subject: Pros and Cons of Outsourcing Accounting [print this page] Pros and Cons of Outsourcing Accounting Pros and Cons of Outsourcing Accounting
Pros and Cons of Outsourcing Accounting
In today's business environment globalization has become the norm. Businesses in every industry are constantly trying to become better and more efficient. Competing on the global scale has forced businesses to find ways to cut costs while trying to serve their clients better. One method of increasing productivity and reducing costs simultaneously has been to outsource accounting practices such as bookkeeping, payroll, accounts payable and tax returns. However, the thought of losing control or theft of confidential information scares most corporations. Although these concerns are valid, they can be addressed easily and the benefits can outweigh the negative impact.
The biggest concern that most companies have is the security of the data. Most of the data that the companies exchange is done online, thereby, increasing the risk of cyber crime. Giving sensitive information to a third-party opens the company up to more liability. Having this third party on a different continent makes it even harder to control who is handling the information. The theft or improper use of data can have devastating financial consequences for the company. New and improve technology, however, has made it almost impossible for anyone to steal the data or use it in any meaningful manner. Countries, such as India, also have very strong regulatory structures which help to reinforce these security systems.
Another reason that companies hesitate in outsourcing is the cost of converting to a paperless environment. Initial work of scanning everything and training the staff to work in a paperless environment can be tedious and costly. The culture of some businesses may not be as open to converting to a digital setting and the employees may not be as adaptable. Companies have to examine their internal operations to see exactly which tasks would be best suited to be completed by a third-party. "The overall key to success, however, is building a strong trusting relationship with a competent service provider that has deep process knowledge and is flexible enough to work within (the) industry's and company's constraints and guidelines."
Despite the legitimate concerns of the company executives, there are many benefits that make outsourcing a very attractive option. The number one reason outsourcing started was to save time and money. "By sending out tedious and mind-numbing work of inputting data off-shore, companies can use their staff for tasks better suited to their expertise. The impact of hiring workers in other countries to do lower-level work can reduce costs significantly. "Large corporations tend to outsource the operational elements of their finance function while retaining tactical and strategic know-how internally since these are critical to business success."
The need to hire more people for a couple of months during tax time can be eliminated also. "Rather than hiring for a short-term surge, outsourcing to a place like India, lets someone else worry about staffing." This also keeps the staff within the company from getting burned out during tax time, because "it frees the staff from the annual drudge work and long hours of data preparation that come with tax season." The company and its staff can concentrate on their core competency without worrying about the tax returns.
Yet another benefit of outsourcing, especially to India, is the "lengthening of the workday by having tasks accomplished while North America is sleeping" because they are 10 hours ahead of the United States. By the time the staff starts work here, the work they requested the day before will have been completed. Basically, the work is continuously moving head 24 hours of the day, therefore, productivity is continuously growing.
Outsourcing is a difficult choice to make because it requires a commitment of both time and money. There are many concerns that need to be addressed but the benefits can have long-lasting effects and help the company to grow more efficiently. In today's global environment the competition is tough in every industry. Companies need to be able to provide the best service at the lowest cost possible. Outsourcing can provide an edge which will allow the company to stay focused on their core business and work towards their long-term goals.
References:
Paul Brent, "The Third-Party Solution," CA Magazine, May 2009, pp 30.
Financial Executive, March/April 2004, pp.57.
Richard Wheatly, "Evolving Finance Outsourcing is not just for large organizations," Accountancy Ireland, April 2010, vol.42 No.2.
