Why businesses should consider outsourcing

Outsourcing remains widely utilized by businesses across both sides of the Atlantic. The UK is seeing increasing utilization of outsourcing services across a number of industries, including the IT, HR, tax, and finance and accounting (F&A) functions within companies. And a recent survey shows that this continues to be attractive to companies within the USA, UK and EU.

Grant Thornton’s International Business Report on outsourcing, the world’s leading mid-market business survey, shows 43% of North American respondents currently either do outsource or have plans to outsource business processes, and 36% of respondents in the EU say the same. So what are the drivers for companies seeking to outsource their finance or other functions, and what common misconceptions are held?

It is worth taking a moment to define what we mean by outsourcing, and deal with a major misconception here. When President Obama spoke out against ‘outsourcing’ in 2012, he was referring to the process whereby businesses send overseas some of their key functions, utilizing lower labour rates in large emerging markets, and impacting on the domestic job market by lessening the number of jobs available. This extreme version of outsourcing is known as ‘offshoring’ within the outsourcing industry. But true outsourcing is merely the separating out of specialist functions and asking specialist providers to supply those services to your company, given that they can supply their core business product with greater specialism and more cheaply than newcomers could try to imitate. Following the American 2012 Presidential debates, there has been a rise in ‘re-shoring’ , and we have also seen a sharp increase in the number of multi-national Request for Proposals (RFPs) questioning whether we as providers offshore any part of our processes.

The top drivers for outsourcing differ between developed and emerging markets, and for the U.S. and UK, continue to be the needs to reduce costs and to increase efficiencies. Specialist outsourced providers should enable this through their use of specialist people, streamlined processes and dedicated IT systems. Each of these three areas should be discussed in depth with potential providers when considering outsourcing functions. Specialist people undertake their core function day in and day out, supported by professional and practical qualifications and training regimes relevant to their area. And your service provider should be restlessly seeking innovation of their services, whether through from single-mindedly drilling down on the detail of processes and removing or redefining processes that add little or no value, to offering a technology-based solution to enable a company to file indirect tax returns in any EU country.

However, some outsourced services start small and stay small. Many American companies seeking to invest in the UK for the first time will frequently send over someone experienced in their company to make a local hire in the UK. How to get that person paid, and through what vehicle, are often the first questions asked of advisors in the UK. Utilizing local advisors takes care of that immediate need, but a good professional services provider will also proactively advise on the full range of local compliance requirements in the UK and work with you to offer an outsourcing package that meets your needs. Should your business be using the UK as a springboard into Europe, this can include advice on European requirements as well.

Typically, outsourced F&A support will mean your providers take on the functions of your back office, delivering services from inputting invoices and keeping the books of the company, dealing with accounts payable and receivable, perhaps making payments and money handling for you, running monthly management accounts, preparing sales tax returns for your agreement and then submitting those for you, and finally dealing with year-end payroll, financial statements and tax compliance. An essential part of this will be liaising with the auditors over the completion of the UK audit. It will be important, particularly for UK companies or branches in groups with a U.S. company regulated by the U.S. Securities and Exchange Commission, to consider independence requirements as part of the initial conversations with your potential providers.

Another driver cited by many companies using UK outsourced advisers is that of being able to access a wide range of professional advice through one provider, who acts as the one-stop shop. The larger professional firms will be able to support on a wide range of tax compliance, advisory and operational matters; from dealing with a Research and Development tax reclaim (utilizing advantageous tax reliefs available within the UK), to dealing with expatriate taxation and global mobility matters for your American or other non-UK nationals sent over by Head Office to run the UK operation, to undertaking due diligence on potential acquisitions. Larger corporates and global multinationals will also want to know that cross-border tax compliance and planning, thin capitalization agreements, transfer pricing methodologies and withholding tax matters can be outsourced to global service providers with capabilities in every region around the world.

The driver to reduce costs means many companies are seeking to outsource whole functions, utilizing a global service provider present in those countries where the function is carried out. One way of reducing overall costs is to streamline service providers across the globe, or regions of the globe. It is quite common to see that companies with operations in multiple countries in fact have different providers in all, almost all, or many of their countries, which can mean 15, 20 or even more providers in place around the globe. Global tax and accounting compliance, as well as corporate secretarial services, are frequent candidates for such reorganizations, given the economies of scale on offer and the savings in management time by lessening the work required to manage multiple providers.

One big misconception or barrier to some companies entering into outsourced arrangements is that they may be unwilling to lose control of a key process. This myth can often be found where there is a lack of experience of the outsourcing process. Those outsourcing for the first time typically find that professional service providers will take great pains to understand exactly what a process or a function should enable, dissecting and documenting the various process steps within a function, and highlighting and discussing the steps management needs to control and have visibility upon. Quality providers taking over your back office F&A functions will work to be treated as part of your team and, as well as providing process and controls documentation; agree authorization matrices and reporting formats; arrive at mutually agreed service level targets, and agree escalation procedures for matters of importance to higher levels of management as required. This can sometimes give companies a greater level of transparency, understanding and control over matters than they may have had when the functions were performed with in-house staff.

In the UK, we have seen the flipside of this misconception – the driver of a desire for control – taken to a global level with escalating interest in a globally coordinated compliance function. Such teams use specialist people, streamlined processes and a global compliance project management portal, to ensure companies have increased visibility and transparency of their compliance status in all their world-wide jurisdictions. And one point of contact to enable them to interact with all their professional providers, with local service delivery taking place on the ground in each jurisdiction.

Whether large or small, outsourced solutions exist for a considerable number of service lines and providers have become expert at tailoring solutions to the individual needs of their clients. Fees can be structured in a way that is scalable, dependent on delivery and upon the number of deliverables encompassed within each contract. Most providers will be happy to discuss options with you and to support you in going through an outsourced process for the first time.

Why not try it and see for yourself?

This article first appeared in British American Trade & Investment 2014/15  and has been republished with the permission of BritishAmerican Business.