Three types of outsourcing

Full Outsourcing Off Site

Full outsourcing is generally considered to be the most cost effective of all outsourcing options. This is when the accounting functions are managed and processed by non-employees off site. All cash receipts and expenditures, including payroll are processed off site. The entity is then provided with various reports, including monthly financial statements. How the information is transmitted to/from the outsourcer depends on how their center is set up and where it is. Outsource providers can make a profit doing this, because they can use more expensive technology, use best practice processes, single task rather than multi-task their employees i.e. by having them perform repetitive processes for a multitude of clients, and have expert taxation and financial advice available to handle any complex regulatory and accounting issues.

The advantages to this approach are:
• There are no resource or personnel issues for the entity
• There is no technology investment
• Unusual or complex financial and taxation matters are appropriately addressed

The disadvantages to this approach are:
• If the entity chooses not to continue with this arrangement they have no on-site resources or technology and must start from the beginning to create a system or a new arrangement
• Financial information is provided in accordance with the contract and if the needs change the contract must be renegotiated

Full Outsourcing On Site

The next best option is to outsource the accounting functions on site. In this way the entity can have ownership over the technology, which can then be integrated with operational databases. However, the outsource provider loses the advantages of processing centrally, and therefore it cost the outsource provider more to provide similar services; costs which are passed on to the entity. In this type of arrangement, management generally retains the same type of control over the accounting functions as they had before.

The main advantage to this approach is that there are no personnel issues. There are no recruiting cost or vacant positions due to turnover in staff. The outsource provider is responsible for providing a continuous service, which is achieved by adding additional resources as and when required. The outsource provider can make a profit by streamlining procedures within the accounting functions and using the lowest level of staff commensurate with the skill required.

Partial Outsourcing On Site

The last option is partial outsourcing. Partial outsourcing is most effective when the entity has a high turnover in a particular position(s) as a result of market forces, the type of skill needed is not available in the area, the position(s) has no career path internally or the requirements of the job do not warrant hiring someone full time. This is the most expensive type of outsourcing since the outsource provider can only make a profit by marking up salary.