Benefits of Financial Services Outsourcing – Detailed Guide
When the company needs to focus more on its growth, repetitive tasks are outsourced. One such task area is Finance and Accounting. Financial outsourcing ensures time-saving with expert advice and top-quality financial reports at less expense. Let us understand below the benefits of financial services outsourcing.
Financial Outsourcing – A Quick Recap
All businesses especially small businesses and start-ups would not always have the manpower and resources required to keep note of their financial transactions and accountings. In such cases, these financial and accounting jobs, be it a part of the whole project or the entirety of upkeeping of finances, will be outsourced. This means that the responsibility for the tasks related to finance and accounting is given to a third-party company that specializes in this field. This is called financial outsourcing. These companies will make note of all the financial transactions, changes or updates in tax and other related laws, make timely financial reports and statements, etc.
What should you know about your outsourcing company before giving them the job? Let’s discuss this briefly.
Things to Keep in Mind Before Financial Outsourcing
How can you know whether the company you chose will be a good match for fulfilling your financial and accounting requirements? You can always read the reviews, keeping in mind that the quality of performance and reporting efficiency should be the first priority.
But There Are Other Factors Like:
- Payment plans – Every financial outsourced vendor firm will have its own packages with payments and a list of financial services mentioned. It could also be a weekly, monthly, or every 2 months charge. Study the plans carefully and choose the one that will fit within your budget and has all the necessary services available.
- Be precise about the services you require – Do you require monthly reports, and financial statements at the end of the year, file tax claims, prepare balance sheets, or just keep note of the financial transactions? Do you also require them to take care of your account payables and account receivables? Do you need them to enter data into accounting software, make financial predictions and do forecasting, or prepare bank reconciliations? No matter what service you require, be precise about what you want them to do and complete, by what time you’re expecting a report back, and what they can expect from you.
- Ensure data security – For outsourcing financial and accounting services, the most important thing to keep in mind is data security. As you are passing highly confidential data to the vendor, information like cash flow details. This information should be handled with utmost safety. A well-established and well-known firm will ensure that their client’s data is handled with the sensitivity it requires and given privacy. They will also ensure that any transactions or investments made are also secure.
- Presence of highly skilled professionals – Be sure to confirm whether the company you chose has hired good quality experienced professionals with the right qualifications. You can read reviews online, ask previous customers about their experience with the vendor, and see how well the vendor company is doing in the market, their reputation, financial health, and ability to deliver the best quality consistently timed financial reports.
- Flexible service agreement – The outsourced vendor company should be flexible in matching your job requirements and time period set. Study the contract thoroughly for all the terms and conditions given before you sign the document. If you’re not satisfied with the conditions, this is the point where you can rework the agreement or look for a new vendor.
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Let us learn the Services Included in Financial Outsourcing Before Understanding the Benefits Of Financial Services Outsourcing. What is included in the financial outsourcing services? Let’s discuss this.
One of the most common services offered is to be keeping track, maintain, and recording all of the financial processes, that is, transactions and expenses, and accounts. Bookkeeping should be thorough and error-free in the finance and accounting field.
Some of the Main Functions of This Are:
- Record of number of receipts
- Record of invoices from the suppliers
- Record of bills for the services offered to different companies, clients, or customers.
- Overseeing the payment-related accounts information for the employees
- Recording all payment details to the supplier.
Account Processing During Year-end:
The end of the financial year means preparing for tax filing and accounting compliances. These should be done in accordance with the Income Tax Act (1961) and based on the Institute of Chartered Accountants of India (ICAI). Some of the functions involved in this are:
- Verification and tallying of the ledger balances
- Ensuring the data is in accordance with the Income Tax Act (1961) and the Companies Act of 2013.
- Preparing profit and loss reports for the end of the year
- Preparing the annual financial report
- Preparing management accounts for the company
- Preparing the financial statements
Account management is conducted by chartered accountants or other finance professionals. The services provided can include:
- Providing bi-yearly and full-year account management
- Figuring out the risks present and eliminating all chances of risks
- Preparing and providing reports on all operations of accounts.
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Audit and Audit Reporting:
Audits are conducted on a regular basis to minimize the chances of fraud or malpractice. It is compulsory for all organizations to conduct and submit the audit report within a time period as per the rules of ICAI. The services provided within this can include:
- Preparing and submitting the formal report to ensure the company is following the proper compliance as per law.
- Risk assessment
- Reviewing the profit and loss reports
- Reviewing the balance sheets
Ind AS Advisory:
This is the Indian Accounting Standards prepared by the International Finance Reporting Standards (IFRS). These standards are meant to be implemented with total effectiveness and all companies are required to adhere to them. Some of the functions included in this are:
- Analyze the difference between Generally Accepted Accounting Principles (GAAP) and the Ind AS.
- Implementing Ind AS standards
- Advisory services for implementing Ind AS
- Consolidating financial statements according to the Ind AS requirements
IFRS Advisory Services:
This provides advice on Global Accounting and Finance Complaisance. Some of the functions included in this service are:
- Providing advice on IFRS principles
- Providing advice on IFRS application
- Advice on the difference between IFRS, Ind AS, and GAAP
- Providing advice on the applicability of IFRS principles in various countries
Similar to bookkeeping, the ledger takes note of debit and credit from an account and manages them. Some of the functions included in this service are:
- Managing customer payments
- Managing receivables
- Managing the supply sector of the company
- Managing various types of cash flow cycles
Making Preparations for Annual Taxes and Accounts:
This commonly deals with filing tax returns. Some of the functions provided are:
- Filing individual tax returns
- Filing corporate tax returns
- Filing property tax returns
- Filing capital gains tax returns
- Filing partnership tax returns
Calculating the amount of money required of managing all operations and functions of a company is known as budget preparation. Some of the common functions included in this are:
- Estimating the budget
- Managing the budget
- Implementing the budget
So, why do people depend on financial outsourcing? Let’s see its benefits.
Benefits Of Financial Services Outsourcing
Following are the most important Benefits Of Financial Services Outsourcing
1. It Reduces Overhead Expenses
The most important benefits of financial services Outsourcing that even though it may seem like an additional cost for the business, but it is actually a cost-saving service. Outsourcing helps to reduce a lot of employee expenses such as salaries, taxes, employee and sometimes family insurance, employee benefits, pension contributions, additional infrastructure costs, IT and software equipment and license, statutory leaves, etc. Outsourcing works also removes the need to have an in-built team for every task, which in turn reduces the otherwise hefty recruitment expenses. This also means that you will be able to tap into the knowledge and advice of a group of experts without having to pay an additional individual salary, and also have a better financial report. Let’s say a company doesn’t have a Chief Financial Officer (CFO), and only has a number of accountants, the financial reporting setup of the company could be pretty mediocre. The data that drives better decision-making is dependent vastly on the financial reports and statements. If this report is sub-par due to the unavailability of someone qualified enough to oversee the process, it can adversely affect the company’s income and growth. If the same task is outsourced, this drawback can be eliminated as the outsourced firms will have people on the same level as CFO working on your project for much less expense from your side.
2. It Brings More Expert Advice
Outsourcing financial and accounting tasks can bring in more experts working on your project rather than having an internal team which proves to be one of the very important benefits of financial services Outsourcing. As these outsourced financial and bookkeeping service firms need to stay on top of the competitive market, they are continuously learning and improving their own skills, which will be more helpful for the client companies relying on these firms. Most outsourcing organizations allot a team of accountants, bookkeepers, and controllers who will help with your financial and accounting needs. They will even provide a CFO or CFO-level employee to oversee the process and supervise accordingly. These employees will focus on the growth of the company and the strategies required to meet that requirement. They will work accordingly as per the client’s needs, and the financial goals set by them.
3. Reducing Employee Turnover and Time-off Problems
Employee turnover is when a number of your employees leave the organization. Now, there are two types of turnover. When the employees leaving your company are mostly low-performing employees, then it is known as functional turnover and this actually helps your company improve its productivity and often saves the employers from having to make tough decisions which leads to the benefits of financial services Outsourcing. On the other hand, if the people leaving your company are top performers and highly skilled professionals, it can affect the company’s performance negatively. Replacing such high-level individuals are also difficult. This turnover is called dysfunctional turnover. In this case, the company is left in a tough position if the newly recruited person is not on the level of the one who left. Training them can also use up precious time and if that doesn’t work out, you need to start recruiting again and again. In such cases, outsourcing those financial and accounting tasks will allow you to focus more on working on projects to generate more income and revenue.
4. It is Extremely Time-saving
Perhaps one of the most expensive commodities in the business field – time. Whether your company has been a thriving one or a newly formed start-up, time is precious when you’re running a company. You will need timely financial reports and financial statements to keep track of your finances as well as make decisions based on this data to keep up with the competitive market. Most business owners would like to focus more on their marketing, operations, and sales of the company services and products, and outsourcing financial and accounting tasks frees up more of their time to focus on the more important areas. The outsourced company will also have a team of professionals to help you with this so rest assured, this is actually a very good idea. These professionals work towards the growth of your company, providing timely pieces of advice and financial reports.
5. It increases Flexibility
Outsourcing your financial and accounting needs ensures more flexibility within your company. As a business/ company owner, most of your and your employee’s time should be focused on company growth and expansion. Even if multitasking is an admirable quality, if too much work is handed to a few employees, then it can cause human errors which will again only lead to a loss for the company. They will have less flexibility to take up projects for company growth. In such cases, outsourcing your financial tasks will give the employees more flexibility and room for completing necessary tasks and taking on new things which gains the benefits of financial services Outsourcing. You can have your outsourced financial vendor have more people working on your project who are not bound by time and cost limitations. The vendor can deliver all the required documents and reports on time.
6. It Brings in the Option of Better Scalability
Now this is again one of the most important benefits of financial services Outsourcing. Being able to scale up and down as needed is a huge benefit of outsourcing your financial tasks. With the recent COVID pandemic and even the recession before that, we’ve seen people losing their jobs, which means now companies will have fewer people to run and maintain their businesses. In such situations, companies often outsource their requirements to scale up to be able to handle more relevant jobs that can be completed even with fewer number of employees present. On the other hand, if the company is going through a rough situation, you can scale down if necessary without worrying about capacity and employees. Outsourcing allows you to scale up and down as per the situation quickly.
7. It Includes the Latest Software and Technology
As the outsourced firms are also keeping up with the latest software and technologies that can make the financial reports and predictions more accurate, they would be better quality reports and become more reliable. For start-ups and small companies, it may not be possible to have all the software and tools required to analyze and predict financial data, and outsourcing these tasks will not only save time and money but also gives you access to all great tools and technology. While big companies may have all these technologies, small companies will benefit greatly from outsourcing. You can get top-tier information that can help to boost your business. One such example of software would be the ones used for automating processes. Accounting automation software is used by companies for a number of reasons – it saves time, reduces chances of human error that may be caused due to the repetitive mundane nature of the task, helps you get real-time reports, recognize potential errors, and resolves them early on in the process, etc. It also reduces the chance of unwanted data modifications and internal manipulation or fraud.
8. It Increases Financial Transparency
It is important that the final financial report that you prepare and submit before the shareholders, investors, or government officials, be trustworthy and reliable. This allows you to get a clear picture of your financial health and capabilities along with the cash flows and helps you make reliable decisions on investing, selling, or expanding businesses. The increased transparency in data is also one of the benefits of financial services outsourcing which also improves the accuracy rate of the business predictions made, and also keep track of the account profitability. It can also evaluate customer acquisition costs. Overall, it allows you to come up with better strategies for future use for the growth of the company.
Frequently Asked Questions- FAQs on Benefits of Financial Services Outsourcing
Q1. Do companies really benefit from outsourcing rather than having an internal team?
Although this can vastly depend on the type of company, whether a well-established one or a new one, most commonly it is reliable to outsource your financial tasks. This saves so much time, energy, and money that can be focused elsewhere relevant.
Q2. How to verify your outsourced vendor firm for their rate of accuracy in the financial data given back?
You can always check the online reviews or check with customers who have already worked with the same team you have in mind. Also, remember to make sure you and the vendor are both on the same page and agree to the service level agreement (SLA) and key performance indicators (KPI) set by the client before starting the work and also adhere to it.
Q3. Is it more costly to outsource financial jobs or hire an internal team?
It is more cost-saving when managed in the right way. An outsourced full-time equivalent (FTE) can cost up to 40-50% less than the cost of a regular onsite employee. You can also save money that goes to the employee’s salary, benefits, insurance, etc.
Conclusion on the Benefits of Financial Services Outsourcing
Here we’ve discussed the major benefits of outsourcing your financial and accounting tasks. It is time-saving, cost-saving, more efficient, and flexible all the while bringing in more reliable advice and transparent data. Accounting is an essential part of business no matter how complex. Good outsourced firms are able to avoid any errors and can make the business gain a lot of income and revenue.