What Are The Reasons, Risks and Opportunities When Outsourcing The Company's Bookkeeping and Accounting Department

Nowadays, management view many aspects of the bookkeeping and accounting work as non-core transaction processing function. They would like to their financial controller, accountants to become business partners to them by they offering higer efficent services.
Hence there are many typical and easily outsourced tasks in the Bookkeeping and Accounting Section. Some of them are included below:

• Transaction processing – Accounts Receivable and Accounts Payable
• Treasury namely cash management,
• Collections of monies from Accounts Receivable,
• Keeping books of accounts until preparation of financial statements,
• Internal auditing,
• Taxation,
• Company secretarial,
• Payroll
• Investment
• Pension

Some specific reasons and opportunities for outsourcing the Bookkeeping and Accounting functions are:

      1.0 Focus on strategy and its core function

By outsourcing, it is able to avoid spending the bulk of the day handling, checking and reviewing the low value transaction processing operations. Time can be better spend on high key strategic and business partnering function,



      2.0 Avoid major investments

Sometimes, management needs to make a decision to make a major investment in the function in order to modernize it. By outsourcing the function, the company can permanently avoid having to make this investment.


3.0  Handle overflow situations,

There are times of the day or year when a function is overloaded for reasons that are beyond its control. In these situations, it may be cost-effective to retain a supplier/outsourced provider to whom the excess work can be passed to when the in-house staff is unable to keep up.

4.0  Elimination of fixed costs

Instead of handling overflow situation, the function can be wholly pass for outsourcing simply to converts a fixed cost into a variable costs- the prices of the outsource provider will fluctuate directly with the transaction volume it handles

5.0 Improve ratios

It enhances especially profitability or productivity per person. This is especially true if you have too hugh manpower in the accounting function


6.0 Reduce costs

Enhance credibility by passing the job to the Big Accounting Four or larger reputable accounting firms

7.0 Jumping on the bandwagon.

As more and more coverage and publicity are on this, we see senior management of the companies asking their CFO’s to look into this option or strategy.


8.0 Improving performance

Sometimes, a company may find that the accounting functions has bloated costs or inadequate performance. This tempted management to “shake up “ the accounting function by advocating outsourcing to internal ( share service centre ) or to external party.


Following are some of Risks when outsourcing the bookkeeping and Accounts Department:

• The outsourced provider’s ability to supply the services may change over time.
• The situation may change in the future, causing problems in the outsourcing relationship. This might be due to the provider having financial difficulties or it’s change in strategy that forces it to provide different services,
• Another risk is that available information about the success of outsourcing is usually skewed in favor of success stories.
• It’s might ruin or dent the reputation of the company, if the company lays off a large number of employees as a result of an outsourcing arrangement. This is especially true if the employer has been known to be a very caring employer whether towards it community and its staff.

Therefore, it is very important to reiterate that if we were to outsource the some of or all of the accounting function, the financial executives need to carefully plan ahead by examining some of the following factors :

• The need to have a clear definition of the desired relationship. We should not jump into the vendor selection process,
• The need to remember that outsourcing is not all about cost cutting. Otherwise, the results will be disastrous,
• To allow outsourcing option a success will depends on the way requirements are defined, the way objectives are laid, the way vendor is chosen and the way service level agreement is written.