The Evolution of Finance Outsourcing: From Cost Reduction to Strategic Partnership

Developments over the past 20 years have really shaped how small businesses and large enterprises are conducting their financial and accounting operations. Previously done by in-house teams, today the landscape looks entirely different.

This is because finance and accounting outsourcing (FAO) is taking center stage in many business operations. So, what has led to this shift and total finance transformation? There are many driving factors steering the process. 

That’s exactly what we explore in this article. Keep reading to discover more about what FAO is and the factors driving the finance outsourcing evolution.

What is Finance and Accounting Outsourcing (FAO)?

Simply put, finance and accounting outsourcing is a process where business enterprises — both large and small — contract a third-party to carry out their financial, accounting, and bookkeeping activities.

Often viewed as an extension of the in-house finance and accounting team, outsourcing these core business functions comes with many advantages, among which include: 

  • Significant cost optimization 
  • Import of specialized skills and expertise
  • Data storage and protection 
  • A redirection of resources into core operations
  • Flexibility, scalability, and efficiency
  • Agility and strategic focus
  • Better financial control
  • Improved financial planning
  • Heightened business intelligence

Overall, analysis of aspects such as balance sheets, results, cash and treasury, the financing structure of the business and how it affects business development, the working capital of the company, and stocks, purchases, and expenses are now carried out offshore with a broad range of advantages.

Factors Driving the Evolution of Financial Outsourcing

Let’s now turn to the key drivers of outsourcing accounting and finance services over the past 20 years. Here are some of the most important factors that have led to the complete shift in such processes:

  • Cost savings: Businesses of all sizes are recognizing the increased cost savings that they can generate by engaging in FAO. Offshore companies often charge for their financial and accounting services at competitive and affordable prices, which, when compared to local talent pools, is quite a competitive advantage. 
  • Specialized skills and expertise: When enterprises engage in FAO, they can easily tap into third-party knowledge. On the other end of the spectrum, doing these activities in-house often means limited knowledge and exposure. However, with FAO services, these in-house teams can access greater expertise and a sound skills base, meaning that they can enhance their offering by gathering insights from their strategic FAO partners.
  • Data storage and protection: Data storage and protection in finance and accounting services is critical. The financial data of any organization and the sensitive financial information of its customers must always be heavily protected. With FAO providers offering greater levels of certainty and protection at a lower cost, it becomes more appealing for organizations to outsource this strategic function with more peace of mind.
  • A greater focus on core operations: While finance and accounting is considered a core in-house function, by using outsourcing, Chief Financial Officers (CFOs) can focus on more strategic operations and decision-making processes. When the business focus shifts to business priorities, it creates a fertile ground for better and more competitive moves that can help a business focus on thriving.
  • Governance and compliance: The fact is that there are increasingly tighter compliance requirements all over the world when it comes to finance and accounting. However, third-party outsourcing partners have been able to assure their strategic partners of greater adherence to industry and legal regulations, ensuring that there’s one less aspect to be concerned about as they utilize their specialist skills to ensure full compliance with environment, social, and governance (ESG) practices.
  • Cloud computing: Another shift that has been noted that’s driving FAO is the rise of cloud computing, which is facilitating and enabling remote and secure access to organizational data. Enterprises can tap into the cloud at any moment to determine their financial position at any given moment in time, while knowing that their sensitive financial data is not only safe and protected, but also easily available with no time lags to access financial reports, for example.
  • Data analytics: The emergence of technological developments in finance and accounting has also enabled smoother, faster, and more robust data analytics. This enables CFOs to tap into an extensive knowledge base of real-time, actionable data that can help them make decisions with greater accuracy and precision.
  • Artificial intelligence (AI) and robotic process automation (RPA): Another technological shift that’s driving FAO is AI and RPA. Used as means to augment human efforts and assist in multiple mundane and repeated tasks, these do require the human touch as well as human oversight. However, the ability to speed up data entry and analysis is greatly beneficial to CFOs and their teams.
  • Decrease in cost differentials: Market conditions indicate that offshore wages are much more attractive than paying local teams to carry out the same work. As such, businesses can enjoy greater cost advantages through decreases in cost differentials.
  • Narrowing margins: The challenge of narrowing margins cannot be overlooked. Businesses today have great levels of competition and they need to make decisions based on a finite set of resources. By reducing in-house costs and outsourcing their finance and accounting processes, CFOs can steer their ship in the direction of wider margins as they introduce greater cost savings and efficiencies in their organization.
  • Heavy administration burden: Finance and accounting is often a very time-consuming process that has a heavy administrative burden. This challenge is easily overcome with FAO, as third-party teams take on the additional burden and utilize their skills and expertise for the organization’s advantage.
  • Talent shortages: Furthermore, talent shortages in the accounting and finance sphere have also driven a shift toward FAO. Fewer students are enrolling for accounting degrees in major markets, meaning that hiring talent locally becomes more expensive.
  • Persistent macroeconomic uncertainty: The last few years have been marked by recessions, high inflation, and talent shortages. However, with FAO, CFOs can address cost pressures by engaging in strategic outsourcing that often provide them with complex services and vertical solutions to meet organizational needs.

Conclusion

The finance and accounting landscape is changing dramatically and rapidly. Businesses that want to remain competitive, reduce their costs, and ensure regulatory compliance and data safety are encouraged to use strategic outsourcing for their finance and accounting functions.

If this is something you’ve been considering and are looking for a sound partner to assist you with, all you need to do is get in touch with us at StorsenDigital. As an industry leader in FAO, you can achieve a full range of advantages for your business, making it leaner, more agile, and more competitive than ever before.

Published: May 21, 2024

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StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.