The pros and cons of outsourcing accounting

Outsourcing has long been a key resourcing strategy for ambitious organisations but there is one industry that has embraced its benefits like no other. From global giants such as KPMG and Deloitte to mum-and-dad operators in need of a helping hand, thousands of businesses have turned the accounting and finance outsourcing sector into a multibillion-dollar industry that is expected to be worth $51.5 billion by 2026¹.

While medium and larger size companies have long invested in outsourcing, recent studies have shown 37% of small businesses now turn to external providers to manage their accounting needs, cementing its status as today’s most outsourced industry². The ability to look offshore for accounting support is even more important given Australia is suffering a severe skills shortage across the sector, with the latest Australian Financial Review Top 100 Accounting Firms list revealing that a majority of leaders believe ongoing staffing woes is their biggest challenge³.

While there are many benefits of outsourcing accounting services, some businesses continue to question whether to entrust their financial services needs to an offshore partner, be it accounts payable and receivable, bookkeeping or payroll processing. With that in mind, this guide will step you through the pros and cons of outsourcing such services and highlight why large and small organisations alike are partnering with providers in offshore destinations such as the Philippines.

The pros of outsourcing accounting services

• Cost effectiveness: there is no escaping the fact that profit is a prime motivation for outsourcing. The cost of living in outsourcing hubs such as the Philippines means businesses can save up to 70% on labour, while cheaper infrastructure and advantageous tax systems are another attraction. Back on home soil, there is also the bonus of saving money on providing office space, equipment and software for in-house accounting staff to do their jobs.
  
  The capacity for outsourcing to reduce costs is never more critical than in uncertain economic times and that is where many businesses find themselves as they enter 2023. Amid rising inflation, wage growth and labour shortages, it is no surprise studies have found 59% of organisations outsource to save costs⁴, with one participant in a Deloitte Global Outsourcing Survey saying: “What drives the clients’ decisions is cost reduction. If there is no positive cost, it will not happen⁵.” And the fact it continues to happen a lot says it all.
• Scalability: the very nature of accounting lends itself to having times of the year when more support is required (e.g. tax season) and outsourcing allows companies to increase or decrease teams quickly to meet such needs. Quality providers can recruit additional accountants or bookkeepers within days or weeks and allow onshore partners to avoid the logistics of investing in infrastructure or technology to support staff that may only be needed short-term.
• Improved efficiencies: destinations such as the Philippines are home to a range of quality outsourcing providers that pride themselves on developing and deploying systems that improve efficiencies for their onshore partners. By streamlining processes, they are better able to process, negotiate and deal with tasks and ultimately deliver better overall business productivity. They also provide staff or assemble teams that are committed to achieving the highest levels of accuracy and quality.
• Business development: by handing more of the repetitive and time-consuming accounting and bookkeeping tasks to outsourcing providers, onshore staff are able to dedicate more of their focus to growing their businesses and activities that facilitate this such as nurturing relationships and attracting more clients. It is no surprise that the most pleasing aspect of outsourced accounting for so many small and medium-sized businesses is having more time to focus on their actual business.
• Recruitment and training: recruiting, training and onboarding of staff can be a huge drain on resources but outsourcing removes such matters from one’s to-do list. Rather than spending days interviewing candidates and guiding recruits through systems and processes, the logistics of bringing new accounting talent onboard is handled by outsourcing providers that have a vested interest in doing so to the highest of standards.

The cons of outsourcing accounting services – and how to overcome them

• Hidden costs: the outsourcing sector is not immune from operators that promote deals that seem too good to be true only to sting clients with additional fees tucked away in the contract’s fine print. While the vast majority of providers are proudly transparent, choosing the wrong outsourcing partner for one’s accounting or bookkeeping needs may end up eroding other cost benefits. Our advice can be summed up in three words – research, research, research. Do your homework and ensure the cost of the service you agree on will not be impacted by unexpected fees later in the contract period.
• Loss of control: while many business leaders are more than happy to offload work to someone outside of their organisation, there are those that struggle with being less hands-on or not able to look over their in-house colleague’s shoulder. If that sounds like you, there are many simple ways to ease your concerns including drafting KPIs that drive a healthy level of control and trust with your offshore team. Cloud-based accounting software and modern communication platforms (eg: Skype, Microsoft Teams) also allow outsourced staff to feel closer to their onshore partners.
• Language barriers: some organisations are reluctant to consider offshore accounting support due to concerns about working with people who do not speak English as a first language. Little do they realise that an outsourcing destination such as the Philippines is the third-largest English-speaking country in the world and home to about 60 million English speakers. As one of the nation’s two official languages, every student learns English at school and the city of Manila ranks second in Asia for proficiency⁶. Cost is an important part of researching potential outsourcing providers but you should also take time to compare the English-speaking skills of various nations before making a decision.

Just as accounting is too important to business success to get wrong, outsourcing such services to quality offshore providers has too many benefits to ignore. From reducing costs and improving efficiencies to allowing in-house staff to focus on more valuable tasks, accessing highly qualified accountants and bookkeepers has already proven to be a winning strategy for countless organisations and, given the current economic climate, will be a saviour for many more in coming months.

Outsourced accounting tasks – where to start?

It is one thing to decide to outsource accounting services. It is another to know the right tasks to send offshore. This eBook provides businesses with 39 different accounting tasks that can easily be outsourced and allow organisations to quickly reap benefits such as cost savings, efficiency increases and business growth.

Reference
[1] Global Finance and Accounting Outsourcing Services Market 2020 Segmentation, Demand, Growth, Trend, Opportunity and Forecast to 2026 (newsmaker.com.au)
[2] 27 Eye-Opening Outsourcing Statistics (2022 Update) (capitalcounselor.com)
[3] Top 100 Accounting Firms: Staff shortages bite revenue, fatigue workers at accounting firms (afr.com)
[4] 40+ Vital Outsourcing Statistics [2022]: How Many Jobs Lost To Outsourcing? – Zippia
[5] us-how-much-disruption.pdf (deloitte.com)
[6] Asian countries with the highest English proficiency: Singapore, the Philippines, Malaysia & more [2021] (humanresourcesonline.net)

Updated: January 2023