New trends in outsourcing of accounting services: more benefits for clients at a lower price.

Accounting and finance are ones of the most vital back-office services. They give the management information about the company and help making proper business decisions.

In the very competitive economy of today their importance becomes bigger and bigger. However using the information from the accounts and controlling the costs of other divisions of the company we cannot forget about the costs of the system itself.

Many people find outsourcing as a remedy against growing costs and inefficiency of almost each business activity. In many cases it is truth. But not always. Surprisingly it may not apply directly to the accounting activity.

Let’s take a closer look on the advantages and disadvantages of the internal accounting department and outsourced accounting.

The internal accounting department gives the management full control on the system, including software, people and their time involvement. It allows relatively easy improvement of the efficiency of information processing by implementation of ERP systems. On the other hand it means that the management must reserve certain office space for the people, hire them, find replacements for the time of sickness and holidays, arrange proper hardware and software etc. As a result the accounting department requires as much attention as any other one, but in opposite to for example production or R&D division, doesn’t generate any money. Additionally some well paid specialists, like chief accountant or finance director, may be not fully used, especially in smaller companies.

The remedy against the high costs of internal accounting department seems to be outsourcing of the services. In general case it is doubtlessly true. The company treating accounting and finance as their main business activity will do everything that is necessary to make it efficient. It refers in particular to some specialized services like finance management, tax advisory, staff and payroll affairs. It is certainly the best solution for the new companies. They may concentrate on business development and leave the rest of affairs in the hands of professionals.

The affairs become more complicated when the company grows. The management requirements are bigger, in particular with respect to the reporting deadlines. It is very natural. When you drive a car slowly, you have got more time to make decisions. When it goes fast, every second or millisecond counts. The same is with the company. In the beginning the management knows almost everything about the company. The time when the report comes from the accounting department is rather not important, because it only confirms what they already know.

With the growth of the company the situation changes. The reports become major source of the information about the company. They must be accessible faster, include more information and be accessible (fully or partly) for more people. The traditional system of collecting documents and sending them for processing to the external office becomes not efficient. It is necessary to process them at the location of the company. It is necessary to process them faster …

It is the moment when usually a decision about major changes is made. On this level the company requires an integrated system allowing processing each document only one time. The issued invoices should be immediately booked, the payments made or received should be immediately booked. The updated information about sales, stock, debtors, creditors should be available every day.

The first investment to be made by the company is the computer software. It is important to analyze the needs and the plans of the company very well as its purchase and implementation is very expensive, both in money and time. The modules of the system will be operated by many people at sales, production or warehouse and the outsourcing of the accounting functions may still be a good idea. While choosing the system it is worth asking for advise the accounting service provider, but it is important to know their recommendation is based on the knowledge of many systems, not only one they know and use.

With the time and farther development the benefits of full outsourcing of the accounting activity become less visible (at least from the financial point of view). The company has already got their own system, the accountants hired exclusively for the them cost the same or more. It is the moment for the next change.

The experience of German tax advisers we cooperate with and ours shows new trends in outsourcing of the accounting services.

The clients being under the pressure of keeping the costs at the low level and needing access to the professional advisers very often decide to change the formula of outsourcing of the accounting services. The new formula is based on the most valuable elements of outsourcing and internal accounting department.

The heart of the system is the computer software of the class depending on the size of he company. Usually the companies being big enough decide to buy one of ERP systems like EXACT, IFS, ORACLE, SAP or any other that meets their needs the best or was chosen by the headquarter in case of multinational companies. The software is operated on daily basis by employees from various departments what allows almost immediate access to the vital data like: sales (total, by product, by region, by client, …), stock, work in progress etc.

The accountants hired directly take care of all the basic functions, like cost accounting, bank and petty cash operations, collection of account receivable etc. They work for the company, but under supervision of the professional adviser. He is available daily to help in solving recent problems, if any, and to review periodically the accounts, prepare financial statements and tax returns. “The adviser” doesn’t need to mean one person. It may be a team of specialists in various disciplines.

What are the benefits of such a solution and why the companies like it ? There are many, but the most important ones are:

• the system is fast and reliable – the number of the documents to be processed manually is limited only to incoming external documents. All internal documents are processed automatically.
• the system is cost efficient – the company pays the basic accounting personnel directly, without any margin for the outsourcing company related the their salaries,
• the accountants are part of the team – it gives them better contact with other employees and integration with the company and its goals.
• the company has got a professional partner or partners in the disciplines it needs. They are paid for their knowledge and advice, not for “physical” work. Cooperation with them is one of the biggest benefits of the outsourcing that is still used by the companies. The consultant working for many clients has got wider view to many problems and their solutions.
• the overall quality of the work may be better. The adviser responsible for the monthly close of the accounts must implement proper accounting and testing procedures to check the work done by other persons. It is a good preparation for the audit of the annual financial statement.

It is not said that the time of classical outsourcing is over. Still for many companies it will be a good solution, especially if the management needs to concentrate on their development.

However many companies constantly search for solutions that allow them to be more efficient. It is likely that the solution described above will become popular in many of them. []

Tomasz Wiklinski is the President of the Management Board of THOMAS sp. z o.o. He is available at tomasz.wiklinski@thomas.pl. He will be glad to receive your opinions and comments.