Key Developments in Finance and Accounting Outsourcing
Initially, outsourcing was focused on reducing cost through wage arbitrage by using cheaper labor abroad. This approach made the relationship with the BPO service provider adversarial from the outset and often led to disputes and even litigation. In addition, the scale of the change programme and the level of project management resources required were often underestimated.
Finance and accounting outsourcing (FAO) has undergone major transformation over the last ten years. The need to ensure business systems were Sarbanes-Oxley compliant encouraged many US corporations to outsource. BPO service providers gained expertise and credibility in meeting this need.
The market for FAO has matured in terms of the type of work undertaken from routine, transactional work to delivering customised, complex and higher-value services (such as forecasting and planning and treasury).
Some companies are consolidating their outsourcing work, citing reduction in complexity, streamlining operations and increased efficiency as benefits, while others are still taking a multi-sourcing route based on particular provider expertise. A further development is the growing convergence between the procurement and FAO markets.
Globalization opened up new opportunities for companies to outsource finance activities to service providers worldwide. Companies that choose to outsource one or more finance or business processes continue to benefit from global disparity in wages as they access new talent and expertise, such as in systems implementation and process improvement, to create further competitive advantages.
According to the Chartered Institute of Management Accountants (CIMA), outsourced service providers have more expertise in negotiating deals than their clients, so they should engage expert consultants at this stage to help starting with identifying the right provider and getting the right contract. Also, measuring the performance in outsourcing contracts and determining the appropriate reward systems and pricing of outsourcing contracts, paying attention to more risk and reward sharing agreements, should be considered in outsourcing services.
Recently, companies who intend to outsource accounting services favor collaborative partnership where benefits of business process improvements or new systems implementation are shared between the company and the provider which appears to be yielding more satisfactory results and experiences.