The Ultimate Guide to Outsourcing Accounts Payable

Accounts payable is one of the core components of your accounting function; yet, it often gets put on the back burner. What if I told you that strategic support in your accounts payable function could improve cash flow management, save you money, and create stronger vendor relationships? The good news is that you don’t have to find time in your busy schedule to dedicate to your accounts payable function. Instead, you can leverage accounts payable outsourcing.

In this guide, we’ll explore the fundamentals of accounts payable outsourcing, including the types of services outsourcing providers offer, how to determine when it’s time to outsource, and the typical cost. We’ll also dive into the steps you can take to ensure a smooth transition and how to select the right provider. By the end of this guide, you should be equipped with the information needed to tackle accounts payable outsourcing head-on.

What Is Accounts Payable (AP) Outsourcing?

Accounts payable (AP) outsourcing is the process of moving your AP management from an in-house team to an external professional. These professionals will handle everything related to your payment function, from finding the right technology to improve efficiency to carefully timing payments to optimize cash flow.

What Do AP Providers Offer?

AP outsourcing services vary based on your business needs. For example, some companies might outsource the entire accounts payable function, while others might only outsource vendor vetting. Here are the five core components of AP outsourcing:

1. Invoice Processing 

   The primary responsibility of an outsourced AP specialist is invoice processing. Outsourced professionals handle the entire invoice lifecycle, from receiving the purchase order to paying the final invoice. The typical invoice process includes six steps:

   1. Receive the invoice and upload the document into your accounting system or digital archive.

   2. Enter key invoice details, including the vendor, amount, and date.

   3. Match the invoice to the purchase order and analyze any discrepancies.

   4. Send the invoice to the necessary approver for payment authorization to verify that the invoice is legitimate.

   5. Submit the payment and update your accounting records accordingly.

   6. Archive the invoice.

   Your accounts payable specialist will go through this process for every invoice, streamlining the process and ensuring your accounting records are accurate and up to date.

2. Vendor Management

   The invoice process often involves questions. Your outsourced accounts payable provider handles these questions, communicating directly with your vendors. For example, if the purchase order and final invoice have different quantities or prices, your AP professional will inquire about the reason. Vendor management also involves the following tasks:

   • Vetting vendors for legitimacy

   • Setting up new vendors in your accounting system

   • Contract negotiation

   • Maintaining fluid communication to create strong working relationships

   Any questions or inquiries your vendors have will be directed to your accounts payable outsourcing company.

3. Payment Processing

   Payment processing itself can quickly become overwhelming, especially when each vendor has different payment requests and methods. Outsourced AP professionals manage the physical payment process, including:

   • Submitting ACH, EFT, and other electronic payments

   • Monitoring all external withdrawals for legitimacy and accuracy

   • Exploring ways to efficiently process payments

   The Association for Finance Professionals found that 79% of organizations were victims of payment fraud attacks in 2024. Outsourcing your AP function can help you catch and deter fraud and asset misappropriation.

4. Expense Reporting

   Outsourced AP teams not only focus on external vendors, but they can also manage your expense reporting function. This can include:

   • Gathering employee receipts, invoices, and documents for purchases

   • Itemizing and entering expense reimbursements

   • Submitting expense reimbursement payments

   • Monitoring expense reporting for fraud and fictitious expenses

5. Compliance and Risk Management

   Every organization has risks, especially within their AP process. Here are a few of the top risks and compliance challenges that outsourced AP professionals help with:

   • Fraud Attempts – Prevent and detect attempts to steal funds through AP

   • Duplicate Payments – Identify and stop duplicate payments

   • Manual Processing Errors – Catch data entry errors to submit accurate payments

   • 1099 Management – Correctly mark vendors as eligible for 1099s to comply with IRS requirements 

   • Year-End Reporting – Properly close out the accounting records with the right cut-off dates for year-end tax and financial reporting 

   Many of the tasks an outsourced AP specialist handles have a direct link to compliance with regulatory authorities. For example, when an AP professional enters a new vendor, they will request a Form W-9 to analyze whether the vendor should receive a 1099. Failure to complete this step can cause non-compliance with the IRS.

When Is the Right Time to Outsource Accounts Payable?

There’s no one-size-fits-all answer to when it’s time to outsource accounts payable. However, there are a few indicators that your business can benefit from hiring an external team, including:

Missed Payments are Frequent

Missed payments are one of the top indicators that it’s time to bring on outsourced professionals. Forgetting payments can lead to strained vendor relationships, causing unfavorable contracts, limited negotiations, and lost competitive advantages. Let’s say that you often pay your materials supplier late. What happens if you need a last-minute shipment? Your vendor is less likely to accommodate your request compared to if you always pay on time.

Your Team Is Overwhelmed

If your team is constantly falling behind on invoice processing and payments, it’s time to outsource. Burnout is a top contributor to turnover and productivity. In fact, SHRM found that workers who are burned out are three times more likely to be actively searching for another job. Similarly, workers who experience burnout are less likely to go above and beyond in their role. Having an outsourced professional handle your AP department can improve your employees’ well-being, translating to more productivity.

Cost Control Is Important

Accounts payable outsourcing goes beyond invoice processing. In fact, these professionals are equipped to negotiate contracts to find you the best terms. For example, your AP specialist might work early payment discounts into your contracts, helping you save additional money. Moreover, outsourced AP professionals also implement clear policies and procedures into your accounting system, ensuring all payments are legitimate and accurate.

Growth Is Expected

The goal of most businesses is to grow; however, scaling can add to existing pain points in your AP function. Accounts payable outsourcing is a scalable solution. Your outsourced professional will implement accounts payable processes that can scale alongside your company. For example, your outsourced specialist might switch invoices from paper processing and manual data entry to electronic recordkeeping and ACH payments. This ensures your AP workflows remain robust and scalable.

Still weighing your options? Read our guide on When Should a Company Outsource? 5 Signs It’s Time for a Change for more insights.

Key Benefits and Disadvantages of Accounts Payable Outsourcing

Outsourcing accounts payable has both benefits and disadvantages. Let’s briefly cover these items in more detail.

The Advantages of Accounts Payable Outsourcing

Accounts payable outsourcing can completely overhaul your AP function, improving efficiency, accuracy, and timeliness. Here are a few more of the benefits:

• Reduced Costs – Lower overhead, like labor costs and technology expenses 

• Improved Accuracy – Automated workflows reduce human error 

• Scalable Options – With a dedicated team, your AP function scales alongside you

• Stronger Vendor Relationships – Vendors always get paid on-time, improving the relationship

• Favorable Contracts – With an expert negotiating on your behalf, you can secure the best contract terms and agreements 

• Access to Certified Talent – Most AP specialists have credentials and certifications outside of what you might receive when hiring locally or in-house

The Disadvantages of Accounts Payable Outsourcing

Despite the list of advantages, there are a few disadvantages to consider before outsourcing. Remember, many of these drawbacks can be alleviated with the right outsourcing provider.

• Security Risks – Giving an external party access to your accounting information can potentially pose security risks

• Cultural Differences – Working with overseas outsourced companies can lead to cultural differences

• Loss of Control – For some business owners, the loss of control can be a disadvantage

• Provider Dependency – Dependency on your provider can potentially lead to disruptions; however, this risk is greatly minimized when working with a team

In-House Vs Outsource Comparison

The decision to hire an in-house or outsourced AP specialist can be tricky. Here’s a quick comparison between the two.

What About AI and Automation?

Is partnering with an AP outsourcing company needed with AI and automation advances? Simply put, yes. AI and automation can’t replace the human aspect of AP specialists. For one, your vendors don’t want to communicate with a computer. They prefer human connections and interactions. Additionally, AI and automation are still in their infancy. Human oversight is the best way to ensure accuracy in your AP function.

However, this doesn’t mean that AI and automation aren’t used at all in the AP process. In fact, many outsourcing providers integrate these types of technology to improve efficiency and accuracy. Pairing human expertise with AI and automation gives you the best of both worlds.

Curious how AI specifically transforms AP? Explore our blog on Why Machine Learning and AP Is a Win/Win Solution.

How Much Does Outsourcing Accounts Payable Cost?

Accounts payable outsourcing cost varies based on the services you need. For example, if you only need purchase order or invoice processing, you might pay $500 a month. Typically accounts payable function outsource costs average about ~$2,500 per month. The final cost you pay depends on your provider, location, services, volume, and complexity. Reaching out to an outsourcing AP provider is the best way to gauge your cost.

Choosing the Right Accounts Payable Outsourcing Provider

When analyzing how to outsource accounts payable, one of your first decisions will be choosing the right outsourcing provider. Let’s go through everything you need to evaluate and analyze to find the perfect AP specialist.

Accounts Payable Experience

The first criteria you want to evaluate in an accounts payable outsourcing provider is their experience. Do they specialize in AP outsourcing? How many clients do they currently handle accounts payable processes for? Your ideal AP provider will have extensive experience handling accounts payable for a variety of clients. Bonus points if your prospective provider has experience specific to your industry.

Team Depth

Is the AP provider a company or an individual freelancer? Working with a reputable company is often preferred over a freelancer to give you flexibility. For example, if your business has seasonal demand, you might need to bring on additional AP support during busy times. This isn’t always possible when you work with freelancers. Ask your prospective accounts payable outsourcing professional about their team depth.

Certifications and Credentials

Accounts payable services are considered accounting services. This means that most professionals should have some type of certification or credentials related to accounting or finance. For example, your AP specialist might have a QuickBooks ProAdvisor certification or be a member of the National Association of Certified Public Bookkeepers. If you are bundling other accounting services with your AP workflows, a Certified Public Accountant (CPA) credential can be useful.

Technology Offerings

One of the benefits of outsourcing your accounts payable function is the ability to access specialized technology, such as an expense management program or a payment processing software. Inquire about the AP automation solutions the provider offers. For example, if your AP department wants to time payments, does the provider have a program to streamline this process? It’s also important to ask about any potential costs related to this software use. Most reputable accounts payable outsourcing companies give you access to these programs at no additional cost.

Compliance and Security Protocols

Passing the baton off to an external party can open the door to increased security risks if the proper protocols aren’t in place. The accounts payable service you use should have clear policies and procedures in place to protect the sensitive information of your company. For example, does your prospective provider follow ISO standards? How about maintaining SOC compliance? Top accounts payable outsourcing companies will have a variety of security and compliance protocols in place.

Implementation and Setup

How does the AP outsourcing specialist handle implementation and setup? Does the process take months or is the provider able to integrate their team into your systems and processes in a few days? For most companies outsourcing their AP function, a seamless setup and implementation process is ideal. After all, you outsource accounts payable to free up time, not add to your list.

Service Customization

Accounts payable outsourcing providers have a variety of services they offer, from expense management to manual data entry. The right provider will give you the ability to choose and pay for only the services you need. Ask your potential provider about their service customization. What is included in the monthly price? Can you easily add on or remove services? Maximizing your ROI from outsourcing AP relies on avoiding unused services.

Cost

Cost is another important factor to evaluate. Does the outsourced AP team bill a flat monthly amount or hourly for work performed? Are there any unexpected fees or costs? Transparency into billing is important to ensure that outsourcing fits your budget.

Reporting and Analytics

Knowing how you review your accounts payable information is crucial. Does the outsourced accounts payable provider give you weekly or monthly reports? What information is included? Do they track key performance indicators and other information to help you make informed decisions? These are all important questions to ask.

Interviewing 101: Questions to Ask Outsourced Accounts Payable Providers

As you start conducting interviews, there are key questions that you should be asking top accounts payable outsourcing companies. Here are ten questions to ask:

1. What is your experience in our industry and with accounts payable?

2. How can you help our company?

3. What methods of communication do you use, and how often will we connect?

4. What credentials and certifications does your team have?

5. Do you have the time to dedicate to my AP process?

6. What services do you offer, and can I customize my service package?

7. What are your data security protocols?

8. Will I be working with one individual or a team?

9. What accounting software do you use?

10. What is the cost for your services?

Chosen your provider? For a deeper dive into accounting outsourcing overall, head to our Complete Guide to Outsourced Accounting.

How to Ensure Accounts Payable Outsourcing Success

AP outsourcing success is possible if you find the right provider. Take the time to select a provider that checks all of your boxes to maximize your benefits. The right provider will make the transition process seamless and empower you to fully leverage your AP function by improving cash flow management, vendor relationships, and efficiency.

If you're handling receivables too, check out our Accounts Receivable Outsourcing Guide to complete the cycle.

Equipped with these insights, you're ready to transform your AP function into a strategic asset that drives efficiency and growth. Remember, success starts with the right partner.

We've helped businesses of all industries and sizes streamline their accounts payable with tailored solutions. Contact us today for a free consultation and experience the Personiv difference.