It is crucial for every business to efficiently manage its accounts payable to avoid several potential repercussions. But before considering when to outsource accounts payable, let’s clarify what we mean. Accounts payable refers to your company’s purchases on credit. Anytime you buy something without
paying cash upfront, this goes onto your balance sheet as “accounts payable.” These short-term liabilities are usually due within 30-90 days.
Accounts payable can also refer to the department that deals with these outstanding payments. They are responsible for managing the debts and ensuring timely payments to vendors and suppliers. Consider the following information to help you decide whether you should outsource accounts payable.
Importance of Managing Accounts Payable
Mismanagement of your accounts payable can lead to several detrimental outcomes, both short-term and long-term. Promptly pay your debtors to do the following:
Maintain a positive relationship with your vendors and suppliers.
Use this positive relationship to ensure a constant supply of goods.
Avoid paying interest or late fees on unpaid invoices.
Uphold a good credit reputation to allow for larger orders in the future.
Following best practices around your accounts payable allows your business to limit the risk of supply disruptions.
In-House Account Payable Management
For most small companies, it makes sense to handle your accounts payable internally, particularly when you are a new business. It is a cost-effective way to process your payments when there are not too many transactions.
As a small company, having the personal touch of a single team member building relationships with suppliers is a good idea. It puts you in a better position to negotiate prices, receive orders before competitors, and request payment extensions if needed.
However, as your company grows and you deal with more vendors, it may be too much for one person to handle. At this scale, it’s also about much more than just making payments on time. You need to ensure total accuracy and compliance.
Indicators That It’s Time to Outsource
Look for these key indicators to determine whether it’s time to outsource your accounts payable.
Quantity of Invoices
When the number of invoices becomes too much to deal with internally, it may be time to outsource. Not only could you miss payments, but you could also make errors, leading to compliance mistakes.
Lack of Expertise
When dealing with a few simple payments, it is easy for an internal staff member to take care of them. As payments become more complex, such as when expanding into international markets, you need an expert. Coping with changing international tax regulations requires a dedicated specialist to ensure compliance.
Inadequate Technology
You need the right technology to help scale your accounts payable operation. The best software can be expensive and requires extensive training. External companies have access to and fully train their staff on the latest software. They use the software for multiple clients, so the relative cost is much lower than purchasing it yourself.
Outsourcing Your Accounts Payable
When you outsource your accounts payable, you initially save on the overhead costs of full-time staff, and continue to save on indirect costs like error rectification. External companies like Mucho Dinero Consulting can guarantee efficiency, accuracy, and compliance. Get in touch with Mucho Dinero Consulting today for a Free Consultation.