What is Financial Outsourcing?

Financial outsourcing refers to the practice of hiring an external service provider to handle key finance and accounting functions instead of performing them in-house. With the right provider, financial outsourcing enables companies to access high-quality finance talent and technology at a fraction of the cost of building this capability internally.

Why Companies Outsource Finance Functions

There are several compelling reasons why a growing number of companies are turning to outsourced financial services to offload some of their responsibilities.

Gain Access to Specialized Expertise

Many companies struggle to recruit finance talent with specialized expertise, such as FP&A analysts or revenue recognition accountants. Outsourcing partners maintain deep benches of niche finance talent that can be utilized on demand.

Enable Finance Transformation

Finance outsourcing is increasingly used to reduce costs and help transform the finance function. Providers deliver best-practice processes and technology that equip finance teams to become more insightful business partners.

Cost Savings

Outsourcing transactional finance functions to cheaper overseas locations can significantly reduce costs. Service providers are able to offer lower pricing due to economies of scale and the use of offshore talent. According to the Global Outsourcing Report, global business services centers typically achieve cost savings of 13-30%.

Activities Commonly Outsourced in Finance Departments

While outsourcing the entire finance function is rare, certain discrete activities lend themselves well to outsourcing:

Accounts payable and receivable. Processing invoices, preparing customer bills, collecting payments, and reconciling accounts are highly repetitive and rules-based tasks that service providers can take on more efficiently.

Payroll processing. Payroll involves complex country-specific compliance requirements that providers specialize in. Employees also benefit from self-service access and seamless integration with HR systems.

Expense management. Expense report processing, compliance checks, reimbursements, and spend analytics are commonly outsourced functions. Modern solutions also include mobile apps for easy expense capture.

General accounting. Basic journal entries, account reconciliations, fixed asset accounting and financial statement preparation can become rote tasks that are good candidates for outsourcing.

Tax filing and compliance. Staying current with changing tax codes across jurisdictions is a complex challenge that lends itself well to outsourcing to dedicated tax experts.

Management reporting and analysis. While strategic analytics may be retained in-house, outsourcers can effectively handle more routine analysis, scorecarding and performance reporting.

Outsourcing Models in Finance

Finance outsourcing engagements can take many different forms:

Individual Process Outsourcing

This involves handing over selected finance processes, such as accounts payable or tax compliance, to an external provider. It offers a modular approach to outsourcing specific pain points.

Total Finance and Accounting Outsourcing

Some companies choose to outsource their entire finance function, including AP, AR, general accounting, payroll, reporting and analysis. This model requires the most coordination between client and provider teams.

Offshoring Captive Centers

Captive centers involve setting up dedicated offshore subsidiaries to conduct finance processes. This affords more control over outsourced operations while benefiting from lower offshore labor costs.

Co-Sourcing Partnerships

In co-sourced arrangements, external teams work alongside internal finance staff in a collaborative operating model. This helps supplement in-house capabilities with outsourced talent.

Finance Transformation Projects

Companies sometimes engage outsourcing partners, such as Artjoker.net, for finance optimization projects with clear goals around cost, quality and business partnering; once objectives are met, the outsourcer transitions the improved function back.

Selecting the appropriate outsourcing model is an important element of finance outsourcing strategy, which is shaped by factors such as required cost savings, control preferences, integration complexity, internal bandwidth and transformation roadmaps.

Key Risks in Finance Outsourcing

Finance outsourcing has many advantages, but it’s important to weigh the dangers as well. By being aware of these dangers, you may reduce any difficulties and guarantee a fruitful outsourcing collaboration. Let’s examine a few of the major dangers connected to financial outsourcing.

Maintaining Autonomy while Outsourcing Finance

Another risk that is related to outsourcing finance is the management of reaction time. Outsourcing of financial functions may lead to some hitches in the coordination and communication processes that may impact on the decision-making processes. One can minimize the response time by setting specific schedules and communication protocols.

One possible way to manage this risk could be to arrange more often the check-ups or meetings with the outsourced team. This allows for discussions and briefing in real time, thus ensuring that any issues or issues are addressed immediately. There may also be a sound system of project management that is used to track the work done, identify areas of congestion, and facilitate communication.

Controlling Reaction Time for Financial Outsourcing

Managing reaction time is another risk associated with outsourcing finance. Delays in coordination and communication might arise from outsourcing financial duties, which may affect important decision-making procedures. Establishing clear timetables and communication standards can reduce response times and ensure effective operations.

A potential solution to mitigate this risk may be to schedule frequent check-ins or meetings with the outsourced crew. This enables conversations and updates in real time, guaranteeing that any problems or concerns are dealt with right away. A strong project management system may also be put in place to monitor work progress, spot bottlenecks, and enable prompt communication.

A Guide to US Laws Regarding Financial Outsourcing

When outsourcing financial activities, US-based businesses may need to navigate local rules and regulations carefully. Choosing an outsourced provider with a strong grasp of US financial laws and compliance with applicable regulations is essential. This safeguards your business’s interests and guarantees legal compliance.

Assess prospective outsourcing partners based on their history of abiding by US rules and regulations. Seek accreditations or certificates attesting to their dedication to compliance. It is also important to seek the advice of legal professionals who specialize in financial outsourcing to ensure that all contractual agreements and data protection measures are compliant with existing regulations.

Best Practices for Finance Outsourcing

Finance outsourcing engagements can only be successful through meticulous planning and disciplined execution:

Start with Pilots

Before committing to a full-scale outsourcing arrangement, consider running pilot projects focused on specific finance processes or business units. Pilots reveal capability gaps, cultural mismatches and integration issues early.

Focus on Communication

Proactively overcommunicate with all stakeholder groups during the outsourcing transition. Create governance forums focused on issue resolution through transparent discussions between client teams and outsourcing partners.

Invest in Retained Organization

While some roles move out, they double down on developing the retained finance organization, clearly defining their focus areas, and providing upskilling opportunities to perform more strategic activities.

Clean Up Processes

Before outsourcing finance processes, invest time in standardizing policies, procedures and data structures. This reduces complexity for vendor teams and simplifies transition.

Define Clear Metrics and Governance

Establish quantifiable metrics aligned to business goals to track outsourcer performance. Construct governance mechanisms centered on continuous performance improvement through a metrics-based dialogue.

Plan the Exit

Even harmonious partnerships could unravel, so contractually plan for the future exit by specifying transition obligations for the vendor. This makes replacing partners less complex if the need arises.

Bottom Line

As the finance outsourcing industry gears up for the next wave of innovation, clients stand to benefit tremendously from simplified, leaner and more insightful finance capabilities accessible at a fraction of traditional costs. With careful change management and governance, outsourcing promises to be a win-win for progressive finance functions seeking to reshape themselves for the future.