Finance and Accounting Outsourcing is Expanding

The Everest Research Institute reports that the Finance and Accounting Outsourcing (FAO) is an expanding sector in the Business Processing Outsourcing (BPO) market. Approximately 70 percent of the 108 multi-process FAO contracts have been signed since 2001 according to the report. Industry analysts estimate in the current edition of Tekrati that the value of current FAO contracts have reached $12 billion.

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“This is not a market of high-profile deals and game-changing technology. FAO has been and continues to be primarily focused on labor-cost arbitrage, as CFOs seek to move transitional processing out of the organization,” said Michel Janssen, the managing research director at the Everest Research Institute, speaking in Tekrati. “As a result, offshoring has become a key component of the majority of FAO contracts, which has opened the door to a large number of suppliers, especially those that missed windows of opportunity in HR outsourcing.”

Speaking in Tekrati, Janssen continued, “CFOs are doing their fair share of cost-cutting by using outsourcing to drive down the transaction processing costs of the corporate finance function. Unlike other areas of outsourcing, CFOs are not engaging in FAO relationships to gain access to advanced technology. Rather they are leveraging outsourcing’s ability to deliver sufficient cost savings and improvements in the area of compliance – and it is the largest companies with the most complex corporate structures that are leading the way.”

New business models and new technologies will help organizations become more efficient according to CIO Asia. Outsourced providers will handle electronic payments and settlements improving cash flow. As business processes, and data and reporting systems develop, outsourced financial services will be able to provide complete, more standardized and scalable FAO solutions tailored to a client’s needs. Open software standards will allow different clients with different platforms to share the same processes.

According to the vision set out by CIO Asia, technology will also allow CFOs and other business executives to make greater use of business analytics to take advantage of real-time revenue data to determine pin-point profitability and pricing strategies.

Executive talent has also become more commoditized. Companies, like Financial Leadership Group LLC (FLG) in San Francisco outsource CFO expertise.

“Firstly, higher attrition among CFOs, which has been well documented in our region and around the nation, is prompting more companies to secure interim or full-time CFO expertise,” said Jeffery S. Kuhn, co-founder and managing principal of FLG, speaking with Market Wire News. “Secondly, a number of companies with annual revenues of $50 million or less are realizing they do not necessarily need a full-time, in-house CFO, but still demand the best available talent. In both cases, FLG’s principals, all with veteran CFO credentials and significant operating expertise, can step in quickly.” Find out more about FLG at www.flgllc.com.

In the vision presented, decision-making and responsibility will still remain in the client’s realm. Clients should also expect the security of their personal or confidential corporate information as well as best practices and high accounting standards. Clients should also expect disclosure of processing and other outsourcing provider specifics according to bizwomen.com.

Although accounting boards and other accounting organizations have been hesitant to approach the ethics of this issue, disclosure is necessary for complete relationship transparency. Clear knowledge of processing details such as the outsourcing accounting or tax processing to locations outside of the United States will be important points in selecting a provider.

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