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Ultimately, which will end up costing more in the long run? Purchasing AP software, or paying for AP services?

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

The answer is relative to the size of your company. It is fine to outsource until you can grow the process internally. If you get to a point where you begin to analyze your expenses, requesting the data that is stored with your vendor will become costly. You will also need the data stored with this vendor when you assemble your taxes, annually. It will be all these special requests that will consume your budget. Just consider them when you are assembling your internal cost/benefit analysis. To answer your question - when planning to use an outside vendor, be sure to keep copies of all the information you send them. So many times it is close to impossible to unbundle easily when you cede control of a process fully. Additionally, set a level / a point where it becomes cost effective to internalize the process. Stick to your plan and you will not wast money.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

Absolutely relative to the size of the industry. Look at it from the perspective of paying someone to manage the AP side. You would want to consider how long it takes to really manage it well versus what it costs to pay a TPA to handle. CPA firms can be expensive for something like AP. However, having it outsourced means you aren't paying for benefits. Can you consider a PT person? Or a FT person that can also handle other job duties to free up your time, if you are the one managing it now.

Kim Hall
Title: Consultant
Company: HWG, Inc.
(Consultant, HWG, Inc.) |

Congrats! It sounds like your company is growing fast.

AP is one of the biggest areas for abuse and errors, if not the biggest. I would encourage you to consider what controls you have in place and what you are willing to put in place when you are looking at this process.

Things to consider:

Avoid using the person to reconcile the bank account and writing the checks
Avoid using the person to set up the vendor and write the checks
Require TaxID # on all non-national vendors.
Have another person review the vendor payments monthly

Also, there are many bookkeeping firms that will do your AP for you - you don't have to have an accounting firm.

Good Luck!
Best regards, Kim

Joshua Hurni
Title: Account Exec
Company: AMS
LinkedIn Profile
(Account Exec, AMS) |

Great question from the software side calculating the cost is more straight forward with cloud software. Once you have an estimate from the TPA you only need to have your software provider help you determine the amount of time it will take an employee to perform the service and provide a monthly subscription price. Of course, you will still have some initial set up cost, however if you business is willing to adopt best practices these can be greatly reduced.

To Kim's point much of the new cloud software has built in controls and processes that minimize the risk of abuse and automate much of the manual work.

(Agent, JKS Solutions, Inc.) |

I'm not sure I understand the question fully. If you have an accounting function you have a payment function that is typically an AP function. If you outsource your AP Third Party Administrators (called TPAs) charge anywhere from 3 to 10% of the gross volume of payments they process. The TPA will force all your vendors to sign agreements with the TPA stating they agree to the fees, then your vendors will have to raise their prices to cover the TPA fees that are deducted from their invoices. Your vendors will have to hire at least one additional person to reconcile all the TPA fees through their AR system and cash receipts since it is all done via eletronic payment.

You are not outsourcing to reduce your costs, this type of outsourcing can disrupt your vendor relationships and then raise administrative costs for your vendor.

TPAs allow a window of 3-6 months to resolve all billing issues to your satisfaction. If your vendors cannot resolve their collection issues between themselves and the TPA in that time, the TPA keeps 100% of the disputed amount. This is their big profit center. They make a lot of money when the billings are time and materials based and employees cannot keep their time entry accruate between the client time entry and the billing time entry.

The sales pitch sounds really great, but once you are deep into a contract that you cannot break and your vendors are very unhappy with you, it will make you think twice. The only company that wins is the TPA and they generally are charging you fees on two ends of the volume process. Your company will be paying that fee to collect your AR and your vendors will be paying the fee to be paid. All prices go up.

If you decide to keep your AP in house, and you already have an accounting department, then the only additional cost is the staff you hire to man the AP function.

Don't let any TPA tell you there is no fraud in their process. They are a service center and you will want to see their annual audit report and all the rest, just as if they were a payroll service center.

Just know that if you go with a TPA, your vendors will no longer appreciate working with you and they will not receive the best customer service from your company. They will not recommend you either.

One hidden thing about using a TPA, if you will be outsourcing your AP related to contract relationships with embedded consulting firms, you will still have to track all the accounting information virtually in your accounting system. The only thing the TPA does is pay bills and collect a fee. So if you need your data to run into your accounting system, you will still need internal staff to process that.

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