2011 can be marked as the beginning of the New Year for finance and accounting outsourcing. Global economy is slowly and steadily recovering from one of the worst recessions experienced in the last 50 years. Organizations are looking at ways to reduce the costs and be competitive in the market in the coming years. To recover from the situation companies are increasingly looking at finance and accounting outsourcing.
Facts and Figures
- Research carried out by an independent research organization showed strong growth in business process outsourcing (BPO). It found BPO service sales in the first three months of 2011 were 65% higher than those in the same period a year ago.
- The opportunity of finance and accounting outsourcing equals approximately US $150 to $200 billion.
- In 2010, the industries that mainly turned to finance and accounting outsourcing were manufacturing, retail, financial services, travel and logistics. These segments accounted for roughly 70 to 75% percent of the total spending last year. The industries seeing attraction in 2011 include real estate/property management firms, medical, banking and IT Firms.
- Outsourced Accounting processes commonly requested in 2010 were payroll, accounts receivable and accounts payable outsourcing processes. Emerging process trends in finance and accounting outsourcing are financial planning and analysis.
Demand for Outsourcing Accounting is still considerable-
There are still many untapped finance and accounting outsourcing opportunity areas, a recent study estimates that there are fewer than 800 live engagements and only one-in-six enterprises outsourcing transactional accounting activities to a third party service provider.
Recovering economy rekindles outsourcing motives-
The F&A BPO market was at its peak between 2004 to 2008; interest cooled during the recession as enterprises focused on shorter-term survival measures and put change initiatives, such as BPO, on the backburner. However, with recovery under way, many businesses are refocusing attention on global outsourcing opportunities as a means to reduce operating cost. Studies estimates that, more enterprises are now intending to move into an F&A BPO model over the next year, with strong motivation coming from mid-market organizations.
More evolved Finance and Accounting deals-
A key trend seen today is that a number of clients who have already entered the finance and accounting outsourcing space are now moving beyond traditional outsourcing areas and practices. Their previous experience has been an invaluable learning ground. They are more aware of what to do, and more importantly, what not to do. As a result, they are focusing on setting up a far more evolved outsource environment.
Contract renewals and expansion-
Another major study highlights the significance of FAO. The growth in 2010 was not purely a function of new contracts. Nearly 55% of the Annual Contract Value growth in 2010 was contributed by contract renewals and expansion.
Trends in finance and accounting outsourcing are changing considerably as both outsourcing service providers and clients are moving towards higher expectations and demands for outsourced services. These changing trends will certainly offer new opportunities for professional finance and accounting outsourcing service providers in 2011. It seems very likely that these trends will ultimately result in an increasingly competitive, mature and sophisticated outsourcing market.
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Finance and accounting outsourcing is one of the branches of outsourcing that has gained traction over the past few years as companies coming from different business sizes have seen the benefits that they can gain from engaging with a finance and accounting outsourcing company. Among the services that outsourcing companies offer are payroll outsourcing and accounts receivables and payables outsourcing. It is this particular department of a company that can be considered as one of those departments that require a high level of patience and a keen attention to detail. The volume being handled in the finance and accounting department of a business is usually heavy, which allows finance and accounting outsourcing companies to pitch in their services to companies as they can easily reduce the burden at a cost that is not heavy on the budget.
The Wall Street Journal reports that there has been a rising demand for outsourcing services. However, despite the efficiency and benefits displayed by outsourcing, there are still those company executives and companies that are quite uncomfortable with the idea; thus, they would rather host their finance and accounting processes in-house. A research report by Ovum shows that a barrier that prevents big companies to outsource their finance accounting processes would be their loyalty to their staff. Peter Ryan, a lead analyst from Ovum, suggests that a combination of a company’s sense of responsibility for their staff and their skill level could be one obstacle that hinders companies from outsourcing their finance and accounting duties.
Another reason that is being pointed out by the research conducted by Ovum would be the high risks that they attribute to outsourcing is the industry’s low-cost pitch. 38.5% of chief financial officers in the United States and in the United Kingdom are having second thoughts with engaging in outsourcing with a service provider, particularly Indian service providers, who offer finance and accounting services for a low cost because they consider this as an “unacceptable” risk and they would be more comfortable in tapping the services of those who offer services at a higher price.
But despite company executives holding back on outsourcing their finance and accounting outsourcing, there are still some companies like Accenture (NYSE:ACN) and Wipro Limited (NYSE:WIT) that are being tapped for this kind of service and they are showing that their businesses are growing mainly because they have already established a name in the industry.
Other outsourcing companies meanwhile are becoming interested to explore the finance and accounting area of outsourcing. As the month of May began, business process outsourcing company, EXLService Holdings (NASDAQ:EXLS), acquired a service provider of finance and accounting services. US-based Outsource Partners International’s 3,700 professionals and 80 clients would add to the 13,000-population of EXLService Holdings. According to the President and CEO of EXLService Holdings, Rohit Kapoor, this particular acquisition will enable their company to be more known in different verticals, as well as strengthen their company presence in three continents in the globe, namely the United States, Europe and Asia.
Organizations are looking for effective finance and accounting trends, ways to reduce the operational costs and gain a competitive edge in the market today by outsourcing their processes.
2014 is expecting a growth of 56% in BPO service sales in the first three months of the financial year.
As per the research carried out by a self-regulating research firm, strong development is estimated in business process outsourcing. The global market shows an approximate opportunity rate of US $150 to $200 billion in the field of finance and accounting.
Back in 2010, the industries that largely shifted to finance and accounting outsourcing were retail, manufacturing, travel, financial services and logistics. These sectors accounted for roughly 70 to 75 percent of the total spending. Other industries exploring the scope since then include real estate/ property buying & selling firms, medical, banking and IT firms.
The finance & accounting solutions also takes into account payroll, accounts receivable and accounts payable outsourcing processes. Evolving development trends in this sector are financial planning and business analysis.
Reducing cost and enhancing business productivity has always been the focus of organizations operating in this field. Today, looking beyond mere cost reduction the emphasis is shifting on to create new revenue streams. Potential BPOs must make noteworthy advancements of performance metrics while dealing with large accounts of inefficiencies. Subsequently, this moderates financial risks and ensures compliance with the developing regulatory norms.
The outsourcing organisations who are up to elevate the finance function and meet client challenges, propose the best ever finance & accounting solutions to the industry. In the virtue of accelerating financial growth without putting an organisation into much of a risk, BPOs plan to give a sustainable development while enduring to capitalize on manpower and innovation.
Obtaining a better insight on business performance and maintenance, the shared service providers can lend a great support for preparing revenue growth plans. These outsourcing firms operate as a comprehensive partner supporting, managing and executing finance related functions covering the following:
Financial service providers drive a robust implementation of process enhancement mechanism that manages the monetary and regulatory risks, contributes in business growth while maintain the cost.
Such refined economic methodology not only helps businesses improve efficiency but, also drives value through upgraded key performance indicators such as profit recovery, DSO, etc.
Adding on to the business value, the service providers work towards bringing process improvement to an organisation leading to profits that are greater than their yearly convention value. Organisations benefit as enhancement in the map of accounts leading to decline in the month-end closing cycle by 10%. Firms gain up to 30% more business efficiency during their work tenure of outsourcing processes.
Do you know what finance and accounting outsourcing stands for? As the years have gone by, the developed countries have started outsourcing there business to cut down on their operational cost. These jobs are mainly outsourced to low cost regions in order to get the job done at a much lower cost. So in many of the cases what happens for these companies in the west is that they are relieved from the task of hiring as well as they get their jobs done on time by making contracts with the client to whom they are sending the job.
In the initial stages, it used to be that the companies in the west used to send mainly those jobs which involved selling of their products by calling the customers and also jobs that involved customer service. But now they are sending expert jobs like accounting and finance related jobs to the low cost zones to attain more cost effectiveness. Most of these jobs are sent to the places that have excellent human resources and also a sound knowledge about the job that they are sending. The first choice for most of these foreign countries is India which has both of them.
The low cost countries are also very much interested in doing these jobs as they get paid in foreign currency which adds more value to their assets because of the exchange rates being much higher. In this respect as far as finance and accounting outsourcing is concerned the primary thing that one needs to keep in mind is proper knowledge about how the entire process should be carried on. In most of the cases this is taught by the company which is outsourcing the job.
The work is mainly based on the trust of the people as they have to protect the data of the foreign company in utmost secrecy. Any leakage of data can lead to fatal consequences for both the companies. In most of the cases the company outsources part of the job and do the main part on their own. This is called partial outsourcing with a contract for the job. In other cases the whole job of the parent company is outsourced and that is conducted through processing centre in the low cost zones. This processing centre is run by the foreign company itself and it is called captive outsourcing.
These days the term BPO is extensively used for outsourcing business. This stands for business process outsourcing. But in case of finance and accounting outsourcing related process the perfect term will be KPO which stands for knowledge process outsourcing. It is basically the procedure of the foreign company allied with the knowledge of the low cost zone workers that one achieves work objectives.
This is not the typical outsourcing job but it involves brainstorming of both the parties in order to attain work objectives in this case. In most of the cases multinational companies that has its operations in multiple countries has outsourced these kinds of jobs to the low cost zones to get maximum return on their capital invested.