Outsourcing practices are evolving. For years, A/P, A/R and general accounting have been three functions that businesses commonly outsource. By doing so, they not only drive efficiency but also free up time to manage more profitable and less time consuming activities.
Outsourcing accounting services has many pitfalls. Whether you are a CPA or run a small accounting firm, you should strive to overcome these pitfalls by understanding the challenges behind accounts outsourcing and preparing accordingly.
But there are five reasons why CPAs are unsure about outsourcing:
1) Costs can be higher than expected
The costs related to accounts outsourcing can be very complex to work out especially in the case of multiple processes being outsourced simultaneously.
Solution: Make sure that you set the prices in advance before you formalize a contract. High cost can be controlled through contractual specifications and other managerial arrangements concerned with controlling of cost.
2) Privacy, security & confidentiality
When you get into a contact of outsourcing your accounting services to the concerned provider, you will need to transfer sensitive financial information with them and this may cause risk of compromise of confidentiality.
Solution: Security is a major concern when you are outsourcing your business and the breach of data can lead to loss of business with the outsourcing provider. But the technology in the accounting industry is developing at a rapid pace, and cloud accounting technology has enabled greater data security.
Therefore it is important to get a demonstration of an outsourcing supplier’s workplace and evaluate if they use the best IT infrastructure, encryption and policies to protect your proprietary data and knowledge. Analyze and understand their processes, methodologies and workforce employed to run your accounting processes.
3) Challenges in achieving control from a distance
There are chances that you might lose a control over the work which the outsourcing provider has been doing as there are many barriers to that. You sure would like to be informed about the work activities being done by the service provider.
Solution: SLAs and KPIs with regular reporting should provide you full control over your outsourced financial department. Virtual communication is now a possibility and helps you to contact the service providers whenever you feel like.
By defining an appropriate set of governance frameworks over how a task performed you will not only gain from the expertise of the service provider but also will be able to control risks linked with accounts outsourcing.
4) Differences in culture
Cultural stereotypes play an important role in determining the fate of outsourcing deal. Most of the outsourcing deals are marred mostly because of poor communication. Although most of the service providers use the same language that the client use, they could have a hard time understanding the clients verbal, non-verbal and written communications which is only because of cultural differences.
Solution: It is suggested that you must at least spend a week with your outsourcing partner to get a first-hand experience of their work ethos and culture. This will even help to build a relationship with you and your service provider.
Get involved with them, attend their staff meetings, and interact with the team. This is the best way to experience their work culture. India is the second largest English speaking country in the world after US and it is easy to find a well-educated, articulate workforce to deal with.
5) Poor Output Quality
A danger lies in the cost-saving strategy if the quality of processed output is poor.
Solution: Quality related problems arise when your outsourcing partner does not have proper processes in place. It is not that difficult to find the right outsourcing providers. Always find those outsourcing companies that follow a standard model like ISO.
Find companies that are certified by the latest, revised ISO standards as these adopt a process oriented approach and focus on measuring process performance and effectiveness.
Additionally, look for a company with a proven record; companies which provide reports on a daily, weekly or bi-weekly basis. These reports will help you monitor performances of people who work on your process and take action as work happens.
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