, using AP automation with or without a payment service provider keeps teams in the driver’s seat.
Business scalability
AP automation provides an infrastructure that supports your AP team to scale with your business, without worrying about constantly adding more headcount to keep up with growing invoice volumes.
If you are trying to decide whether to outsource or automate your accounts payable processes, you have to ask yourself what your business wants to accomplish. If the primary goal is to take the workload completely off of your hands and lose oversight of your payables, then outsourcing may be the way to go. If you would rather streamline your in-house AP department and retain control while maximizing efficiencies, you will want to automate AP.
| AP outsourcing | AP automation | |
| Data analytics | Data analytics can be outsourced. However, this can be costly and time-consuming. When companies are outsourcing AP, they are generally focused on manual tasks. | With the right AP automation platform, analytics and insights into the data are automatically provided. With the right tool, teams can gain insight into key data points such as AP turnover, DPO, and the payment mix. |
| Control and visibility | There is less control in outsourcing, especially when it comes to optimizing payments. Visibility into the payment process may also be hindered through AP outsourcing. | The right AP tool allows teams more control and visibility. |
| Business scalability | Outsourcing AP can make scaling a business trickier. Relying on third parties for key tasks might slow things down, especially as you try to keep up with growth and changing needs. | AP automation simplifies the scaling process for your business. As your company expands, the appropriate automation tools can manage increased workloads without requiring additional staff, all while ensuring operations run smoothly and efficiently. |
When should businesses outsource accounts payable?
AP outsourcing can help CFOs reduce costs, and keep up with a growing number of invoices but it comes at the cost of losing control of your payment strategy. Here are a few common reasons that drive teams to outsource AP:
- Inconsistent AP processes
- Efficiency and visibility problems due to paper invoices and statements
- Convoluted approval process
- Audit concerns
Although these are good indications that businesses should consider outsourcing, many of these challenges can be addressed at a fraction of the cost through AP automation and payment services.
As with many things, the advantages of outsourcing accounts payable come with a few downsides as well. Sizeable challenges that come with AP outsourcing include duplication issues, privacy concerns, loss of control over and visibility into processes, and complete dependence on the firm to uphold the terms of your vendor contracts.
When should businesses automate accounts payable?
Manual accounts payable processes have caused businesses challenges since long before remote working became the norm, prompting many organizations to embrace and invest in AP automation.
Automating accounts payable leads to streamlined, accurate processing and enhanced control with real-time monitoring. Automated accounts payable solutions like MineralTree also integrate seamlessly with major accounting systems and ERPs, ensuring that you can access your data anytime, anywhere.
These are a few signs that it’s time for your business to automate AP:
- Your fraud protection and security processes aren’t enough
- Your AP department processes 100 or more invoices a month
- You have more than two full-time AP clerks (and need more)
- You constantly struggle with late payments
- You miss out on early payment discounts
- You process invoices in more than one location
- You experience errors from manual data entry
- Your AP processes lack visibility
- It takes longer than 4 days to process an invoice
- You are outsourcing your accounts payable
If you decide that you’d rather keep your AP processing in-house and point your business towards the future, then utilizing accounts payable automation can prove even more beneficial than outsourcing without any of the concerns.
Learn more about AP automation with MineralTree
Most AP managed services teams outsource their services, but MineralTree’s team does everything in-house. We offer tailored enrollment campaigns by collaborating closely with clients to understand their vendor relationships before we reach out. Oftentimes, managed service providers use an all or none outreach approach for vendors, whereas we collaborate to discuss with customers which vendors to reach out to. Once we begin talking with vendors, our team provides continuous feedback to our customers so they are kept in the loop on communications.
Furthermore, the MineralTree team is extremely sensitive toward vendor relationships. We understand our clients depend on these strategic suppliers and do everything we can to strengthen and streamline those connections. Our team of trained experts understand the complex rules and regulations to have detailed, strategic conversations with vendors about digital payments.
To help you capture even more virtual card spend, MineralTree also offers a service called ProxyPay, where our team will process virtual card payments through your vendors’ online portal or IVR system (if they can’t accept them through email). Currently, proxy payments account for roughly 30% of our customers’ virtual card spend, so it’s a huge value-add in terms of maximizing your spend without any additional effort.
Making the shift to AP automation can seem like a daunting task, but fortunately MineralTree is here to help. MineralTree’s end-to-end AP automation solution digitizes and optimizes your accounts payable processes, helping your business increase efficiency, reduce fraud risk, improve cash flow, and centralize control.
