FINANCE & ACCOUNTING – CPI GLOBAL
Cost Reduction is No Longer the Main Driver of Finance and Accounting Outsourcing; Efficiency is
It was a good problem to have, but it was a problem, nonetheless.
Back when it was a start-up, this company based in the Philippines used to have an admin staff member to process all administrative matters for the business – from hiring and taking care of the salaries of employees, to financial matters such as payroll, invoice processing, and finance reporting. It came in handy that this admin officer had bookkeeping background. Long story short, the admin person got all financial records in order using various Microsoft Excel worksheet templates created by a CPA consultant, who also helps out managing the company’s books every three months.
But then, success came. The company started getting more clients. Even the business evolved as it started to offer new services that are peripheral to its core competencies. More people were hired to sustain the demands of client servicing.
Success for this company, quite ironically, came at a cost. Payroll management was no longer as simple as it used to be. More invoices had to be processed and billing had to be collected on time to prevent opportunity loss.
The single-admin-staff set up was no longer working out and the company had to hire three more people to create a finance and accounting (F&A) department, just to be able to keep up with the 60 to 80 invoices being processed monthly. The CPA consultant wanted to renegotiate his contract, given the huge volume of transactions that must be logged and reported. He also argued that the renegotiated fee should also cover the cost of him training the new hires in the F&A department.
This is not a fictitious company. It’s an actual firm that had to send out SOS signals to CPI Outsourcing because as a business matures, it can no longer afford to rely on relatively basic transactional processes, such as payroll accounting, accounts payable, and accounts receivable. The pace by which the company is growing also requires more strategic functions, like budgets, forecasts, and internal audits.
This growing company is just one of many organizations that are realizing the sensibility of outsourcing F&A. Initially, the decision to outsource is motivated by cost reduction – and this is a fair mind set. In the face of tight margins, companies are under tremendous pressure to cut their costs.
In fact, companies that have measured their outsourcing gains have reported general and administrative cost reductions of 30-50%. Outsourcing reduces headcount and associated costs, including wages, benefits and office space.
Setting up a typical accounting department alone requires three to five accounting staff in order to complete the accounting functions. These accounting staff will share to the overhead cost of estimated Php1.5 million plus other benefits. Outsourcing implemented in the hands of experts such as CPI Outsourcing easily stops the bleeding as having third party provider take over an F&A department of the same size cost less than Php1 million annually.
However, it seems that cost-reduction is a mere appetizer to the full-course meal of benefits that come with F&A outsourcing. According to an article by Forbes, most companies start F&A outsourcing with the goal of generating more savings for the business. But as companies move up the value chain, they tend to go beyond payroll accounting, accounts payable, and accounts receivable onto more strategic functions, like budgets, forecasts, and internal audits.
The point here is that as companies experience the value of outsourcing, they begin to see this not only as an expense reduction center, but also a hub for building efficiencies in the organization.
For instance, client companies of CPI Outsourcing have become more agile in handling their finances. Back when they used the in-house model, they had to engage more time to recruitment and training of people.costs.
Even seemingly insignificant incidents such as maternity leave and sick leave from the accounting staff represented increase in the overhead cost of the company.
Finance department staffs, quite typical of permanent employees, tend to stay in their work comfort zones, without much passion to pursue updated knowledge in regulatory procedures and compliance with the Government agencies, Financial Reporting Standards and accounting guidelines. Even if they do decide to become competitive in their field, companies are required to shoulder the cost of seminars and training for their staff, where they usually spend more than Php50,000 annually.
Companies that get the services of CPI Outsourcing have long gotten rid of these problems. Outsourcing puts an end to the cost that come with paid leaves simply because one can expect CPI Outsourcing to deliver results not on attendance but results. With outsourcing, the job of keeping the professional competencies of staff shifts from the company to CPI Outsourcing, and so do technologies needed to support the finance management functions.
Outsourcing also minimizes risk for CEOs and CFOs who—with the passage of the Sarbanes-Oxley Act of 2002 in the US and its adoption in different countries, including the Philippines—are held personally liable for the completeness and accuracy of finance information reported by companies.
Again, since the bottom line is achieved through results—not people management—F&A services have become more predictable for companies.
This sense of predictability allows the client companies of CPI Outsourcing to practically take their mind off F&A and instead focus growing the core of the business.
Outsourcing gives executives the opportunity to re-evaluate and reengineer their operations— tasks which are at risk of getting less attention by senior managers if they are distracted with finance management.
The takeaway is simple: It is not easy to form a strong foundation for in-house F&A departments. There are all sorts of problems that come with the cost for getting more people, standardization and expertise, technologies and productivity tools, and, at the end of it all, the whole proposition does not bide well with cost effectiveness.
Getting the expertise of providers like CPI Outsourcing, which has been in the industry for more than two decades, results in reduced headcount and associated costs, better grasp regulatory compliance, 24/7 access to the best minds and technology, and ultimately lets companies focus on what they do best – grow the business without being the victims of their own success.