What is outsourcing, and how the accounting and finance sectors are benefiting from it
By: Mel Thakar
Tags: Bookkeeping, Accounting, Financial, Taxation, Outsourcing

What is outsourcing?

Simply put, outsourcing is the process wherein an organization allots one of its services or functional aspects to a third-party. In the context of accounting and finance, outsourcing might entail farming out a specific lot of work, or an entire function like bookkeeping, preparation of tax, payroll and audit work papers, and much more. Usually, companies tend to outsource aspects of their work which are essentially ancillary. That way, they’re able to allocate their focus on core tasks.



Companies can outsource IT services onshore, nearshore, or offshore. Traditionally, nearshore and offshore outsourcing have been preferred as by token of foreign exchange ratios, companies tend to save costs.

The benefits of outsourcing vary depending on the situation, but they typically include one or more of the following:

Improved productivity

Increased focus on strategy/core competencies

Variable capacity

Having access to certain abilities or resources

Improved adaptability to shifting business and commercial circumstances

Shorter time to market

Shorter time to market Lower continuing internal infrastructure investment

Access to intellectual property, innovation, and thought leadership

The possibility of a financial infusion as a result of the asset transfer to the new supplier

Cost savings (due to economies of scale or lower labor rates)

Some of the risks associated with outsourcing are as follows:

A longer turn-around time

A lack of business or subject expertise

Language and cultural hurdles

Variations in time zones

A lack of control

Outsourcing services



BPO stands for business process outsourcing and refers to the outsourcing of a specific business process operation, such as payroll. Back-office BPO, which comprises internal corporate tasks like accounts finalisation or purchasing, and front-office BPO, which includes customer-related services like marketing or tech support, are sometimes separated into two groups.



While most business process outsourcing entails a company’s standardized operations being executed, knowledge process outsourcing (KPO) entails processes requiring advanced research, analytical, technical, and decision-making skills, such as pharmaceutical research and development or patent research.



Accounting outsourcing falls in the category of back-office BPO, and usually the BPO firm in question possesses specialised professionals who have the right attributes to get the job done. Often, the KPO aspect of things, such as when a firm outsources auditing duties, goes hand-in-hand with the aforementioned aspect since they are supplementary to each other.

Outsourced Accounting Functions



Outsourced accounting tasks have traditionally involved outsourcing of tasks such as bookkeeping, account finalisation and taxation, SMSF Compliance, and Payroll services. Owing to the technological advantages that outsourcing companies possess, they tend to have an easy time allocating and delivering their work on time given the connectivity revolution that’s been undergoing in the world of internet.



In today’s cloud-enabled world, however, accounting outsourcing can also include relationships with providers of software such as XERO and Quickbooks, two of the more popular pioneers in the current market sphere. In fact, cloud services account for a large chunk of the accounting market, and given the migration and management of data on these platforms being in vogue, outsourcing companies have quickly played catch up. Outsourced accounting companies now have specialist accountants who have experience working with cloud-based accounting software. All in all, it is pretty much deemed the standard when it comes to day-to-day accounting operations these days and has been embraced globally.



Outsourced accounting pricing models



The type of service provided usually determines the right model for an accounting firm. Most outsourcing contracts have traditionally been billed on a fixed-price basis. However, considering that back-office accounting services have now evolved to the point that they are able to perform more than quarter of the legwork a firm would otherwise have to perform, long-term contracts with the onus of aligned scalability is not unheard of in the context of accounting outsourcing.



Conventional ways in which the pricing model is structured:



Time and materials: As the name implies, the client pays the provider according to the amount of time and paperwork required to perform the job. For tasks like accounting finalisation, the firms usually outsource their processes for the long-term so that they can build up to this particular moment and not have to worry about falling short of compliance when tax season comes around. This strategy might be effective in situations where estimating scope and specifications is challenging or where needs change often, usually on a seasonal basis.

Unit/on-demand pricing: The outsourced accounting company sets a fixed charge for a specific level of service, and the client pays according to how much of that service they use. If you’re outsourcing bookkeeping, for example, the customer may pay a set fee based on whether you avail the service hourly or opt to get a dedicated bookkeeping professional. Hourly pricing can boost productivity right away and makes analyzing and adjusting component costs a breeze. It does, however, necessitate a precise forecast of demand volume as well as a commitment to a particular minimum work volume.



Fixed pricing: The price of the deal is set up front. When the criteria, objectives, and scope are steady and clear, this paradigm can function well. It can be enticing to pay a fixed amount for outsourced accounting services since it makes costs predictable. It can be beneficial, but when market pricing falls over time (as it frequently does), a fixed price remains fixed. Fixed pricing is particularly difficult for the service providers, who must meet service levels at a set price regardless of how many resources such services require.



Variable pricing: At the low end of an outsourced accounting company’s service, the client pays a fixed fee, but this strategy allows for some cost variation dependent on offering higher levels of service.



Outsourcing and Jobs



Oftentimes, outsourcing and offshoring are terms which are used interchangeably. However, offshoring is merely a subset of outsourcing. Public debate has been fairly heated, since it is widely believed that companies are taking advantage of lower labor costs in the country where the partner company is based. This is a rather simplistic view on things though, since outsourcing certain aspects of one’s accounting practice merely entails a move away from the number-crunching to focus on management and business expansion activities, which gives the core team of that particular firm an opportunity to ascend themselves from seemingly manual tasks to assume bigger roles involving leadership.

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