What is Better: AP Automation or AP Outsourcing?

While this article spells some important differences between AP Automation and AP Outsourcing, and we highly recommend you read the full article, here are the key points we will focus on:

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  1. AP Cost Reduction
  2. Increase in AP Efficiency
  3. Going Paperless
  4. Improve AP Quality
  5. Speed Up the AP Process

To decide between AP automation or AP outsourcing for your company, it is best to define your goals. Do you want your company to:

Reduce AP Costs?

If reducing costs is important, AP automation is not the best approach. AP automation software never saves money unless your company has a very high volume of invoices (typically 50,000 invoices per month or more). This is because the total cost of the AP automation software including the cost of setting it up and managing it is more than any cost savings. On the other hand, AP outsourcing typically saves between 40% and 75%. These savings primarily come from savings on personnel and technology investments. Read more about AP Automation and download our White Paper for more information.

Be More Efficient?

AP automation usually digitizes paper invoices so that they can be routed around electronically more efficiently, but often the paper has to be scanned, indexed, and then reviewed for accuracy which takes away any efficiency gains. And while it seems more efficient to route electronic images instead of paper, the efficiency gains are minimal unless one properly automates routing and addresses any exceptions. AP outsourcing can be your better approach as outsourcing companies have their own software and significant scale which provides them efficiencies without most of the added costs that you may incur with automation.

Go Paperless?

Digitization of paper is another strength of automation. But again, AP outsourcers generally have their own AP digitization software so both options provide paperless solutions.

Improve Quality?

Quality should not be ignored when it comes to the AP process. Although some automation software vendors claim data quality as one of its core benefits, AP automation by itself does not help with quality. Even software with claims to include Artificial Intelligence should still be backed up with human intervention in order to maintain quality, otherwise additional work will be required. For example, a high rate of accuracy could still result in a decimal point in the wrong place – a small error with the potential for significant impact! AP outsourcers generally have higher quality due to better algorithms and controls built into their software processes and procedures. Another point for AP outsourcing to be the better option.

Speed Up the AP Process

Speeding up AP processes should not be an ultimate goal. Both solutions accelerate the process of routing invoices electronically as compared to the time it takes to route pieces of paper but having good processes is necessary to ensure timely completion of all AP tasks. Automating a bad process may speed up a bad outcome without ensuring that exceptions are resolved, there is follow-up on outstanding tasks, invoices are paid correctly, on time allowing you to take advantage of vendors’ discounts. The goal should be a timely, efficient, and effective process.

Provide Greater Visibility into the AP Process?

Visibility allows management to understand how the AP process is performing, eliminate bottlenecks, as well as manage cash flow better. Whether the software is purchased or comes from an AP outsourcer, both provide real-time visibility into the status of any invoices.

What is Better: AP Automation or AP Outsourcing? Our Conclusion

So, whether you choose AP Automation or AP Outsourcing, both solutions can provide benefits to the AP process. On balance, AP Outsourcing provides greater benefits but ultimately the choice depends on the goals you want to achieve for your company.

How can IQ BackOffice Help?  Learn about our Accounts Payable service and our full range of outsourcing services.

Read More about this topic:

Accounting Automation and Outsourcing – Top 5 Rookie Mistakes

What is AP Automation and Does It Work On It’s Own?

Pros and Cons of Outsourcing Accounts Payable

Outsourcing Accounting Processes – Does It Actually Save Money?