For many organizations, outsourcing accounts payable operations is a great way to focus their efforts on primary business goals. A car manufacturer may want to concentrate on making cars and not on paying invoices.
Outsourcing accounts payable can also save money, as outsourcers have access to AP automation technology and can take advantage of economies of scale. For even more cost savings, many prominent AP outsource providers operate overseas in low-wage countries like India and the Philippines.
In the current economic climate, determining whether outsourcing AP is a good move is becoming quite tricky. While outsourcing can potentially save an organization money, some companies are choosing to put it off for the moment to avoid the often significant upfront costs.
According to a recent article published in the Investor’s Business Daily, during the first half of 2009, demand for business process outsourcing was diminished. Brian Kinstlinger, an analyst at Sidoti & Co. said that during the last six months, organizations have not been meeting with BPO firms to discuss potential relationships.
In addition, an article published by vnunet.com says that managers are becoming increasingly focused on cost reductions, going as far as looking for ways to wring more savings out of existing outsourcing agreements.
Compass Management Consulting warns organizations not to get too carried away in their desire to reduce costs. “It is also important not to make cuts too deep,” according to Compass, “as this risks impairing operational efficiency, which needs to be maintained so that companies can take advantage when demand begins to rise again.”
To help rekindle organizations’ interest in outsourcing, many providers are becoming competitive with their rates. According to the Investor’s Business Daily article, outsourcing contracts are being renegotiated as clients seek to lower costs. One provider, Michigan-based Syntel, saw revenue drop by 8 percent in the first quarter 2009.
Despite the gloom in the outsourcing sector, there are signs that things are improving. For instance, Kinstlinger says that there is a noticeable increase in the number of organizations willing to discuss future outsourcing agreements. Analysts are also predicting increased demand from the health care, insurance, and retail industries in the coming months.
There are considerable pros and cons to consider when determining if outsourcing is a good fit for your company. In addition to cost-savings, a significant pro to outsourcing AP is that you are gaining the expertise of a provider whose entire job it is to pay bills efficiently. On the other hand, organizations need to understand that they won’t have the same level of control over their AP processes as they once did.
Economic factors on both sides of the table are making the decision to outsource much more complicated than it once was. But, provided outsource providers can demonstrate that moving AP out of house will save an organization money, then a rebound in the industry seems inevitable.
Will Indian Outsourcer Make A Comeback With Economic Recovery?
