The use of finance and accounting outsourcing (FAO) continue to rice throughout the world. The FAO market, has increased steadily since 2000. Eric Krell explains, March 2007 IDC (Interactive Data Corporation) report forecasts that the global FAO market will exceed $47.6 billion in 2008. United States is the largest segment of the FAO market. But the fastest growing region includes Europe, Middle East and Africa.

First of all, it is useful to question why companies outsource finance and accounting processes? Organisations usually use outsourcing to achieve benefits as discussed in the previous articles. However, FAO covers a wide collection of processes, specific to its own, such as accounts payable, accounts receivable and payroll, knowledge and analysis etc. Although, in FAO the same processes can help to manage the challenges, risks and opportunities the knowledge- and analysis require greater management discipline.

The decision

Before outsourcing a process Finance Managers should conduct basically four different evaluations to ensure that the final decision is aliened with the corporate strategy, objectives, capabilities and plans. Those four evaluations are:

  • Identify strategic drivers – Identifying the company-specific strategic drivers for the outsourcing decision;
  • Evaluate the full range of options – A thorough evaluation includes consideration of shared service arrangements, as well as all potential “sourcing” and “shoring” possibilities;
  • Assess internal capabilities – Assessing the internal capabilities of each sourcing option must include an honest evaluation of systems and skills;
  • Determine scope and logic – Determining the scope and logic of building and finalising the business case.

Frustrations

KPMG LLP and HfS Research (2013) explains that client expectations of F&A outsourcing are evolving to be more value focused, with 70% of respondents indicating they outsource to access better talent, and 62% indicating they do so to access better technology and improve their analytical capabilities. Meanwhile, Deandorton white paper mentions, managers are basically genuinely frustrated with:

  • Turnover in accounting staff  – They struggle to find, train and retain adequate accounting staff
  • Untimely or ambiguous financial information – Financial information is not available in a timely manner or presented in an understandable way.
  • Too much time and resources  – Time spent on back-office accounting work that should be spent on more productive initiatives.
  • Constantly outgrowing systems – They are using systems that require regular investments in hardware, software and technical skills.

How to select a provider?

Finance and Accounts outsourcing requires providers with very specific accounting and bookkeeping skills (CPA, CA etc.). Therefore, it is essential that the accounting provider has the required qualifications, according to Account Anywhere. It advises the organisations to:

  • Check business references before giving major business commitment.
  • Evaluate services to ensure that the outsourcing provider is offering any service engagement to test their service levels.
  • Check service warranties carefully to evaluate what services are covered in the contract.
  • Infrastructure & data security for sharing confidential business information is extremely important.
  • Check software competencies with provides as an extension of your business.
  • Check distance and time as setting up meetings and collaboration between teams is absolutely essential.
  • Check language barriers since language barriers should not deter the communications process.

Service Level Agreement

In the meantime an effective Service Level Agreement (SLA) must be present, so that effective risk mitigation against hidden service changes could be solved effectively the IT Law Wiki exlains. The SLA must cover:

  • Process Mapping -it is highly important that all the processes are mapped and the knowledge is transferred to the service provider before start work.
  • Compliance Mapping –  There are business finance / regulatory compliances should be observed.
  • Risk Mapping and Mitigation – Ensure that there is contingency plan in place before the contract and make sure all the following is signed:
    1. Data security and audit process contingency plan.
    2. In case of system or process failures, a plan to ensure business continuity.
    3. Human resources contingency plan.

Account Anywhere white paper further mentions, in order to achieve the the set goals:

  • Invest time at the start of the process on meetings to understand each other.
  • Initiate training on internal processes and procedure.
  • Make the contractor feel that they are part of organisation.
  • Keep room for rewarding performance of the staff.
  • Encourage innovation to latest technologies.
  • Encourage contractors to implement changes for higher efficiency.

Conclusion

Outsourcing has become dynamic and it is constantly changing to entertain better customer service. Outsourcing accounting functions of an organisation are associated with varied benefits that offer better handling of accounts in guidance of expertise while concentrating on other business areas. Therefore, the organisation must be cleaver enough to select a right service provider to achieve the business goals.

24 thoughts on “Finance and Accounting”

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