Finance & accounting outsourcing 101

We live in an increasingly connected world in a time of unprecedented technological advancement. More and more, the ability to stand out in business relies heavily on offering the best of what you produce in the shortest amount of time possible. In many cases, efficiency and agility represent the line that separates a business that’s successful from one that’s merely surviving.

Business process outsourcing has always had a significant role to play in this regard, especially where an organization’s finance and accounting department is concerned. BPO is by no means a new concept, but it’s been changing in tandem with the rest of the business landscape. We’re going back to basics with an updated crash course in FAO – whether you’re brand new to outsourcing or just need a refreshed take on the solution.

What is finance and accounting outsourcing?

When we talk about outsourcing, we’re referring to a very basic concept: contracting out a part of the work that a business regularly performs in house to a third-party. This can take a lot of forms. Irrespective of size or revenue share, the odds are very high that every modern business already engages in some form of outsourcing. Most businesses use an outside vendor to print marketing collateral and branded assets, for example. Others use a vendor to host and manage the website that represents their online presence, and still others hire third parties to warehouse goods or simply stock the break room with a steady supply of coffee.

More: Think You Know Outsourcing? Not if You Believe These 5 Myths

Business process outsourcing simply refers to using a third party to manage the processes that supplement – but aren’t critical to – everyday business operations. Functions related to finance and accounting make up a sizeable portion of these supplementary processes for a lot of businesses, and when a business opts to delegate them to a third party, that’s Finance and Accounting Outsourcing, or FAO.

FAO Term to Know: Offshoring 
A lot of people use outsourcing and offshoring interchangeably, but they actually mean different things. Offshoring is one way to engage in outsourcing, and it refers to hiring a vendor that operates in a different country. Businesses contending with tight or expensive labor markets can benefit from an offshore delivery model.

Why outsource finance and accounting processes?

As awareness around outsourcing has increased and the market has grown, it’s become accessible to businesses of all sizes. The reasons organizations have for outsourcing finance and accounting processes are as varied as the organizations themselves, but there are a few common threads:

Better focus on core competencies

Unless a company’s main offering is accounting and financing, the associated processes do nothing to differentiate that company from its competitors, no matter how critical.  Completing these functions in house requires either a significant portion of time and money be spent on hiring, training and retaining qualified talent to manage the work, or key decision-makers can do double duty and attempt a DIY approach.

Either way, those valuable resources are being diverted from that same company’s actual main offering to keep a peripheral portion of their operations running smoothly. Eliminating this burden by delegating it to qualified outside talent allows the company to refocus its efforts on the business-critical tasks that do make them competitive.

Offset talent scarcity

Finance and Accounting is uniquely positioned for success in outsourcing – especially with an offshore model – because the accounting industry is faced with a pipeline problem that will likely only become more challenging. The American Institute of Certified Public Accountants (AICPA) estimates that 75 percent of currently employed certified professional accountants will retire within the next 15 years, and there simply aren’t enough next-generation candidates coming in to replace them. In offshore markets like the Philippines, accounting is still considered a viable and reputable career option and are qualified to the same standard as stateside CPAs.

Manage costs and increase savings

FAO is an effective way to decrease costs for a lot of businesses for a lot of reasons. Comparable labor in overseas markets is often much less costly, and traditional expenses associated with in-house labor are circumnavigated. Many companies find that the right partnership allows them to essentially bring on a new employee without needing to choose between the associated financial burden or sacrificing the quality of life standards they can already offer their team by way of pay and benefits.

Reinvest time:

For financial leadership, time is often as valuable a resource as money is. When a company chooses to outsource repetitive manual tasks and peripheral rework, they find they can budget the time they are no longer spending on those items elsewhere. They can invest that time back into tasks and functions that are value-added, including strategic planning and judgement-based finance functions like mergers and acquisitions (M&A), divestitures and nurturing shareholder relations.

Improve accounting processes:

As a company grows, downsizes and changes in other ways, accounting processes don’t always have a way to keep up. Disparate systems across business units, an overall lack of documentation and employee attrition all contribute to inefficient accounting and messy bookkeeping. Allowing a reputable third party to take the reins means that a system for universal documentation is built in, so streamlined, efficient processes become a byproduct of the relationship.

FAO Term to know: 1-to-1 Resource Allocation
1-to-1 resource allocation – as opposed to fractional resource allocation — is a reputable provider practice that assigns a single qualified full-time employee (FTE) to fill a client need. In 1-to-1, FTEs function as remote team members, working exclusively with a single client, reducing continuity errors and facilitating direct communication.

Which finance and accounting functions can be outsourced?

Outsourcing finance and accounting processes do not require an all-or-nothing approach. Many organizations choose instead to test the waters with a small set of processes – or even a single accounting task. You’ll recall, after all, that a common reason for moving to an outsourced model for financial processes is to achieve an optimized distribution of the financial workload, freeing up your skilled in-house talent to focus on value-added, strategic duties.

Most companies start with a highly transactional, highly repetitive task to assess the challenges, benefits, and changes that come with partnering with a BPO provider that offers accountancy-specific outsourcing. Accounts Payable (AP) and Accounts Receivable (AR) are two such transactional bookkeeping functions that are popular outsourcing candidates. Let’s look at why.

Because AP and AR are highly manual transactional processes, they are often assigned to entry-level accounting professionals in an in-house model. Employee attrition is high in these areas, because as employees progress along their chosen career path – either by moving up or moving out – new talent must be sourced to fill these roles. This means downtime, which represents its own cost in lost productivity, plus the additional cost of hiring and training new team members to take over the role, all while the already scarce talent market drives the cost of this talent upward.

That’s a lot of money and effort dedicated to a routine bookkeeping process. With an outsourced model, expensive talent can be assigned to business-critical or high-judgement accounting tasks, while an FAO partner manages the sourcing, training, and deployment of overseas talent where less competition – and less compensation inflation – exists.

Additional transactional accounting tasks to outsource:

• Payroll
• Expense reporting
• Tax reporting and filing
• Procure-to-pay
• Order to cash
• Account reconciliation
• Fixed asset reporting
• Inter-company accounting
• Month-end close

While organizations often feel most comfortable relinquishing control of these low-value bookkeeping tasks to a remote team, that shouldn’t suggest that these are the only types of work an offshore team can handle. Remember, in markets like the Philippines, talent is plentiful and highly qualified across the board, so individuals who specialize in higher-level accountancy can also be found for the work that typically falls to controllers or senior-level accountants. This can be especially useful for organizations that do business in markets where labor is increasingly scarce and inaccessibly expensive, or for small to mid-sized businesses that need to scale quickly and nimbly.

Judgement-intensive accounting processes to outsource:

• Process oversight
• Treasury and risk management Auditing and audit reporting
• Compliance
• Budgeting and forecasting
• Data extraction and analysis
• Bank relations
• Debt management

Ultimately, the individual goals and needs of a company will drive the processes they choose to outsource. A decision matrix is a useful tool when it comes to determining which parts of your finance and accounting operations are the best candidates for successful outsourcing.

Learn More: Download our F&A Decision Matrix to see which of your own finance and accounting processes can be streamlined at a decreased cost in an outsourced model.

How to choose a partner for FAO services

Once a company decides that outsourcing fits into their F&A operations strategy, the next step will be to look at potential FAO providers and choose a vendor that feels like a good fit for their values, goals and workflow. A reputable BPO provider will be able to speak to your concerns and provide case studies, client referrals and a pilot project agreement along with a quote or bid when you put out your request for proposals. There are a number of considerations organizations will want to address when they are comparing outsourcing providers.

FAO term to know: Desktopping 
A procedure for working directly within a client’s technology stack that allows for seamless access to information and process completion from a fully secured remote location.

Experience

A BPO provider with a proven track record for success is essential. You will want to look beyond the amount of time they have been in business, however, and ask potential vendors to speak directly to the partnerships they already have with other clients. If a provider can maintain and grow the services they offer to individual clients year after year, that’s a sure sign that they are doing something right.

Process

You’ll want to know what to expect from the day you pull the trigger on an FAO model. Understanding how a provider handles the onboarding process – from initial knowledge-sharing to implementation and beyond – is a key component to choosing between potential vendors, so look for BPO providers that can give you a thorough, transparent rundown of how that happens.

Technology

There are two major technology concerns that any provider should be able to address directly.

1. The first is whether or not they use cloud-based technology. In 2020, a provider that does not offer a solution to potentially siloed data and information with the option to move yours to the cloud is a provider that is not prepared to help you scale when you need to.
2. Second, look for providers that are technology agnostic. If a vendor insists that you migrate your processes to their platforms, reconsider partnering with that vendor. A good partner should be prepared to work with the technology you already use and not force you to adopt theirs. You should have ownership of your processes from start to finish, and a reputable BPO provider will not try to convince you otherwise.

Security

When it comes to financial data, there’s always a security concern. Breaches in data security can be catastrophic for companies whether they’ve chosen to outsource part of their finance and accounting operations or not. Any provider you speak to should be able to show that they are ISO certified, and have facilities security protocols in place. Ask them what those protocols are.

Metrics

An important thing to determine when looking for a provider is how performance and vital metrics will be measured and delivered. It can be helpful to go into discussions with potential providers with an idea of what you would like to see improved and the specific KPIs you want to see met.

Culture

You need to make sure that your partnership has certain commonalities when it comes to your respective company cultures. Look for candidates that share your values and listen to your concerns. A good culture fit will make the process of onboarding and continued communication seamless and will ultimately feel like a part of your team as opposed to a separate entity.

Personiv delivers a uniquely flexible approach for its clients by developing custom finance and accounting solutions designed to save time and money. Our teams of highly skilled talent stand ready to complete projects with quality and confidence, allowing customers to focus on goal-reaching strategic priorities. With more than 30 years of experience and sites in three countries, Personiv hires, trains and retains top talent to provide customized, global solutions.

Ready to get started? Begin by downloading our free outsourcing worksheet and checklist, or speak directly to a client relations director about where outsourcing fits into your F&A strategy this year.