Outsourcing today is no longer simply a cost-reduction tool, although big savings remain the most common reason companies across various industries offshore certain functions.  Offshoring financial services is a strategic tool, and its impact can be felt in business activities that range from back office to information technology.

Many small, medium and large companies are using third parties to undertake financial services that have been kept in-house traditionally.  According to industry surveys and studies, even financial institutions are increasingly outsourcing important parts of both regulated and unregulated activities despite challenges such as transferring risk and compliance to third parties.

Finance Services Outsourcing Market

The pressure to cut costs, improve agility, acquire new customers, exceed customer expectations and grow beyond traditional markets drives many organizations to work with experienced finance service providers.  Outsourced financial services are increasingly seen as a strategic tool to achieve business goals and stay competitive in the marketplace (BFSI BPO Market Report, Everest Group 2013).

In 2014, NelsonHall reported that tighter industry regulations and economic uncertainty have greatly affected finance services BPO.  Outsourcing activity has increased in the past year as new policies were rolled out and clarified.  This growth is expected to continue over the next five years.  The banking and financial services outsourcing market is expected to grow at a compound annual growth rate of 5.2 percent and reach $200 billion in revenues by 2016.  As financial institutions focus on cost reduction and business growth, service providers try to create new offerings, improve service delivery models, and increase market share (HfS BFSI BPO Market Report 2013).

The biggest demand for finance services will come from North America, despite the region’s low growth rate.  Growth will be driven by core banking, loan administration and merchant acceptance processing; while retail banking and capital markets BPO are expected to lag (NelsonHall’s Global BPO Market Forecast for 2014-2018).  Most companies are working with providers in offshore locations like India, China and the Philippines that still offer the lowest industry prices for finance services while remaining comparable in quality with local and near-shore services.  However, Everest Group said that regulatory concerns are driving some banks to source services locally.  These firms tend to hold on to highly-regulated activities while offshoring non-core back-office processes.

What to Outsource

While businesses tend to retain high-level functions like budget and internal audits and customer-facing activities like claims and loans, some companies hire third parties to perform these tasks as well.  The most common tasks outsourced in the finance services sector include back office activities like general accounting, invoicing, accounts payable, accounts receivable, and financial reporting.

Which services to outsource depends on an enterprise’s goals and budget.  Bigger and more established companies may choose hybrid offshoring wherein they retain an in-house team to handle critical finance services, while outsourcing non-core activities to a third party.  For startups, small businesses and medium-sized enterprises with limited resources, letting an outside expert handle everything from accounts payable/receivable to fixed assets and financial reporting may be a smart move.

Benefits of Outsourced Finance Services

Outsourcing finance services to third parties is not new, and companies have been hiring outside experts to handle non-core functions like finance and accounting for years.  Besides cost containment, outsourcing can improve business efficiency, increase profitability, and restore focus.

Reduced costs.  Startups and medium-sized businesses often cannot afford to build and support an in-house finance and accounting staff.  When companies outsource these functions to a third party, they save money on recruitment, HR (payroll, taxes, health insurance, etc.), overhead, software, hardware, upgrades, maintenance), office space, and associated expenses.

Increased efficiency.  Most CFOs outsource finance services to increase business efficiency within a department or across a company, according to a survey of 150 companies in the U.S., Canada and U.K.  Besides cost savings, outsourced service providers can make processes and technology run more efficiently.  For example, a third party with powerful analytics can help managers control budgets and better understand spending throughout the supply chain and pay-to- procure processes.

Improved policy compliance.  Offshore outsourcing companies offer automation services that reduce order errors, prevent duplicate payments, and improve policy compliance.  Global staff can order what they need when they need it while adhering to limits and business rules.

Finance Services Outsourcing for Small and Midsize Companies

Financial officers of big companies typically outsource finance services to improve captive centers around the world, while smaller companies focus on reducing costs.  Some small companies may fear loss of control when they outsource, but the quality of third party services are getting better and better with performance benchmarking.

CFOs at small and midsized companies are more likely to manage outsourced services more strictly than in-house processes anyway.  Also, providers use better metrics that allow managers to realize improvements in finance and accounting processes while letting them focus on core activities.

Outsourced Finance Services in the Philippines

The Philippines is the preferred global outsourcing destination for services that range from customer support to IT to banking and finance.  Established corporations and startups alike favor the country for its well-educated professionals who communicate well in English.  Finance service providers in the Philippines offer custom, scalable solutions at the lowest industry prices.  Any company can begin the outsourcing process easily and with minimal risk.

Please contact us to find out about Sourcefit’s custom finance solutions.