What Is Finance and Accounting Outsourcing? A Complete Guide for Modern Businesses

Table of Contents:

• Introduction
• Definition
• Benefits
• Risks
• Implementation Steps
• KPIs
• Tooling/Workflows
• Pitfalls

In the modern competitive marketplace, organizations are increasingly using strategic outsourcing to improve their operations. Organizations that want to lower operating costs and increase compliance must understand what finance and accounting outsourcing is. Understanding about the advantages, threats, use cases, and how-to steps to set-up finance / accounting outsourcing is an important aspect of ensuring efficiency (domestically, operations, legally) and data security.  

Definition 

What is finance and accounting outsourcing? 

Finance and accounting outsourcing, (FAO) is the process by outsourcing accounting functions, for example, bookkeeping, payroll, tax filing, financial and other compliance related analysis, oversight, etc., to an external service provider or third-party professional. These experts specialize in the analysis, oversight and legal functions associated with accounting functions, enabling the company or organization to focus energy and resources on their core operations.  The components of FAO are the transaction processing; the accounts receivable/accounts payable functions; reporting; and compliance to global accounting standards. 

Benefits  

• Cost Savings: Outsourcing may decrease fixed expenses, including salaries, benefits, and training. A decrease between 40%-50% is achievable through outsourcing rather than hiring an employee.
• Access to Human Capital: Vendors may employ trained professionals and provide access with any associated tools or recommended compliance protocols.
• Increase in efficiencies through automation of processes, and standardization of workflows, should create time savings that can allow for improved accuracy in reporting.
• Flexibility: The reliability of services can be increased or decreased as needed.
• Increased Compliance: Vendors are built-in with compliance to regulations such as SOC 2, HIPAA, and GDPR standards, and these excellent service capacity helps to reduce your regulatory burden.

Risks

• Quality Risks: There is no consistency in quality among different vendors.
• Risk of Data Security Breach: If the vendor is working with sensitive financial data, take care that the vendor maintains strict protocols to safeguard against unauthorized access and/or a data breach.
• Risk for Misunderstanding: If a vendor is engaged from a different time zone or an unacquainted business or cultural values, there may be a misunderstanding. 
• Risk of Dependency: Companies may rely too heavily on a vendor, and depend on the outside service and may lead to dissatisfaction with mutually agreed-upon contract termination of services.

Implementation Steps

• Assess the current finance processes and problems: 

Delve into your company’s current finance and accounting processes to see whether you can pinpoint where bottlenecks occur, where inefficiencies exist, or where compliance risk lies. The greater your knowledge of these problems, the greater your ability to set the appropriate expectations and priorities for the tasks you’ll be outsourcing. 

• Identify qualified outsourcing partners with industry knowledge: 

You did your homework and vetted your vendors for relevant agency experience, which I would recommend, but, given your service model, in addition to reviewing credentials and checks with other clients for references internally, it is important you know whether you can trust the vendors to have the appropriate sensitivity to your business (along with the local regulatory environment) to provide you with more tailored and customized service. 

• Clearly define scope and service level agreements (SLAs), capturing expectations in writing: 

Be very clear about what services you will be outsourcing (payroll, tax returns, reporting, etc.). In defining SLAs, you should clearly define expectations with regards to capturing timelines for service delivery, along with accountability for performance standards, response timelines, and warranties, and data protection. This will provide you with clarity for boundaries, accountability, and systems for delivery purposes. 

• Develop a detailed transition plan, timelines and delegating roles: 

Have a detailed transition plan created with your vendor that clearly outlines next steps, internal responsibilities, and timelines. Additionally, have rooms for potential training and specifications where needed to mitigate potential hiccups with the transition!

• Consistently assess KPIs, maintain communication, and develop the relationship: 

After the go-live, ensure you are regularly assessing key performance indicators, giving feedback, and staying in contact with your outsourced team. Continuous assessments will keep service levels high, and you will be able to make any necessary changes quickly when problems arise.

KPIs

• Average Handling Time (AHT): 

Measures how quickly the financial services are completed. A lower AHT means better efficiencies and faster turnaround for reporting and reconciliations.

• First Contact Resolution (FCR): 

Tracks how many problems were resolved during the first contact to minimize any follow up issues or delays.

• Customer Satisfaction (CSAT): 

Tracks if your internal stakeholders or clients are satisfied using surveys or feedback meetings.

• Compliance metrics: 

Measures how well your provider is meeting the regulations required (GDPR, SOC2, HIPAA, etc.), to minimize legal and reputational risks.

Tooling/Workflows

• Technology-agnostic integration: FAO vendors enable the integration of popular solutions such as Zendesk, Freshdesk, or Gorgias so you can integrate seamlessly into their technology stack.
• Omnichannel communication: Manage emails, calls, and chat in a consolidated manner to make vendor collaboration a simple task

Pitfalls

• Underestimated ramp-up time and training.
• Cultural resonance and communication style match with the provider.
• The absence of change management can cause staff to resist transition.

FAQs about Finance and Accounting Outsourcing

1. What quality assurance measures should I expect from an outsourcing partner?

Seek out vendors who hold SOC 2 status, have a rigorous surveillance schedule, and possess systems and processes to demonstrate accuracy and reliability.

 2. How long does it typically take to ramp up finance and accounting outsourcing?

Transition timelines can vary according to the assessed scope, generally, they can take anywhere from 4 – 12 weeks, and will include evaluation of vendors, transitioning current materials, and training users.

3. What security protocols are necessary for financial data?

Rely on encryption and/or access controls, and with vendors who maintain services at or and above SOC 2 compliance, GDPR, and/or HIPPA compliance level.

4. How do I ensure the outsourcing tools fit my existing systems?

Partner with vendors who are flexible and support tool agnostic integrating, or API’s.

5. What are the typical costs associated with finance and accounting outsourcing?

Pricing can also vary with the assessed scope, but generally speaking you are looking at costs of outsourcing to be 30-50% less than what you would be spending to maintain an in-house team due to reduction in payroll, and one less facility and infrastructure of maintaining an in-house team.

6. Can outsourcing scale with my business growth?

Absolutely, the vendor can increase or decrease the service on demand and shift resources to best accommodate your needs as they change.

7. What happens if my outsourcing partner fails to meet SLAs?

Your contracts should clearly articulate penalties with options to escalate, adjust or simply change vendors if service agreements are not met.