Pros & Cons to Outsourced Finance & Accounting Services

Posted on:
March 13, 2024
10
min read
Table of Contents
1
What are the benefits of outsourcing to developing countries?
2
What are the challenges of outsourcing to developing countries?
3
Top 5 Most In-demand Developing Countries for Outsourcing
4
What are some successful examples of companies that have outsourced to developing countries?
5
What are the best practices for outsourcing to developing countries?
Pros & Cons to Outsourced Finance & Accounting Services
KDCI Outsourcing
March 13, 2024

Finding the right talent while being cost-efficient is becoming a huge challenge when it comes to finance & accounting processes. This led to a steady increase in the outsourcing of finance & accounting services.

In 2020, the global market for F&A outsourcing was estimated at $37.9 billion and it's projected to reach $53.4 billion by 2026. With a booming market, staying informed about the latest trends is crucial for businesses outsourcing finance and accounting services. Understanding the benefits and recognizing potential challenges are key to leveraging outsourcing effectively for financial operations.

Finance and Accounting Outsourcing 2024 Trends

In a saturated market like finance and accounting outsourcing, it's important to stay on top of trends in order to remain relevant and competitive. Below are some trends that are expected of the F&A outsourcing industry this 2024.

AI & Automation

A huge selling point of outsourcing is cost savings. In 2024, AI and automation are taking this to the next level. This is part of the shift within the F&A industry towards leveraging technological systems to improve operational efficiency.

Outsourcing companies who can automate basic accounting processes like data entry as well as leverage AI-driven management systems will be at an advantage. Process automation will increase operational efficiency and reduce costs, while AI integration enables more sophisticated, intelligent processing and analysis. Both allow outsourcing companies to provide higher value F&A services.

Cybersecurity

While AI offers significant advantages, it also introduces risks, especially regarding data security. As technology becomes increasingly sophisticated, cyber threats will also become more aggressive.

This is a huge concern in F&A outsourcing which deals with highly confidential data. Malicious actors will be testing cybersecurity measures and finance and accounting outsourcing companies are expected to defend against these cyber threats.

Gartner forecasts a significant increase in investments for data security and risk management, projecting a 14% growth in spending for the year 2024. Outsourcing companies should be able to demonstrate the security of their remote accounting infrastructure, and provide F&A professionals who are cyber-literate.

Environmental Sustainability

With the world facing an environmental crises, all industries, including finance and accounting outsourcing, are expected to go green. This gives outsourcing companies a huge push towards adapting eco-friendly processes.

Just as consumers are more likely to purchase products that are environmentally sustainable, companies are more likely to partner with outsourcing service that demonstrate a commitment to environmental stewardship.

New Pricing Models

Companies are now expecting more from outsourcing agencies. Gone are the days when simple FTE-based models are the norm. In fact, 60% of companies are expected to not renew their outsourcing contracts in 2025 because old pricing models fall short when it comes to digitization and process optimization.

This pushes outsourcing companies that provide F&A services to not only provide alternative pricing models but also go beyond mere service delivery. Companies are looking for outsourcing partners who can help them reduce risks, improve their processes, and provide strategic recommendations that will help them achieve their business goals.

Major Benefits of Outsourced Finance and Accounting Functions

In lieu with the abovementioned F&A outsourcing trends, below will be a breakdown of the key benefits companies are likely to enjoy when they choose to outsource their finance and accounting functions in 2024.

Access to Expertise & Advanced Technology

Outsourcing companies have a large pool of existing resources as well as state of the art technology, which clients can leverage in their pursuit towards digitization and process improvement.

Outsourced talent who combine expertise in artificial intelligence (AI) and finance can help companies revolutionize their finance and accounting processes. Meanwhile, working with a tech-enabled outsourcing partner can save companies from making a hefty investment.

Learn more about how KDCI can help streamline your operations with AI.

Efficiency & Sustainability

Outsourcing finance and accounting services empowers businesses to embrace digital processes, leading to enhanced operational efficiency, reduced production times, and cost savings.

Digitization minimizes the need for paper, contributing positively to environmental sustainability. Furthermore, by leveraging external expertise, companies can access advanced analytics and reporting tools without significant capital investment, optimizing financial decision-making and strategic planning.

This not only streamlines financial operations but also fosters a culture of continuous improvement and innovation, as outsourcing partners introduce new technologies and processes. Hence, outsourcing F&A services not only drives efficiency and cost-effectiveness but also promotes sustainability by reducing the environmental footprint and encouraging the adoption of greener practices.

Enhanced Data Security

Some outsourcing providers invest heavily in state-of-the-art cybersecurity technologies and practices, including encryption, secure access controls, and regular security audits, ensuring that sensitive financial data is protected against unauthorized access, breaches, and other cyber threats.

At the same time, these outsourcing agencies typically have risk management protocols which allow early detection and resolution of potential security threats.

By partnering with these firms, companies can safeguard their confidential information and meet stringent compliance standards and regulations, such as the ISO 27001.

Scalability & Flexibility

Outsourcing processes like finance and accounting provides scalability, allowing businesses to adjust the level of service based on their needs. This is particularly beneficial for growing businesses or those with seasonal fluctuations.

And as more outsourcing companies provide tech integrations and automation as part of their finance and accounting services, businesses can enjoy improved scalability, with seamless adjustments and minimal disruptions.

Potential Drawbacks to Outsourced Finance & Accounting

Like any business strategy, there are risks to outsourcing your F&A processes, mainly caused by having your outsourcing provider offshore, of another culture, and operating on a different time zone.

Data Security Issues

When outsourcing finance and accounting (F&A) services, there will be transfer of sensitive information to third-party providers. Sharing of financial data, employee information, and potentially confidential business insights, presents a risk if the service provider does not have stringent data protection measures.

The challenge is ensuring that your outsourcing partner adheres to robust privacy standards and comply with relevant data protection regulations, to prevent unauthorized access, data breaches, and misuse of information.

Ineffective Communication

Due to physical and organizational distance between the company and the outsourcing company, there many be delays in information exchange, misunderstandings regarding financial reports or strategies, and challenges in aligning the outsourced team with the company's culture and objectives.

Effective communication is crucial for timely and accurate financial management, making its potential compromise a significant concern when outsourcing these critical functions.

Cultural & Language Mismatch

Outsourcing finance and accounting tasks may mean working across cultural and linguistic borders, which can lead to challenges in mutual understanding and interpretation of business practices, expectations, and legal standards. This mismatch can affect the quality of work, adherence to deadlines, and overall effectiveness of the outsourced services.

Ensuring alignment in these areas is crucial for the smooth operation of finance and accounting functions and requires careful selection of outsourcing partners who are adept at navigating these cultural and linguistic differences.

Lack of Control

Outsourcing F&A processes often leads to a perceived loss of control that comes from entrusting external partners with sensitive financial operations and decision-making capabilities. Without direct management, companies may feel they lack the ability to monitor and influence day-to-day activities closely, potentially impacting strategic financial planning and compliance with internal policies and external regulations.

Establishing clear communication channels and setting detailed performance metrics can help mitigate these concerns and ensure outsourced functions align with company objectives.

How to Choose a F&A Outsourcing Provider?

Deciding who to work with may be one of the biggest decisions you make after you decide to outsource. As discussed in the outsourced finance and accounting trends earlier, some outsourcing companies are better positioned to help your organization's finance and accounting department advance in today's competitive market.

Below are the key steps you should take to choosing the right F&A outsourcing partner for you.

Step 1: Identify Your Needs

Clearly define what finance and accounting function/s your business requires. This could range from basic bookkeeping to complex financial analysis or strategic financial planning only. Understanding your specific needs will guide you to a provider capable of meeting those requirements.

Step 2: Evaluate Their Expertise and Experience

Research potential providers to assess their track record, expertise, and experience in your industry. Look for testimonials, case studies, or client reviews to gauge their performance and reliability. Providers should have a solid background and the necessary qualifications to handle your company and financial operations.

Step 3: Assess Their Commitment to Data Security & Compliance

Verify the provider's commitment to data security and compliance with financial regulations. They should have robust security measures in place to protect sensitive information and be up-to-date with the latest compliance standards in your industry. This ensures your financial data is safe and regulatory requirements are met.

Outsource Your Finance and Accounting

Do you need help finding the right finance and accounting partner who can meet your finance and accounting needs?

When you book a no-commitment call with KDCI, we can help you identify your needs, determine whether outsourcing to the Philippines is a good strategy for your business objectives, and customize an outsourcing solution just for you at no cost.

Whether you're looking for hire outsourced accounting and finance staff or you're looking to build a full fledged finance and accounting outsourced team, KDCI can help you.

Contact us today to book a call!

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