Accounts Receivable Outsourcing

For a company that sells on credit, the accounts receivable financing portfolio is one of the largest assets. However, often accounts receivable management area of asset is not given due importance or care. In a survey carried out among companies, more than 40 percent revealed that they do not follow through on policies, procedures, or performance targets. It was found that most of those companies do not have enough work forces to focus on this issue. To outsource the task of accounts receivable management is an ideal option for firms selling on credit.

A company can outsource all or a part of its account receivable business functions. Typically the functions which can be outsourced are:

– Quantum of outsourcing accounts receivable at a given point of time
– Accurate keying of Sales Invoices on the basis of supporting documents like purchase orders, details of vendors, terms of payment etc
– Ageing of Receivables
– Ensure timely collections and accurate application of payment to the customers accounts
– Track and resolve delinquent accounts
– Ensure timely and accurate reconciliations of vendors
– Maintenance of customer database
• Risk ascertainment and analysis of credit worthiness
• Customer history maintenance
• Creation of new customers or modification of existing customers
• Ensuring of appropriate documentation base before adding up a customer

Outsourcing accounts receivable can have several benefits:

– Up to 30% to 50% annual A/R processing cost savings without capital investment. The company usually gets the best service at a lowest cost from the service provider.
– Improving cash flow
– Eliminating postage and material expenses
– Increasing revenue by providing cross-selling/up-selling opportunities
– Increasing Return on Investment (ROI) for marketing programs
– Reducing calls to customer service
– Improving customer retention and relationships by building brand
– Reduction in bad debt
– Utilization of advanced technology
– Better control over accounts receivable management

Accounting outsourcing has been identified as an excellent business decision to cut dramatically on the costs and at the same point of time ensures that the work does not suffer. Outsourcing accounting service providers are well equipped with modern technology and experienced professionals who manage the process with great efficiency. More importantly accounting outsourcing will save your time to be invested in making implementing business growth strategies for your company. Needless to highlight by accounting outsourcing is not only cost effective it also saves lots of your time from arranging and managing team of accountants or accountant.

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Web Based Accounting

In today’s world, competition is at its striking pace and small business owners are searching new ways to save money and increase profit. One of the areas is by managing your accounting and managing it through a web based platform. With the help of a web based accounting software, you are able to manage your accounting related tasks from any location. A web based platform eliminates you from paying huge amount of money on the software and hardware, only a small fee is required to use these web based software’s. eg. QuickBooks Online, e-Peachtree are online accounting platform which have been designed especially for being accessed through the web.

Benefits of Web-Based Accounting

Accessible from anywhere- To use web-based accounting solutions, you need only a browser on any computer and a connection to the Internet. You can access the online software from anywhere, be it your home, office or a cyber cafe.

Eliminated purchasing software or upgrading hardware- It eliminates the costs to purchase the software. Large fees for annual upgrades are avoided as well. You just need to pay small monthly fees, thus easing cash-flow pressures. It also eliminates the responsibility and costs of hardware maintenance.

Work From Home or from outside office- This solution is also ideal for small business owners who occasionally want to work from home. Web-based solutions make it easier. It is also suitable for mobile workers such as sales representatives, field managers. They can enter their timesheets remotely.

No More Backup Worries- With web-based accounting solutions, backups are maintained on a frequent basis which further protects small businesses in the unlikely event of data loss.

Secure- A good web-based accounting program protects you from fire, hardware failure or from theft, and is completely secure.

Simple to use- These web based software’s are simple to use and with adequate training and knowledge business owners can use it themselves.

Web-based accounting packages are used generally in a company for a speed-based management of its accounts. A small business system can customize its accounting system within hours and be up to date. Internet is the medium from where the companies can have an access to personal information, which includes revenues, income tax holdings, retirement plans etc.

Numerous advantages await the small business owners if the web-based accounting package is used. It is an effective system which enables small businesses to track their progress on a regular basis. The company’s financial information is always up to date because of the efforts on the part of the vendor to periodically submit new features and other upgrades. With the help of technology Web Based Accounting is the solution which helps in attaining the company’s goals and objectives.

Web based accounting actually helps in making the entire process transparent and easy to handle. This is a wonderful way through which you can make many things easy in your firm.

Outsourcing Accounting through the web based platform is a great offer in today’s era. Not only does small business benefit from the savings, infrastructure point of view but also accounting outsourcing sets every business owner free from all accounting hassles so that they may better concentrate on the growth of their organization.

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Guidelines to Successful Outsourcing of Accounting processes

Accounting outsourcing is being increasingly adopted among multiple small medium firms across countries. It is a growing trend and firms have seen the benefits of outsourcing their accounting. But careful selection of service provider is important to make the process work as quality of services is the utmost factor.

Some points to consider before choosing an accounting outsourcing service provider:

1. You can search for vendor names through a Google/Yahoo search. This throws up multiple vendors with vastly varying capabilities. Prepare an initial list of 15-20 names

2. Study the outsourcer’s website for quality and comprehensiveness of information, ease of navigation, and clear explanation of services and capabilities. Study their client testimonials, case-studies and client profiles.

3. Shortlist about 8 names from the list for further questioning. Questions that can be asked include the following:

• How long have they been in business?

Reliability of operations is important as outsourcing decision and transition involves effort and time. So choose a service provider who will be around. If a firm is new, you can review the credentials of the management team and investors backing the venture and then decide.

• What measures will be used to monitor process performance?

Establish KPI (Key Performance Indicators) or parameters that can help you keep track of the service provider’s performance on the job. For an accounting process, KPI depend on the process being outsourced. So if its just accounts payable processing, then the parameter could be error rate, processing volume in a day and turn-around time.

• How will the work-flow be managed in outsourced scenario?

Workflow is defined as the steps required between the receipt of input documents by the outsourced from your staff, to the flow of documents internally within the service provider(usually these documents are downloaded by an admin/IT staff and then made accessible to authorized staff members) , to when the outsourcer delivers the finished output to you. It also will cover the communication flow between your staff and the service provider’s staff as well. This is a very important consideration in outsourcing.

• How will the process migration happen from your location to the outsourced location?

This step is also called process transition and it plays a crucial factor in influencing the success or failure of the process. A well-planned and executed process migration will minimize (possibly even eliminate the hassles related to transition). It should include

 Process Mapping
o Business processes related to accounting functions
o Process documentation- process checklists and manuals
o Specific business practices that affect accounting functions.
o Escalation Procedure for troubleshooting and exception reporting.
 Resource mapping (if one of the parts have to be done by a senior resource and all the other parts can done by another resource)
 Training assessment including effective handover methodology

For a simple small business accounting process, the migration will be much simpler and primarily focus on setting data transfer guidelines, deciding on monthly reporting, and establishing communication formats.

• What will be the total cost of outsourcing (not just the vendor charge out rate)?

This is different from just what you pay to the service provider. You have to determine (initial estimates that can be fine tuned regularly) the time spent by your staff to manage the outsourced process. Add costs of remote license, wire fees, and any other charges arising due to outsourced process (for e.g. depreciation of an additional scanner bought for scanning documents). Usually for a simple process, a simple staffing cost + overhead calculation comparison against the service provider charges is sufficient. Be careful about hidden charges and non-transparent pricing structure.

• Decide on the right pricing structure

Pricing structure can be hourly, a fixed slab package, dedicated accountant fee (also called FTE pricing) or transaction based pricing. Though variable transaction based pricing seems the most suitable for you, it may be difficult pricing structure to monitor. It may also be difficult to define what constitutes a transaction like in case of bank reconciliation. Hourly pricing, though beneficial also raised issues about productivity of outsourcer’s staff.

If your work volume is consistent, then taking a flat fee package works very well. If there is a high variability or short-term assignments, that need to be done, then hourly pricing works better (you can get a time estimate from the provider)

• Check for their track-record, experience of their middle management and entry level management team (the army’s foot soldiers are as important as the generals!).

Based on the above information, make a final short-list of three-four providers. Do good due-diligence on the outsourcing service provider’s credentials. This can be done in the following ways:

• Ask for references from the service provider. At-least two (preferably three) references from the service provider.
• Before making the reference call, decide clearly on the set of questions that you plan to cover. Good questions to ask- length of service engagement, reliability of service, communication levels between outsourced provider and them, quality and timeliness of services.
• Also, ask the references for any pitfalls/challenges that they faced while outsourcing and how they were resolved.

The benefits of see the advantages of outsourcing work for you smoothly are sufficient to warrant the time and energy spent on a careful selection process of an outsourcing service provider. As the old saying goes – “No Pain No Gain”

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Things to consider in an Outsourcing Process

Once you have selected and chosen a suitable accounting outsourcing service provider for your accounting needs the next level would be to draft the service agreement and lay down points which are essential:

A service agreement should cover the following:

1. Define the scope of work

Clearly define the scope and schedule for your project. This might seem obvious, but any successful outsourcing engagement always starts with a clear statement of what you are hoping to accomplish. Define your project requirements up front. Give vendors as much information as you can about what you need delivered and the way in which you need the work done.

2. Define the level of quality

The level of the quality of services from the vendor should be clearly defined.  The parameters used to define and measure level of service will vary depending on the process. For transaction processing, it should be measured on accuracy or processing speed. For example, in accounts payable processing, a popular metric is the accuracy % of the invoices processed correctly. Turn-around time is another popular measure. Ensure regular error tracking and reporting with periodic submission of quality reports

3. Process Specification

There are usually two ways: The offshore staff would be performing the process by remotely accessing the accounting software hosted on your server using a remote access software or working on the backup copies of the accounting file. A third and increasing popular way is to use a web-based version of the accounting software. A clear specification of the process and document flow in the agreement is important the processing speed and other performance parameters can vary based on the method chosen for processing. Source Documents can be faxed or uploaded on to the service providers’ server, or they may be accessed remotely by the service-provider’s staff. This is the slowest method in terms of processing.

4. Pricing

There are several factors to be considered while negotiating the price of the contract. The type of pricing- hourly, fixed fee or transaction based. Hourly pricing works well where you have small projects that need to be completed on as and when needed basis.

Fixed fee works well when you have regular monthly accounting requirements. The most often used fixed fee model is the FTE (Full-Time Employee) model where service providers charge a fee per full-time employee working on the client projects.  Transaction pricing is the toughest for a service provider to provide as the risk of non-performance gets directly built into the pricing. However this pricing is not suitable where transaction volume is not high, or where a ‘transaction’ cannot be clearly defined in processes such as year-end finalization. The most used approach is a fixed-price contract.

Also clearly define the scope of work covered under a given pricing. Confirm from the service-provider any additional charges that could be applicable apart processing or service charges.

5. Payment terms.

You should pay your vendor as you do your staff or other vendors. Don’t accept demands for payment before the work is complete.

6. Length of the contract.

Usually it’s a yearly contract that renews automatically unless notified otherwise by either service provider or client. You could negotiate for easier terms in the first few months, when the process is new.

7. Define termination procedures.

Any termination of services from either party is usually by a prior written notice of thirty (30) days to the other party of its intension to terminate. Insist that your vendor agree to transfer all files back to you and provide reasonable assistance to a new vendor. Also you could get a lower termination period (15 days) in the pilot phase of the contract (usually first one –two months).

8. Data Security.

Ensure that the data with the service provider is completely safe. Always sign up a Nondisclosure Agreement with the service provider which is punishable under the law if broken.

9. Build flexibility into the contract.

As your business needs change, you will want to change the scope of the contract. Build in a process to resolve these issues as they arise. While the outsourcer shouldn’t charge you for every little change, recognize that changes cost money and you may need to pay for such changes as they arise.

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Accounting Outsourcing Growth!

Managing the ample accounting records of a company is a complicated and time consuming job. Outsourcing this accounting job is becoming very popular these days because of certain advantages it offers. There are a number of specialized outsourcing service providers who work for their clients in and around the world. These bookkeepers provide comprehensive finance and accounting outsourcing services to firms allowing the management to devote more time to focus on the growth of the business. They render high level accounting services at a low cost where clients not only save on hard dollars but also on other associated costs such as the overhead costs of a separate accounting department.

Bookkeeping is a critical activity for any organization containing important information about all the financial transactions carried out in day-to-day activities of the company. It is quite a lengthy and elaborate work to keep the track of all the purchase, sales, receipts and payments of the company on a daily basis. The data that is maintained by the bookkeepers is a critical input to preparation of various accounting statements presenting before the top management crucial information and analysis of the entire business operation of the company. Needless to say, this work requires extreme level of accuracy and care, and this job must be done by professionals who are experts in the area and who have the experience to understand the various complexities involved in the process. Outsourcing service providers provide these specialized services for your company saving you cost, time, and also the burden of supervising these routine administrative activities.

Outsourcing accounting work to a third party makes sound business sense. It is a routine activity, required to be done on daily basis, and involves recording all the financial transactions of the company. What is most important for an efficient accounting system is that the process should be accurate, consistent and thorough. Getting the work done from in house professionals is generally more expensive than the costs involved in getting the work done from a third party. The company has to bear the expenses on their high salary and allowances as well as incur various other IT expenses involved. There are also huge overhead costs involved in maintaining a separate department.

Because of the specialized activities performed by these service providers, they have the exposure to the latest tools and techniques required for maintaining an efficient accounting system. They are also aware of the latest software tools available in the market, which make the accounting work easier and accurate, minimizing chances of errors. With their expertise, it becomes very easy to perform the routine as well as complicated accounting jobs, such as recording daily financial activities, printing the payment vouchers, tax receipts, proper maintenance of supplier’s ledger, customer ledger and general ledger.

Outsourcing accounting service providers have earned the reputation of being reliable, efficient and trustworthy. You can be assured of security and protection of your data, preventing any misuse or any unintentional leakage of the data from the system. They have a sound security system that makes sure that your valuable data and information are not being accessed by a third party. Outsourcing accounting is an important tool for all small mid-sized companies to lower costs in these times of falling sales.

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