What is Finance and Accounting Outsourcing?

Last updated on 

March 24, 2022

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The VA Reviewer
What is Finance and Accounting Outsourcing

During the last decade, many organizations have chosen to outsource financial planning and accounting duties to specialists because they may have a significant long-term impact on their business. 

Are you looking for ways to improve your financial reporting? Is it time to invest in more employees and new software to boost your company’s efficiency? Outsourcing some or all financial procedures can free up time for your company to focus on core aspects of its growing business, resulting in increased long-term potential.

Many businesses are beginning to outsource their finance and accounting functions more frequently now that the costs of outsourcing are less than the salary of a single internally-hired financial officer. 

Cutting costs and improving financial management are critical to the success of any business. You’ll be able to determine whether outsourcing is the right decision for your company if you know where the industry currently stands and where it is headed.

Financial planning and accounting are the two most important aspects of running a successful business. This article will guide you to the concept of outsourced finance and accounting services and explore current trends and demonstrate how to outsource these services.

You Can Also Read: Where To Hire Freelance Accountants Near Me

What is Finance and Accounting Outsourcing?

When we talk about outsourcing, we’re talking about a simple concept: contracting out a portion of a company’s regular in-house labor to a third party. It can take many different shapes. Regardless of size or revenue share, the chances are that every modern organization is already outsourcing somehow. 

For example, most organizations outsource the printing of marketing campaigns and branded assets to a third party. Others use third companies to warehouse items or keep a regular supply of coffee in the break room. Still, others hire third parties to host and administer the website representing their online presence.

Business process outsourcing is simply using a third party to manage processes that supplement – but are not critical to – day-to-day business operations. Finance and accounting functions account for a sizable portion of these supplementary processes for many businesses. When a company chooses to delegate them to a third party, this is referred to as Finance and Accounting Outsourcing, or FAO.

What Are the Benefits of Outsourcing Finance and Accounting Processes?

As the market and knowledge of outsourcing have risen, it has become more accessible to enterprises. Finance and accounting processes are outsourced for a variety of reasons. However, there are a few common threads:

Improve your ability to concentrate on core competencies

Unless accounting and finance are a company’s top services, the related processes, no matter how important, will do little to make your business stand out and set it apart from its competition. 

The company may spend a significant amount of time and money hiring, training, and retaining qualified staff, or essential decision-makers must do double duty and attempt a DIY approach.

In either situation, significant resources are being diverted from the principal offering of that same organization to keep a non-core part of their operations functioning smoothly. With outsourcing, a corporation can refocus its efforts on the business-critical tasks that keep it competitive by outsourcing this burden to qualified outside expertise.

Compensate for the scarcity of talent

Because the accounting sector is facing a pipeline problem that is projected to intensify, finance and accounting are specially positioned for success in outsourcing – particularly with an offshore model. 

Seventy-five percent of currently employed certified professional accountants will retire over the next 15 years, according to the American Institute of Certified Public Accountants (AICPA). And there aren’t enough next-generation candidates to replace them. But accounting is still a viable and credible career option in offshore countries like the Philippines, India, and Mexico, where CPAs are qualified to the same standard as those in the US.

Costs should be kept under control, and savings should be maximized.

FAO is an efficient strategy for many firms to cut costs for various reasons. Comparable labor is usually significantly cheaper in overseas markets, and traditional costs associated with in-house production are avoided. 

Many companies find that the proper relationship allows them to hire a new employee without incurring the financial stress of doing so or jeopardizing the quality-of-life standards they can currently provide their employees in terms of compensation and benefits.

Spend your time wisely

When it comes to financial management, time is frequently as essential as money. When a corporation chooses to outsource tedious manual operations and peripheral rework, they discover that the time they save on such jobs may be used elsewhere. They can reinvest that time in employment and services that value the company, such as strategic planning and judgment-based finance, such as mergers and acquisitions (M & M&A), divestitures, and shareholder relations.

Streamline accounting procedures

Accounting systems don’t always keep up with a company’s expansion, downsizing, and other changes. Disparate systems across business groups, a general lack of documentation, and employee churn increase inefficient accounting and shoddy bookkeeping. 

Allowing a responsible third party to handle the reins ensures that a plan for universal documentation is in place, resulting in streamlined, efficient operations resulting from the partnership.

Finance and Accounting Functions

Which Finance and Accounting Functions Are Outsourceable?

It is unnecessary to have an all-or-nothing mindset when outsourcing finance and accounting procedures. Instead, many organizations would try out a modest set of operations — or simply a single accounting activity – to see how they would react. 

After all, one of the most popular motivations for moving to an outsourced financial operations model is to create an efficient financial workload distribution, allowing your trained in-house people to focus on higher-value, strategic responsibilities.

Most firms begin by assessing the challenges, benefits, and changes of working with an accounting-specific BPO provider through a highly transactional, repetitive process. Accounts Payable (AP) and Accounts Receivable (AR) are two of the most outsourced transactional bookkeeping functions. Let’s look at why it is.

AP and AR are usually assigned to entry-level accounting professionals in an in-house approach because they are manual transactional operations. Because new talents are needed to fill these roles when employees move up along their chosen career path – whether by moving up or out – employee churn is high in these sectors. 

It entails downtime, which comes at a cost in terms of missed productivity and the additional expense of acquiring and training new team members to fill the role, all while the already tight talent market drives up the cost of this talent.

That’s a lot of money and time spent on something as simple as bookkeeping. 

Using an outsourced approach, a company may now assign expensive personnel to business-critical or high-judgment accounting jobs while less critical FAO tasks are allocated to third-party providers. Simultaneously, an FAO partner controls international talent procurement, training, and deployment in regions with less competition and lower compensation inflation.

Outsource the following transactional accounting tasks:

  • Payroll
  • Expense tracking
  • Reporting and filing of taxes
  • Procure-to-pay
  • From order to cash
  • Reconciliation of accounts
  • Reporting on fixed assets
  • Accounting between companies
  • Month-end Close

READ MORE: Payroll Outsourcing: How Does it Work and Should You Consider It

While organizations may feel most at ease delegating control of these low-value bookkeeping tasks to a remote team, this should not be taken to imply that these are the only types of work that an offshore team can handle. 

Remember that in markets such as the Philippines and India, talent is plentiful and highly qualified across the board, so individuals who specialize in higher-level accounting can also be found for work that controllers or senior-level accountants typically perform.

Outsourcing is indeed beneficial for organizations that operate in markets where labor is becoming increasingly scarce and prohibitively expensive and for small to medium-sized businesses that need to scale quickly and nimbly.

The following are accounting processes requiring judgment that can be outsourced:

  • Controlling the process
  • Risk management and treasury Auditing and report auditing
  • Compliance
  • Budgeting and projections
  • Extraction and analysis of data
  • Bank relationships
  • Debt administration

In the end, a company’s specific goals and requirements will determine which processes it outsources. When evaluating which areas of your finance and accounting activities are the most significant prospects for successful outsourcing, a decision matrix can be helpful.

Is Outsourcing Your Finance and Accounting Department a Good Idea?

Finance and accounting outsourcing is growing in popularity among middle market and high-growth organizations because it provides a cost-effective way for businesses to boost their finance and accounting services.

Outsourcing allows firms to scale up and down their resources as needed without paying for employees or benefits. It also relieves you of the responsibility of hiring, training, and managing accounting staff. Organizations can use advanced technology platforms to gain real-time visibility into their operations.

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