Outsourcing Accounts Payable

Overview
Outsourcing Accounts Payable: In this era where everything is so speedy, no one wants to spend time or money on Non-Value added activities. Now business management is totally changed as compared to the earlier centuries because today Companies spend most of the time to analyze their current policies and innovate them with time saving strategies. One major part of this emerging trend is Outsourcing. Whether organizations are small or large, they want to compete one another with time savor tactics.

Outsourcing is a quite cost saving and effective way to transfer burdensome operations to third party where they have professionally skilled teams to handle these particular areas. Which are very specialized and have recourses to manage these outsourced functions better than internal departments.

Accounts Payable

Outsourcing Accounts Payable or Trade Creditor is the money which one party owed to another party but it will be paid after sometime not like cash sale where payment made at the point of goods or services transfer. It is a credit balance in the Financial Statement under liabilities section, payable balances arise when an entity make purchases or avail services from another entity. These entities called Suppliers or Vendors in the record of purchasing party.

Purchase Cycle

Cycle of purchase start when an entity place purchase order and demand goods or services from suitable vendor or demand price quotation in some cases. After, PO Generation suppliers will send price quotation to its prospective customer. First entity will negotiate and set feasible price at which final order will be placed to the supplier. Goods will be received by purchaser and stock entries will made based on the GRN and after this step, vendor will send purchase invoice and it will be on his own letter head which is significantly important otherwise it will have no validation. Now, finally based on that invoice we will post that invoice in our Accounts because it contains final purchase price and supplier name. Now, liability is standing in our Accounts payable ledger.

Purpose of this whole overview is to elaborate that it’s very long and time taking process. Most part of it consist of Paper work which is hard to process and their always a chance of error while transferring manual invoices into online database. Currently companies started to make electronic invoices and bypass this whole paper system but that is another discussion.

Accounts Payable & Outsourcing

Account Payable is a good start to outsource for any business because it is very cost effective and also efficient. Sometime companies spend much of their resources on these non-value added activities. So, it is better to transfer some part of responsibility to another entity at less cost. Instead these resources can be used on any other areas which are core of a business. For small entities it can be feasible to continue recording and processing of Accounts Payable internally because they don’t have to process and maintained a large number of purchase invoices.

With the help of outsourcing our cash flow cycle can be managed easily. Some companies collapse because they fail to maintain balance between their cash outflows and cash Inflows. Aging analysis of suppliers are important and in this area an outsourcing company can better guide about when next payment is due and if the resources are limited then it’s time to arrange required amount so, we can settle our liability on timely basis. Definitely, for this we will seek help from our Accounts receivables department as well, which will recover money from entity’s Trade debtors.

Confidentiality could be an Issue where businesses handover all their supplier’s information, terms and conditions on which they are making transactions. For some businesses it is a competitive advantage which make them unique in highly competitive markets. Some companies use this information for their promotional services and trade these information to marketing agencies. Yes, there are now many strict rules and regulations which cover confidentiality clause but still there are chances of data theft.

Conclusion

Companies can easily outsource operations such as accounts payables, as the complexity level is low. Most of its part is repetitive because same nature of transaction take place again and again. So, there is no harm to outsource this department when there is a large number of invoices and maintaining a balance between cash flows is crucial for the business.

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