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.
Today’s 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.
The State of Accounts Payable Today
Recession and inflation are top challenges for CFOs as they look to keep companies profitable in 2023. Unsurprisingly, research from Deloitte shows that about 1 out of every 2 CFOs is prioritizing cash management in 2023. 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.
What are Today’s Challenges in AP?
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:
Vendor enrollment is a time-consuming and tedious process. In fact, vendor enrollment is the number one pain point for accounts payable teams. 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.”
37.5% of AP staff spend over 6 hours weekly 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.
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, 71% of companies reported being victims of payments fraud in 2021, with reported losses from Business Email Compromise reaching a staggering $2.4 billion in total and $109,000 per fraud incident. 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.
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.
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:
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
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.
Scale the Business
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.
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 processes 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
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.