Outsource Accounting

How to Outsource Your Accounts Payable: A Step-by-Step Guide

Feeling stuck with your accounts payable? Managing a business is stressful enough. The last thing you, as an entrepreneur, must be worried about is your company’s accounts payable.
Over the past few years, we have done our best to spread the good word about accounts payable outsourcing. According to analyst interviews at Business Insider, a recession is just around the corner. The economy is incredibly volatile as of May 2024 and shows no sign of a quick recovery. Inflation is on the rise, and there is little we can do to change things. What businesses can do, however, is a hedge against the recession by focusing on savings.

What is Accounts Payable (AP) Outsourcing?

Accounts Payable

Accounts payable outsourcing is the delegation of the responsibilities associated with the AP function of the business to a third-party service provider. Instead of hiring an accountant or doing it yourself, you are hiring a firm to take on the responsibility.

Also Read: AP Automation: Revolutionizing Accounts Payable in 2024

There are a number of reasons why outsourced accounts payable is better than both doing it yourself and hiring an in-house pro. Lets go over them to get some more perspective:

Why Accounts Payable Outsourcing is a Game-Changer

Accounts payable outsourcing is a relatively small change that has a big impact on a business. Currently, the goal for most businesses is to maintain financial stability and stockpile enough cash to weather any incoming economic shocks. AP outsourcing kills both birds with one stone.

On one hand, AP outsourcing is a great avenue for cost savings. It is a business function that deals entirely with how the business pays its expenses. AP professionals are not just glorified bill payers. They manage the business’ expenses and help control costs. They are also the negotiators that stay in touch with vendors and forge strong business relations, which can render exclusive discounts and better prices.

On top of that, accounts payable is responsible for preventing payment defaulting. Businesses cannot afford to be late on payments right now, when money is so important. In the same vein, the job market is currently experiencing one of its worst years. Worker morale is down and everyone is looking to find new opportunities. A good accounts payable professional keeps the workers happy. Timely wages and salaries boost employee retention, which saves you from spending money to hire someone new.

In so many ways, accounts payable is directly and indirectly linked with the business’ cash flow. Sloppily managed accounts payable can sink a business as costs run out of control and team morale declines. This is why outsourced accounts payable is a great solution. Such professionals cost a fraction of what an in-house professional charges while offering the same quality of accounting. The only caveat is that they are remote, but after the pandemic, there are very few reasons left to doubt the power of remote work.

How to Outsource Your Accounts Payable: A Step-by-Step Guide

Outsource Your Accounts Payable

Business Evaluation

The first step to outsourced accounts payable is self-evaluation. As a business owner, you need to identify your business’ AP needs. You can’t go to the market if you don’t know what you’re shopping for. Make a list of the usual AP activities your business goes through. Think about what can be improved and what you would want to expand the role into if you had a professional accountant.

For example, if your current AP process is just paying bills and talking to vendors, think of what more can be done if an accountant was in your shoes. They could negotiate better deals, suggest cost cuts and point out frivolous expenses, bolster employee loyalty, and so much more. Once you have a list of things you want addressed by an AP professional, it’s time to hit the market. Or in this case, the internet.

Market Research

The next step is to browse the market and see what’s out there. The past five years have seen outsourcing become a booming industry, with thousands of providers active across the globe. With so many providers out there, it naturally becomes difficult to separate the wheat from the chaff. What’s worse is that many malicious actors have taken to opening fake firms to swindle entrepreneurs out of their hard-earned money.

The first rule when hunting for accounts payable outsourcing services is to be wary of such actors. Common signs include unbelievably tempting offers with extremely low prices, usage of multiple famous accountants as endorsements, and a distinct lack of negative reviews. These are all red flags that something is wrong. Of course, they may be legitimate and accidentally fall into the stereotype. So, what do we do?

The answer is always verification. If you see a particularly appealing prospect, ask about them in the market. Search for their business registration and verify with the state government that it is legitimate. Call their advertised clientele for reviews. All of these things can be done with a couple of phone calls and can save you from potential catastrophe.

Following these guidelines, shortlist around ten or so firms that you feel are up to your standards and within budget. After this, it’s time to meet.

Meeting and Negotiations

After shortlisting outsourced service providers, schedule interviews with all of them. A key point to remember is that you are still in the market research phase. This is just the part where you are gauging the service providers directly and negotiating on potential contract terms. Try to schedule face-to-face meetings in their office, as this not only proves legitimacy but gives you a chance to see how their operations are run.

If the firm is headquartered abroad, schedule an online meeting and ensure the camera is turned on. The provider’s body language and demeanor can tell you a lot about the veracity of their claims. You need to be able to discern who is selling snake oil and who is selling outsourced accounts payable.

Before the meeting, the bare minimum preparation you need to do is deciding on contractual terms. Hire a lawyer’s services and get a contractual proposal drafted for your needs. Mention the budget and the services required, as well as the terms of retention and how the relationship will work. This is all complicated legal procedure that varies state by state, so it is best to get a lawyer’s help.

Once you have your desired terms set, its negotiation time. During negotiations, put forward your list of requirements. Inquire about each and every task you need addresses and ask how they can address it. Try not to show excessive interest in any of their proposals, as this could give them leverage in the discussion. Maintain a neutral face and take notes of the conversation. Also provide each firm with a hypothetical model of a business and ask them how they can add value to it.

Do not make a decision after one meeting. Do one meeting with every prospective firm and at the end shortlist five that fit your needs and budget the best.

Finalizing the Deal

Its now time to interview the shortlisted firms once more. Arrange meetings and this time, put your proposed contract forward. Ask if they can provide what you need within their budget. Another extra edge you can give yourself is to augment the proposal’s budget based on the firm’s advertised rates. This way, you are not overpaying by presenting a proposal budget bigger than their normal rates. Keep the rates slightly lower, and negotiate on the premise of a long-term collaboration.

Outsourced services provider would gladly negotiate better rates for the promise of long-term retention. Of course, this only applies if you actually do plan to make it a long-term arrangement, which is recommended.

After hashing out potential deals with every firm, evaluate their terms and their displayed proficiency to make your decision. This is where your personal judgement will play the biggest role. Do not just pick the cheapest offer. Try to strike a balance and choose a provider that not only fits your parameters but also displays competency.

Expertise Accelerated as Your Outsourced Accounts Payable Ally

Expertise Accelerated is an outsourced accounting firm in Connecticut that offers a wide breadth of accounting, supply chain management and project management services to US businesses.

EA’s outsourced accounts payable services offer businesses a veritable treasure trove of opportunity. At EA, we pride ourselves on our customer first approach, offering a chance at achieving up to 60% payroll savings for small businesses.

As a small business ourselves, we understand the plight of the underdog. Competing against massive corporations is a huge wall to overcome, but you can only do so if you take the first step up the ladder. In this case, the ladder would be EA, lifting you up one rung at a time until your business soars just as high as the rest of the big players.

Join us at EA, and with our outsourced accounts payable services, bring your ambitions to life and sail through the economic maelstrom. We know you can, and will be the sail in your winds pushing you ever forward.