Knowledge Base

Outsourcing Accounts and other Services

Outsourcing services has almost become a norm now. Almost all companies outsource one or another service – from maintenance to R&D and everything in-between. When it comes to outsourcing, every client has a different organizational structure and culture. Outsourcing relationships vary in their defined objectives depending upon the maturity of their operating model. To transform discrete areas like payroll or accounts receivable at a lower cost, some companies look for a process specialist while other companies look for transformational capability at the organization-wide level. It is important for businesses to get an objective and realistic view of what accounts outsourcing can and cannot achieve. From skill and ease of implementation to scale and complexity, the decision makers need to consider what exactly to outsource. The most preferred accounting tasks that are outsourced are the routine tasks associated with transaction processing along with the more technically demanding finance and accounting activities associated with general ledger maintenance, consolidation and statutory accounting, and management report preparation and interpretation. Finance is not only about maintaining accounts, bookkeeping and statutory compliances. It is about efficient cash-flow management and meaning insights. Good finance consultants are in demand as they provide a mine of information that helps management understand the path to take ahead. If a company has no in-house expertise to assess the business impact of accounts, it makes sense to outsource it to experienced finance consultants.

The Outsourcing Path
While the benefits of outsourcing are known, no company outsources their strategic requirements directly. Typically, companies test the water with outsourcing services that will not hamper the company’s performance even if the vendor performs poorly. This mitigates the risks associated with outsourcing to unknown partners or consultants. Only if a company’s experience with the vendor / supplier proves to be good does the management decides to outsource strategic processes that can impact the company severely.  Depending on the company’s risk taking abilities, the services that have least adverse impact in case of vendor failure vary from human resources to logistics.

Not all companies outsource, nor do they need to outsource. Outsourcing of services, especially like accounting, bookkeeping, payroll processing and IT is mostly undertaken by small and medium sized companies. The main reason for outsourcing is quite simple; it is better to pay a consultant fee than hire a permanent employee who will not need to work the complete month. It also allows budding organizations to concentrate on their core competency.  Another reason these firms outsource accounting, payroll and HR is because small businesses do not have proficiency and skills needed for compliances. This is especially true since these tasks require proficiency and regular, updated knowledge that they might not possess internally.

Prior to the easy availability of the Internet, there was hardly a scope for outsourcing.  The only services that could be outsourced included janitorial, security and maintenance services. This has now all changed because of easier access to internet, faster speeds, larger data transfer facilities and increased security. The concept of cloud computing and storage has given a further boost to the outsourcing paradigm. One of the prime services that are outsourced, especially by US based companies, is the IT service. More than one third of new IT development is done outside the country. While India was the primary beneficiary, many other countries have now joined the fray. Other services that are outsourced are human resources, customer service, accounting, payroll processing, engineering services, bookkeeping, recruiting, etc. With financial institutions seeking more cost effective software development options, offshore outsourcing ahs gained tremendous importance. Studies in the U.S. suggest that outsourcing of financial services by U.S. based firms will grow at a robust pace of more than 7% annually. Big banks and financial institutes are increasingly looking out to external service providers for many of their processes. India is a preferred choice for international banks and financial institutes because of availability skilled labour, information technology resources and excellent infrastructure, especially in cities like Pune, Bengaluru, Hyderabad, etc.

Risks of Outsourcing
Outsourcing accounts is gaining traction, with many competent and infrastructure ready consultants in cities like Pune of India. Data security and confidentiality is one of the most important considerations while outsourcing financial accounting. Payroll especially is a highly sensitive area. While dealing with an agency over which you have no direct control, it is essential to assess the long term stability of the consultant as well. When outsourcing outside the country, it is also important to know the political stability of the government. Any change in policy may drastically affect the outsourcing company, especially if it is big corporate. A few other considerations that a company needs to evaluate before deciding to outsource payroll, accounting, bookkeeping and allied service include:

Getting to know the owners: When you outsource processes like payroll, accounting and bookkeeping, you need to be sure that you are dealing with a reliable consultant. Financial information in the wrong hands can wreak havoc with your business. Evaluate the integrity of the consultant you want to hire independently; do not rely on public information.

Understanding the Processes: While the main intent of outsourcing is to treat it like a black-box and focus only on the deliverables, it is extremely useful to get some insights into how the consultant works, understand the methodologies and who the core team is. This is extremely important especially when statutory compliances are involved.  

Competency: Each country has its own set of rules and regulations. You need to ensure that the consultant you hire has the latest statutory knowledge of your country.

India and Accounts Outsourcing
While India was primarily chosen by US and European companies for outsourcing because of the lower costs, it is today thriving because of proven reliable and sustainable accounting and bookkeeping services. But is India still the preferred choice for outsourcing? The very advantages that India provided – skilled labour at a reasonable cost, fluency in English, excellent tech support and suitable time difference for critical work, is increasingly being offered by other countries as well. Other English speaking countries like Philippines, Ireland and some African countries are giving India a tough time. To stay ahead, India needs to stay at the cutting edge of technology, innovate and continue to provide the efficient and reliable accounting service it is known for.