Factors that influence Financial & Accounting Outsourcing Success
Outsourcing Finance & Accounting (F&A) functions of a business has become a popular trend today. The main advantages of F&A outsourcing include cost savings, efficient processes, and accurate reporting. Apart from this, it also helps gain competitive advantage by allowing the firm to focus on core competencies. No wonder even small firms are looking at outsourcing their F&A.
According to the 2015 Progressive F&A BPO Blueprint, 55% of F&A deals that were signed in 2013-14, were by firms with revenues of less than $5 billion. In addition, in 2014, the total F&A BPO crossed $25 billion, with multi-process F&A outsourcing touching $5 billion. It is evident that businesses are starting to understand how F&A outsourcing can help fast track the growth of the firm.
However, not all F&A outsourcing deals are highly successful. The right people, technology, and processes need to be in place to get the maximum value out of F&A outsourcing. Listed below are factors that have an impact on your F&A outsourcing and how you should handle each of them so that you maximize the benefits from outsourcing.
6 Factors that Influence Finance & Accounting Success
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Pricing:
When entering into a contract with a service provider, it is important to ensure that the price paid for the services is right. The price should not be too high such that the cost savings, improvement in processes and overall return on investment do not seem to justify the price. The price should not be too low because the service provider would not give the best when the pay is low. Optimal pricing is essential.
There are two main types of pricing. One is the Full Time Employee (FTE) pricing model and the other is the transaction based pricing model. The FTE model is where the service provider would be paid based on the time and material invested by the provider. Depending on the number and level of resources, prices would be fixed.
Under the transaction pricing model, pricing would be based on the number of transactions performed by the service provider. As can be seen, one is an input based model and the other is an output-based model. The best model, however, would be to combine the two and create a hybrid model that best suits your firm. Also, you could consider a gain share model wherein you share gains from the outsourcing deal if it is successful. Only when the pricing is right, you can expect to capitalize on your return on investment.
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Method:
The way you outsource plays a crucial role in ensuring its success. It is important to choose the outsourcing method based on your organization’s structure and needs. You could do a total outsourcing of all F&A functions or choose to outsource only certain areas such as accounts receivables or procurement process. You could even choose to outsource different parts to different service providers. Choose the way you outsource based on why you are outsourcing in the first place. If cost savings and increased core competencies are the reason why you are outsourcing, then, outsourcing the whole process would work better. When the right method is chosen, cost savings would be higher and processes can be easily streamlined.
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Location:
Nearshoring might seem like the right solution for mitigating risks but you might miss the cost advantage. Therefore, it is important to choose your service provider from the right location. Labor pools needs to be skilled and available at a reasonable cost. At the same time, the risks of choosing a service provider from a far-flung location should be minimized. This could be done by analyzing other factors, apart from labor costs or wage differentials. These factors would include cost for logistics and transportation, level of training and training costs, inventory costs, set up costs and currency differences, if applicable. Choosing the right location would help achieve better cost savings and quicker processes.
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Customization:
Service providers should not provide a blanket solution to all firms. Outsourcing solutions should be customized to suit the needs, rules and regulations of your organization. For instance, the F&A process for a healthcare firm might be very different from that of an automotive component firm. Customization needs to be built into the outsourcing strategy and plan for any outsourcing deal to succeed. Ensure that the technology, personnel, and plans used are relevant for your firm. Also, flexibility needs to be built into the outsourcing plan so that any changes that happen can be quickly adapted to.
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Security:
This is the foremost important factor that you need to consider. The service provider should have the right security in place so that sensitive information cannot be accessed by outsiders. Another critical factor is security within layers in the organization. The service provider should ensure that confidential data can be accessed by only the right personnel and is not open to everyone in the organization. Data manipulation or leakage is a big risk in case of outsourcing. This can be mitigated by ensuring that the service provider conducts frequent audits of the security system in place and ensures that the firewall always remains updated. Data centers need to be secured against hacks. You could ensure that the security features are explained and detailed in the agreements with the service provider.
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Returns:
Typically all firms outsource to save costs. Therefore, saving costs is no longer the primary goal for outsourcing as this is assumed to be a certain outcome of outsourcing. A cost benefit analysis should be done on a regular basis such that feedback can be shared with the service provider. This way, efforts are improved and processes become smoother, less time consuming and more effective. Factors such as improvements in operating costs, enhancements in time to delivery and progress in meeting compliance issues are some ways in which you can measure the return from outsourcing. When returns are measured continually, implementing process improvements would become better over time.
When you take into account the factors that impact the success of your outsourcing deal before choosing a service provider, the probability of success would be higher. The knowledge of these factors would ensure that you get the best experience when you outsource your non-core F&A processes to an experienced and reliable Finance and Accounting BPO outsourcing service provider.