Here’s a concise, practical guide to Accounts Payable (AP) outsourcing — what it is, why organisations do it, what to expect, how to choose a provider, implementation steps, KPIs and typical cost/contract models. I’ve included UK-specific points (VAT, GDPR) where relevant.

What is AP outsourcing?

• Shifting all or part of the accounts payable function (invoice receipt, validation, matching, approval routing, payment processing, supplier queries, reconciliations, reporting) to an external specialist or shared-service provider.
• Can be full outsourcing (end-to-end) or partial (e.g., invoice capture & validation only, or payment execution only). Often combined with AP automation software providers.

Why outsource AP? Key benefits

• Cost reduction: reduce headcount, lower transaction costs through process standardisation and automation.
• Improved efficiency & cycle time: faster invoice processing, fewer manual errors.
• Better control & compliance: consistent processes, segregation of duties, archiving for audit.
• Greater scalability & flexibility: handle peak volumes without hiring.
• Improved supplier experience: faster, more predictable payments; supplier portals.
• Access to technology and expertise (OCR, robotisation, electronic invoicing, analytics).

Risks and drawbacks

• Loss of direct control and potential service quality variation.
• Data security/privacy risks (GDPR / data residency concerns).
• Integration complexity with ERP/treasury systems.
• Hidden costs (change requests, SLAs not met, onboarding fees).
• Supplier relationship strain if communication is poor.

Typical scope of outsourced AP services

• Invoice receipt (email, post, e-invoice) and capture (OCR/ICR).
• Data validation, PO matching (2-way, 3-way), exception handling.
• Approval workflow management and escalation.
• Payment proposal and execution (BACS, CHAPS, SEPA, card, virtual cards).
• Supplier onboarding and master-data management.
• Supplier communications and dispute resolution.
• Reconciliations, month-end accruals, audit support.
• Reporting, dashboards, continuous improvement.

Technology used

• Invoice capture/OCR and intelligent data extraction.
• Workflow & approvals (cloud portals or integrated module).
• Integration with ERP/GL and bank/treasury systems (APIs, flat-file).
• eInvoicing standards (Peppol, UBL, etc.) where used.
• RPA/AI for exception resolution and supplier queries.
• Supplier self-service portals and electronic payment options.

UK-specific & regulatory considerations

• VAT: supplier invoices must support VAT recording and be retained for HMRC requirements. Ensure provider’s archiving meets VAT record retention rules (usually 6 years, but confirm for your circumstances).
• GDPR: processors must comply with UK GDPR (or EU GDPR if applicable). Use data processing agreements, detail international transfers, and ensure secure storage/processing.
• Payment rails: BACS, Faster Payments, CHAPS; understand cut-offs and fees.
• eInvoicing adoption: growing but not mandated—check sector-specific requirements (public sector bodies often have specific e-invoicing or Peppol requirements).
• Auditability: retention, audit trails and role-based access are essential for compliance and internal control.

Contracting & pricing models

• Per-invoice (transactional) fee — most common for volume-based work.
• Per-resource (FTE) fee — when staff are dedicated to your processes.
• Fixed-fee (per month) — for a defined scope/SLAs.
• Hybrid (base + per-transaction).
• Performance-based/Shared savings — some contracts share efficiency gains.
• One-off onboarding / conversion fees — for supplier setup, archive conversion, ERP integration.

How to select a provider — checklist

• Experience in your industry and with your ERP(s).
• Clear service scope and documented SLAs (turnaround times, accuracy, uptime).
• Security, certifications (ISO 27001, SOC 2), GDPR compliance and DPA templates.
• Integration capability (APIs, adapters, proven ERP connectors).
• eInvoicing and payments capability (Peppol, virtual cards, supplier portal).
• Pricing transparency (what’s included/excluded, change request pricing).
• References and case studies (size and complexity similar to you).
• Local/regulatory knowledge (VAT, local payment rails).
• Disaster recovery, data residency, business continuity plans.
• Governance model and escalation procedures.

Key SLAs & KPIs to include

• Invoice processing time (average days/hours from receipt to posting).
• Straight-through-processing (STP) rate / automated match rate (no-touch invoices).
• Exceptions rate and time to resolve exceptions.
• Days Payable Outstanding (DPO) — monitor impact on cashflow.
• Invoice cycle time to approval (median and 95th percentile).
• Payment accuracy (payment error rate).
• Supplier satisfaction / response time to supplier queries.
• First-time match/payment success rate.
• Data accuracy (data extraction accuracy).
• System uptime / availability.

Typical implementation timeline (high level)

• Discovery & process mapping: 2–4 weeks.
• Solution design / tool selection: 2–6 weeks.
• Contracting & legal: 2–6 weeks (varies).
• Integration & configuration (ERP, bank): 4–12 weeks.
• Supplier onboarding & data migration: 4–12 weeks (ongoing).
• Testing (UAT) & pilot: 2–4 weeks.
• Go-live & hypercare: 2–6 weeks. Total typical timeframe: 3–6 months for many mid-sized projects; complex/global rollouts can be 6–12+ months.

Change management & governance

• Create a joint steering group (client + provider).
• Define RACI for core activities and exceptions.
• Regular performance reviews and continuous improvement meetings.
• Supplier onboarding plan and supplier communications template.
• Internal communications and training for approvers.

Cost saving expectations

• Savings vary, but commonly 20–50% reduction in AP operating cost per invoice over time when automation and process rationalisation are applied.
• Savings depend on current process maturity, invoice volumes, complexity (PO vs non-PO), and automation potential.

Data security & privacy controls to require

• Data Processing Agreement (UK GDPR compliant).
• Encryption at rest and in transit.
• Role-based access and strong authentication.
• Regular security audits and breach notification timelines.
• Data segregation and clear retention/deletion policies.
• Rights to audit provider or independent SOC/ISO reports.

Examples of common pitfalls & how to avoid them

• Vague scope: define exactly what’s in/out of scope and pricing for exceptions.
• Integration underestimated: map all touchpoints early (ERP fields, tolerances).
• Poor supplier communications: run a supplier engagement campaign and self-service options.
• Unrealistic timelines: build in buffer for sample testing and supplier readiness.
• Not tracking KPIs: include baseline metrics before go-live to measure improvement.

RFP / Due diligence items to request

• Service description, SLAs, pricing model and examples of invoices per-month tiers.
• Security certifications (ISO 27001, SOC2), and data protection documentation.
• Sample contracts / DPA and liability limits.
• Integration approach, connectors list and technical contact.
• References and case studies, including churn rates and go-live timelines.
• Disaster recovery and business continuity plans.
• Details of team (onsite/nearshore/offshore) and turnover rates.
• Roadmap for technology improvements and automation.

Practical next steps (if you plan to move forward)

1. Baseline current AP performance: volumes, cost per invoice, cycle times, exception rates, current headcount and system landscape.
2. Prioritise scope: start with high-volume, low-complexity flows (PO-matched invoices) for faster wins.
3. Prepare an RFP using the checklist above and shortlist 3–5 providers.
4. Run a pilot with a subset of suppliers/volume before full cutover.
5. Track KPIs and run fortnightly reviews during hypercare.

If you want, I can:

• Draft a short RFP template tailored to the UK (includes GDPR/VAT clauses and KPIs).
• Create a sample SLA with KPI targets and penalties/rewards.
• Help estimate potential savings if you give current invoice volumes, average cost per invoice, % PO vs non-PO, and current headcount/time.

Which of those would you like me to prepare next?