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Due to this layered complexity, for now, the “A” in F&A dominates outsourcing of this function. As more companies discover the benefits of FAO, two of the most immediate functions they are likely to outsource are accounts receivable (AR) and accounts payable (AP). That’s because processing these functions is resource-intensive, mandates the constant attention of management, and is key to a company’s operations. Outsourced AR and AP service providers say their business is growing quickly because clients are realizing that the market offers suitable solutions that help reduce the cost of receivables and payables without significant capital or HR investments. And for those using vendors with a global footprint, they benefit on a worldwide basis.
A study from Framingham, Mass.-based International Data Corp. (IDC)—“U.S. Finance and Accounting Outsourcing Market Forecast and Analysis: 2003-2008”—states that the U.S. remains by far the largest FAO market, while Europe, the Middle East and Africa will be the fastest growing region in terms of FAO spending in the short to mid-term. While cost-cutting remains the primary reason for outsourcing F&A, IDC said the need to solve strategic business issues is increasingly driving FAO spending globally. The heart of mid-market FAO, however, remains basic accounting transaction processing.
According to Rick Telberg, president and chief executive of New York-based research firm Bay Street Group, 71 percent of U.S. middle-market companies with fewer than 5,000 employees are now outsourcing at least some of their F&A functions. (In fact, any company sending tax work to a CPA firm or payroll to a service means is already outsourcing.)
But will they go offshore? Labor arbitrage just might make doing so unavoidable.
A study by Boston-based FAO Research found that middle-market companies are apprehensive about outsourcing, particularly about sending the work overseas. Forty-seven percent of the survey respondents said they are concerned about losing control of the outsourced process and 37 percent are not especially confident about the security at outsource service providers’ facilities.
Despite the misgivings, FAO Research chief executive Lisa Ross said that a current staffing shortage in the middle market is forcing companies to increase their outsourcing of “highly transactional” accounting work like payroll, AR/AP and SOX compliance, but predicts: “As the labor shortage gets tighter, this list will likely grow, including more ‘knowledge work’ functions.”
High-end FAO plays obscure the action taking place in the mid-to-low end of the mid-market: tens of thousands of firms with 100-1,000 employees. The problem facing FAO suppliers using the end-to-end, “Source-to-Settle” approach is that these companies understand F&A through popular accounting application packages like Sage MAS 90/200 or Microsoft Dynamics GP, and even Intuit’s QuickBooks Enterprise (up to 120 employees). At this level, direct sales forces give way to value-added resellers (VARs), companies that augment the basic application with professional services such as integration, customization, consulting, training and implementation.
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