+91 9580 740 740 WhatsApp

Purpose Of Financial Services Outsourcing – Why Is It Important?

Have you ever wondered about the Purpose of Financial Services Outsourcing? If yes, you will learn about the key concepts related to financial services outsourcing today. Many companies prefer to hire and train candidates for performing tasks related to finance while a few focus on finding the right entity to take care of their finance department. One of the major reasons for the same is the basket of advantages an outsourcing consultancy offers. Let’s start educating you on the importance of outsourcing services.  

Financial Outsourcing Services

Financial Services Outsourcing

Financial Services Outsourcing is the delegation of finance and accounting-related work of an organization to a third party for an agreed sum. It simply means the company does not have a separate team to perform financial tasks which is why it reaches out to a third party like a consultancy to work for it. The entity that agreed to carry out the Purpose of Financial Services Outsourcing usually performs back-office activities like

  • Financial analysis
  • Bookkeeping
  • Management of accounts receivable and accounts payable
  • Risk management

Some Consultancies Take a Step Ahead and Deal With the Below List as Well:

  • Technical support
  • Know Your Customer(KYC)
  • B2B and B2C Customer Support
  • Payment Screening
  • Know Your Business (KYB)
  • Chargebacks/Disputes/Fraud
  • Monitoring of business transactions
  • Counter-Terrorism Financing(CTF) and Anti-money Laundering(AML)
  • Sales

Reasons to Outsource Financial Services

As mentioned previously, there is a gamut of benefits that come from outsourcing financial services. Some of them are shared for your understanding. 

  • Simplify financial processes
  • Usage of latest technology
  • Cost Savings
  • Expertise and Best Talent
  • More Manpower and funds
  • Reliability and timelines
  • Fewer errors

Simplify Financial Processes:

Believe it or not, financial processes are complex in nature. An individual assigned to handle finance operations must have the skills and knowledge required for the industry. For example, a candidate hired for complex processes like managing supply chain management linked to finance cannot fully justify the position if he lacks the required experience and expertise. A third party that is established for serving other companies has the best employees who are well-trained and qualified to efficiently perform the assigned tasks.

Usage of Latest Technology:

The outsourcing firms have updated infrastructure. They use the latest software to complete the finance functions. This means, if you are a company, you will be able to avail of trending applications for completion of your tasks. When a reliable consultancy decides to assist you with your financial operations, you are exposed to its state-of-the-art equipment, infrastructure, software, instruments, and other applications related to the technology installed for financial solutions. It becomes easier for you to access advanced technology like advanced financial modeling, automation, real-time accounting, etc., 

Read,

Better Decision-making:

Most business owners are aware of the fact that financial operations are crucial and need a lot of effort and attention. Handling financial tasks is a time-consuming and tedious task. This means when a company outsources its finance-related operations, it frees its decision-makers and employees from dealing with complex processes and encourages them to make better decisions for the company’s growth. 

Professional Courses from IIM SKILLS

Cost Savings:

Isn’t this reason obvious? The creation and maintenance of an in-house team is an expensive affair. Because as a company you are supposed to incur costs on hiring, training, and supervising the selected candidates. This also sheds light on the expenditure required for maintaining the workspace dedicated to employees in the finance department; eliminates infrastructure and utility costs. Small businesses can benefit from outsourcing as they can save a lot of money on various aspects. 

Expertise and Best Talent:

The consultancies offering financial services have a pool of talent. Highly trained individuals take care of your operations. Their Purpose of Financial Services Outsourcing firms is to help businesses grow by leveling up their financial operations. Another positive part of choosing an established third party is consistency. Their experience in the industry does not let you down. They can handle any kind of challenge with ease. 

More Manpower and Funds:

As discussed earlier, a company can save a lot of money by eliminating overhead costs. This means it can utilize the same funds on other critical activities such as taking up corporate social responsibilities or marketing campaigns. When the employees are less burdened they can work on other cardinal activities and promote the company’s growth and expansion. 

Reliability and Timelines:

The main objective of an outsourcing company is to complete another company’s financial functions. It does not deal with any other tasks. Its whole attention is given to your company. Therefore, they work quickly and efficiently. They complete the tasks within the deadlines and make your lives easier. 

Also, as mentioned previously, you can be sure that your data is safe with them. They will ensure to follow all regulations and guidelines set for compliance. All the accounts and finance-related documents and operations are carried out as per the latest rules and regulations set by the regulatory bodies. They also offer the most fruitful strategic decisions for the overall development of the business. 

Fewer Errors:

We are talking about financial data which is highly sensitive. A single mistake in calculations can derive disastrous outcomes. Only experts from the industry can efficiently handle the data. The employees working in outsourcing firms are experts who have undergone gross training sessions and have knowledge about the latest standards. This means the chances of them making mistakes is nearly negligible or completely absent. These employees consolidate the manual processes and manual systems to produce error-free deliverables. 

List of Commonly Outsourced Financial Services

Here are a few financial services that are dealt with by a third party on behalf of the customer. The list focuses on various elements of service availed by the companies.

  • Payroll Processing
  • Lead Generation
  • Customer Support
  • Back office outsourcing
  • Accounting Services
  • Controller Services
  • CFO Services
  • HR Services

Payroll Processing:

The main aim of a business owner is to optimize operations to generate more profit. Focusing on tasks like payroll can be a distraction. So availing of payroll processing from a reputed firm is considered the best choice by the majority of organizations. 

Lead Generation:

It is not easy for the employees in in-house teams to dedicate additional time to identify leads alongside performing their daily activities. This is why many established businesses reach out to an outsourcing firm for support to identify prospective leads and arrange meetings with the clients. 

Customer Support:

Banking institutions run on trust. If customers do not believe in the financial entity’s ability to handle their money, they are bound to search for another bank. Many banking entities avail of reliable and affordable customer support for the same to keep their business running. 

Back Office Outsourcing:

Sometimes banking firms get occupied with intensive banking activities and neglect data management and CRM which attracts negative consequences. To avoid dealing with unnecessary and complicated results, banks hand over their critical activities like data management and CRM to outsourcing firms. 

Accounting Services:

Tasks that are linked to accounting are very crucial and therefore have to be efficiently performed. Outsourcing these activities will allow the management to save time on reconciliation, data entry alongside minimizing errors. Some of the common accounting services are

  • Accounts receivable and accounts payable
  • Month-end close
  • Reconciliation of general ledgers
  • Transaction coding

Controller Services:

Though a few organizations have an accounting department, they do not have a supervisor to correctly guide the team members. Finding a financial controller lets you avail of the below services

  • Preparation of financial statements
  • Implementation of accounting system integration
  • Training and management of accounting staff

CFO Services:

The translation of financial data into initiatives linked to strategic financial growth is an essential task performed by a CFO. An experienced CFO can offer support and insights that cover

  • Strategic advisory
  • Financial modeling
  • Training and mentoring staff
  • Budgeting and forecasting
  • Risk management

Due Diligence and Audit Readiness:

A few outsourcing entities provide regulatory support M&A. Choosing the right professionals can assist a company to perform due diligence or an audit. 

HR Services:

It is not easy to complete the recruitment process. The HR team must deal with screening, onboarding, training, compliance, and payroll processing. Some consultancies take the lead and complete the tasks of an HR team as well. 

Tips to Find the Right Financial Services Outsourcing Provider:

Given the above advantages of outsourcing financial services, any businessman would choose a third party for outsourcing their operations. However, it is an art to find a suitable service provider. Here are a few tips to help you identify the right outsourcing company. 

  • Identify needs
  • Expertise of the service provider
  • Cultural compatibility
  • Client management
  • Tech infrastructure
  • Reputation
  • Security
  • Trail run

Identify Needs:

Not all businesses have the same needs. Different entities have different needs. It is essential to determine your needs which include security level and amount of data to be shared with the service provider.

Accounting is not the only service available with the outsourcing entity. They also offer a variety of aids like CFO consulting, financial planning, and Controller Services. Do you need any of these? If yes, have a word with the service provider and check the available options. 

Once you obtain clarity, make sure to note down the list of services you need; accounting management, bookkeeping, payroll processing, tax accounting, CFO, financial data analysis, etc., 

Check,

Expertise of the Service Provider:

One way to know their level of expertise is to engage in conversations with them. Let them explain the methodologies used in handling projects, tracking results, and resolving issues. This will give you an idea about their way of operating. Also, try to know if they have a business continuity plan so that they can provide uninterrupted services. 

Cultural Compatibility:

Is the outsourcing entity flexible to align with your business objectives and visions? The answer to this question must be yes because incompatibility can ruin the Purpose of Financial Services Outsourcing. Place a request for regular reporting to ensure financial visibility. This aspect is crucial as the success of a company depends on its culture along with other factors. 

Client Management:

You have to clearly communicate your expectations with the service partner. If you want to be in contact via email, phone, or other means, ensure to check if they are ready to contact you the way you want. If you both are operating in different time zones, make your service provider schedule meetings and carry out operations during the same working hours as yours to eliminate the communication gaps. 

Tech Infrastructure:

Technology is the most crucial element in dealing with financial operations. An outsourcing company must have the required applications and advanced mechanisms to take up any kind of responsibility. 

Reputation:

No matter how much information you gather from them, you can gain trust from client references, testimonials, and reviews. The majority of the firms have online pages to encourage their customers to share reviews. Find reviews from clients who have had similar needs to your company. What’s their opinion on the service provider’s core competencies, quality of work, performance, and coordination with clients? Are they satisfied with the service? Answers to these questions will give you clarity on availing their service. 

Security:

If you are a banking institution, it is understandable if you are skeptical about outsourcing your services. The service providers need your customer’s data like bank details and personal information. The fear is real because there is a possibility for loss or misuse of data. However, you can minimize the risk by following the below checklist. 

  • Find out references, and consultancy’s history to understand their capacity to meet the basic standards for maintaining security. 
  • Learn about the encryption methods used by the outsourcing entity.
  • Pay attention to their way of monitoring data and location. 

Trail Run:

This is one of the best tips to achieve your Purpose of Financial Services Outsourcing. Seek their assistance in dealing with a short project. This step will allow you to understand their performance from experience. Determine their efficiency and performance as per the assigned task, pay attention to their coordination with your in-house team, note down communication gaps if any, and lastly, check if they were able to complement your requirements and needs.  

The trial run can help you decide on choosing the outsourcing company or searching for a new service provider. You will be able to understand its capacity to manage your financial and accounting tasks. The chosen entity must have the ability to understand your company’s financial aspect as well as have sufficient knowledge in the niche. Their advanced software applications and practices must close all the accounting gaps, if any. 

Drawbacks of Outsourcing Financial Services

Though there are benefits of enabling a third party to take control of your financial services. There are a few disadvantages to consider. Here is a list of drawbacks shared for your consideration. 

  • Hidden costs
  • Limited access to information
  • Loss of control
  • No local help:

Hidden Costs:

It is a fact that outsourcing reduces costs. However, there is a possibility to experience hidden costs as per the service chosen. For example, the agreement may have limited services with a monthly fee but you were given additional support for which you need to pay extra money. You can avoid facing this situation by discussing your requirements and expectations with the consultancy during the preparation of the contract. One best piece of advice would be to search for an outsourcing company that promotes transparency from the beginning of the relationship. 

Limited Access to Information: Believe it or not, this problem is real for some business owners. Contacting an in-house team dedicated to accounting services is easy. But it may not be the same case with your service provider. You may not get the freedom to question and review data as they follow a standard approach. This is why ensure to inform the service provider to respond to your concerns and questions beforehand to avoid unnecessary consequences. 

Loss of Control:

This is no brainer; when you hand over your accounting services to an entity, you are not supposed to oversee all transactions. You are expected to trust the third party with your accounting data and wait until the results arrive. It is mandatory for every business owner to carry out an investigation on the consultancy and understand the goals of the accounting specialist before signing the contract. This tip will save time, money, and effort for both parties. 

No Local Help:

When the financial services are handled by an in-house team, you have the right to look into matters with their help. This is helpful when you receive an escalation from clients, you can use the freedom to immediately contact your staff and find out the root cause of the problem to fix it. But when you outsource a service, your outsourcing partner may not respond immediately and this can cause loss of customers. 

Conclusion on Purpose of Financial Services Outsourcing

Outsourcing services has become a common practice in the present world. Financial services are often complex to deal with. Many companies choose third parties to get rid of the headache of managing accounting data and fulfill the Purpose of Financial Services Outsourcing.  There is a variety of finance-related services in an organization based on its nature and industry of operation. 

Some of the common financial functions in a business are financial analysis, bookkeeping, management of accounts receivable and accounts payable, and risk management. These services are generally outsourced by an accounting firm. However, there are some consultancies that come forward to offer aids linked to technical support, Know Your Customer(KYC), B2B and B2C, customer support, payment screening, Know Your Business (KYB), chargebacks/disputes/fraud, monitoring of business transactions, Counter-Terrorism Financing(CTF) and Anti-money Laundering(AML), and Sales.

The main reasons for any organization to outsource its financial services are to simplify financial processes and avail of latest technology, cost savings, expertise and best talent, more manpower and funds, reliability, and timely and efficient financial management. Many companies prefer choosing entities to fulfill their Purpose of Financial Services Outsourcing for the below tasks

  • Payroll Processing
  • Lead Generation
  • Customer Support
  • Back office outsourcing
  • Accounting Services
  • Controller Services
  • CFO Services
  • HR Services

There is no doubt that one would want to avail of outsourcing financial services after reading this content, if you are one such businessman, consider the below points to find a suitable outsourcing partner.

  • Your needs
  • Expertise of the service provider
  • Cultural compatibility
  • Client management
  • Tech infrastructure
  • Reputation
  • Security
  • Trail run

As a matter of fact, there is a higher possibility for an organization to reach out to an entity for the Purpose of Financial Services Outsourcing. However, there are some drawbacks related to the same which are

  • Hidden costs
  • Limited access to information
  • Loss of control
  • No local help

To conclude, you must contact a reliable partner using the above-listed tips if you have understood the Purpose of Financial Services Outsourcing. But make sure to discuss your expectations and requirements beforehand and then get the contract ready to avoid miscommunication and attain the best results. 

FAQs on the Purpose of Financial Services Outsourcing

Q. What is the Purpose of Financial Services Outsourcing?

The main purpose of letting a third party handle the financial operations of a business is to save time on the recruitment process, eliminate overhead costs, avail of latest technology, accounting expertise, and efficient management for the achievement of the financial goals. Many organizations utilize the saved time for creating and executing strategies in the other areas of business for its development in the industry. 

Q. How can I find the best financial services outsourcing firm?

A search hunt for a consultancy for outsourcing financial services may appear challenging but it’s not. All you need to do is identify your company’s needs, the required level of expertise for handling the accounting data, cultural compatibility with the potential service provider, customer testimonials, technology, and security standards of the outsourcing company. Once you gain clarity on these points, you can easily find an outsourcing partner with the help of offline or online references. 

Q. Can the Purpose of Financial Services Outsourcing ever be fulfilled?

Yes, when you have the best resources to manage your accounting and finance operations, you can achieve the results; cost savings, elimination of overhead costs, simplification of complex processes, efficient financial management, and utilization of the latest technology.

 

 

Anuja Maniyala is a intern at IIM SKILLS. She worked as a creative content writer for AADOX and Quoteslyfe in the past. She has identified her passion for writing after working as a banker in some well-known companies like Wipro and HSBC. Her current target is to become an author of a unique and creative self-help book. Her enthusiasm and curiosity to learn about the human mind and behavior makes her different from the rest of the world.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Call Us