This week’s guest post is from one of our exhibitors, Staria:
1. Introduction
Technology is developing, and change is rapid. Accounting must respond to changing business needs, and that’s why process development is important. The focus of accounting is shifting towards knowledge-based management, meaning producing and analysing information that supports business decisions. In addition, simply reporting on the past is no longer enough; effective future modelling is crucial. Therefore, the focus of accounting needs to move away from repeating the same ineffective routines.
The challenge for many organisations is that although there are enough resources in accounting, they are misused in poorly planned processes. From month to month, the accounting resources are used for manual and repetitive routine tasks, instead of them doing value adding work that supports decision making, such as customer-specific analyses, investment calculations or forecasts on different scenarios.
The situation might be a result of out-dated systems or that current resources’ expertise is more of financial accounting than business controlling. The fact that employees prefer familiar practices makes it difficult to implement changes internally. Another factor that slows down the development of accounting processes is that resources are often needed in core business and back end processes are left behind.
These are some of the reasons why basic accounting functions are outsourced to a partner who can produce them efficiently and also utilize automation. There is a pressure to modernize financial processes, but at the same time, cost-efficiency is also required. In addition to systems and integrations, routines can be automated through robotic process automation and AI. However, finding a suitable solution for your company requires the help of an experienced partner.
What you’ll learn
In this guide, we describe the various methods to outsource accounting, how an outsourcing project is planned, and how to ensure its success. We will advise you on how to improve the service level of your financial function for business steering needs.
Outsourcing is a way to ensure constant development and to identify cost reductions. Our advice and examples will help you find a suitable way of increasing the efficiency of your financial processes.
Business process outsourcing can be built as an external service solution with or without the personnel transferred to the external partner. In any case, the purpose of outsourcing is to integrate accounting into a single unit that combines a modern and efficient way of managing routines with active development and increased service level.
2. Modern outsourced accounting
Expert partner to support change and development
Cost-effectiveness and ease of administration have always been reasons for outsourcing. When financial services are provided by external partner, a company benefits from their partner’s specialization and achieves efficiency and economies of scale. Also, the company saves time and money in recruiting and taking care of compensatory resources required for absence situations. In addition, often reasons for outsourcing relate to the need for faster or better reporting processes, or ensuring that accounting is scalable when the business expands internationally.
So, what has changed? As stated in the introduction, the digitalisation of society and the accelerating change of requirements in accounting have become evident in recent years. Both business and financial systems are developing and are being updated at a fast pace. In addition, RPA and AI have become central tools for finance process development. In general, it could be said that the accounting of the 2020s requires more and more development ability and agility, in addition to the more traditional attributes such as efficiency and ease of administration.
Therefore, an outsourced accounting partner is not sought just for the sake of cost savings. Companies are specifically looking for a developing and specialised partner who ensures that accounting processes are modern and efficient, both now and in the future. A partner must also be able to respond to possible volume changes, such as customer’s strong growth or internationalisation, or a sudden contraction of business.
Corporate responsibility is significant
In recent years, emphasis has also been placed on responsibility matters. A modern accounting team should be composed of experts, not clerks. Sometimes, however, the allocation of roles in the internal accounting is not optimal, and people may respond to reforms negatively. This slows down development significantly.
While there is a desire and need to provide financial services efficiently, it cannot be made at the expense of personnel or the company’s reputation as an employer. Instead of terminating employee contracts due to outsourcing, the entire financial function can be outsourced by transferring the employment relations to the new service provider – more on that later. This way, a company does not have to choose between competitiveness, efficiency, and its responsibility as an employer.
Efficiency in accounting is achieved by doing things differently, through better work practices supported by modern systems, AI and RPA. Efficiency is not achieved by demanding more work hours or a faster work pace from employees if practices are poor.
Financial service partners have expanded their services
As more and more companies that outsource their financial services wish for a developing partnership, that is also provided more. Many financial service providers have taken the role of administrative process developer, supporting customer’s strategy and its implementation, actively developing accounting technologies as well as tools for optimising subprocesses and knowledge-based management.
In addition to their core service solutions, financial partners are also providing software products, and have expanded their expertise to cover robotics and AI solutions. These technologies can also support customers’ other processes, not just back office operations. For example, robotics and AI may be utilised to accelerate customer service or to improve the quality of the service. In addition, partners support companies’ internationalisation needs by providing common platforms, service solutions and ready-made partnership networks on global scale.
Financial tools have also improved but choosing a proper tool and especially using it effectively may be a challenge without a competent partner. External partners can also provide consultation on process development suggestions to improve customer’s financial operations. This consultation provides an opportunity to compare operations’ efficiency to the best industry practices. Reports provide ready-made improvement suggestions, containing the parner’s technology and service solutions, which can be then tendered.
3. How should you outsource accounting?
The outsourcing of accounting can be approached either as a whole service centre or smaller scope. Which are the typical tasks that should be outsourced and what are the roles that should be kept in-house?
Normally, companies start by outsourcing routine and repetitive tasks such as accounts payable/receivable, monthly closing, and regulatory reporting. Payroll calculation is also a common process to be outsourced. In general, financial accounting processes have many rule-based elements that are similar across different companies. Performing them can be done without a deep insight of business drivers.
Everything does not have to be outsourced at once, but the scope of outsourcing should still have clear process entities and responsibilities. Outsourcing a single work stage may not yield a great deal of benefits or savings. Since the process stages are linked to each other, the process becomes more exhaustive if additional coordination is required. Therefore, outsourcing should always be scoped so that the allocation of responsibilities is clear. However, the scope of outsourcing is flexible and can be changed later, as the customer’s business requirements develop.
Financial service partners also offer business controlling and CFO services, which can be a great fit especially if the need for resources is part-time or momentary. Also, with good BI tools, management accounting routines can be automated efficiently. Instead of producing reports and forecasts, employees get to analyze and support the business in decision-making. BI and forecasting tools must be integrated with financial data, and accounting must produce accurate information so that the analyzes can be trusted. The overall functionality of internal and external accounting is the basis of effective knowledge-based management.
When a company is scaling upwards, external accounting is more flexible because resourcing can be increased step-by-step instead of by adding headcount. Such companies are also typically facing massive recruitment pressure in their other functions. If new administrative personnel is out of scope the recruiters can focus on core business personnel.
Another typical reason for outsourcing is the overall need to redesign and modernise processes. An example of this would be a change in the ERP system, or a situation where the accounting processes has been lagging behind development for one reason or another. With the help of a partner, accounting can be modernised as a whole and the administration support systems such as purchase invoice processing or travel claim calculation systems can also be updated.
A partnership can bring many advantages, but it requires both parties participation. Customer needs to take part in designing processes and managing personnel to follow the new guidelines. Therefore, the CFO should have time for the cooperation or delegate someone else to take care of the partnership. The more a company wants to develop financial projects with a partner, the more important it is for the company to participate in the development and be a stable link between the external partner and its own stakeholders.
Roles and responsibilities – why are Controllers needed?
Not all tasks should be delegated to partners. In general, the tasks that support the business the most decisively, that require a deep understanding of internal processes and that are not repetitive, are more difficult to outsource.
It is worth questioning all data production work that Controllers do because these days it can be effectively automated with BI and forecasting tools. Instead, Controllers are needed for analysing the data and supporting business decisions as well as for planning and ensuring operational models from a finance perspective.
Transfer of undertakings is an easy method to outsource accounting
As previously stated, one outsourcing method is a transfer of undertakings. It refers to the transfer of a company or its operative part to another operator. In the case of outsourcing, it refers to a trade, where a service provider purchases a productive function of accounting, and its related tools and employment relations.
A transfer of undertakings is a responsible outsourcing method because it ensures that the current employment relations remain unchanged. In addition, it is a risk-free transfer method, because the expertise of current processes and tacit knowledge are transferred as they are to the service provider. Routines remain the same, and the development can be implemented in steps.
The idea of a transfer may cause employees to worry. Will work change? Will the relations with the former employer be terminated? For employees, transferring to a new company is an opportunity to grow as a professional and to take inspiration from other financial experts.
So, it is not a decision that causes a bad reputation to anyone. Outsourcing via transfer of undertakings is an opportunity to grow – for both the company and its employees.
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