Written by Keith Bronikowski
April 1st, 2010
West Chester University
Outsourcing and Accounting
What is outsourcing? This is a very vital question that every person should know the answer to because it is the future of how businesses will work. Outsourcing became well established by manufacturing industries in the 1980s, such as automobile companies and airplane companies. Those were the first type of industries to start using the idea of outsourcing. Recently, companies have decided that outsourcing accounting principles has many advantages to it. Businesses decide to use outsourcing for a number of reasons, and it has been clear that there are some problems and some advantages for outsourcing accounting.
According to Blackwell Reference Online, outsourcing is the transfer of responsibility for the execution of any of a company’s recurring internal activities or processes to another company. This basically means that businesses take information about activities that they are working on, and send them for another company to look at and asses it. People sometimes get confused and make the mistake that outsourcing and off shoring are the same thing. This is in fact not true at all. Off shoring refers to companies relocating their businesses in other countries to try to expand their business and make more of a profit. An example of outsourcing is call centers for when a computer needs to be fixed. A person calls an American company and someone in India picks up to provide customer service. Outsourcing usually has employees from a different country working for them because it is cheaper and therefore, saves that specific company money. Companies can pay these employees less than they would if they were Americans working in the United States. Businesses nowadays have the main priority to make as much money as possible, and when an opportunity arises to outsource, they jump on it right away.
Call centers is a big way that companies outsource today as I already mentioned. Along with call centers, businesses have begun to outsource accounting principles also. According to outsourcinghubIndia.com, Bookkeeping is the biggest part of accounting that is being outsourced today. Some advantages and reasons for why companies outsource bookkeeping are that it saves costs up to about 30%-50%. It also releases time needed to do accounts such as accounts payable and accounts receivable and lets the business focus on more critical accounting activities. This allows companies to perform more efficiently then they would if they had to spend large amounts of time on minuscule aspects of their business. Having more time for critical activities will allow a company to be more reliable and generate more business.
Companies always want to get their work done faster and more efficient, and outsourcing bookkeeping allows a company to get access with the latest technology, skills, accounting and tax software. Many companies have difficulties relating to recruiting and retaining headcount. By outsourcing accounting functions and bookkeeping, these difficulties can become eliminated. Times can get very hectic during the busy accounting season. When a firm wishes it had more people, a bookkeeping partner can be a dream come true. Outsourcing firms can add employees to your account without any operational costs.
There are always advantages, and there are always risks when dealing with anything regarding business. One big risk of outsourcing is that you can find yourself in too deep with a partner that is incompetent and unreliable. This would pose difficulties with coordinating interdependent activities that are separated by legal and physical boundaries. Imagine a CPA of a company sends out his bookkeeping accounts to his outsourcing employees and they make mistake after mistake, it would be a complete disaster. The main reason that the CPA sent them to these employees was because he had enough in his hands during the hectic accounting period dealing with customers. This would totally damage the reliability of that specific firm and they could easily lose profit and customers. Businesses have to be careful when choosing to outsource not to make this type of mistake of working with incompetent people. To avoid this, companies should read over their potential employees resumes and make sure that they have all the criteria to fulfill such a job.
All in all, people should begin to accept that from now on when they call a big company for customer service, they probably will be talking to someone with an accent from a different country, or have there accounting done by employees from overseas. Outsourcing is only going to expand and more and more companies are just going to start to participate in this idea. In about 5 years, it would not be surprising for almost every company in the world to participate or have participated in some form of outsourcing. It is cheaper for businesses to do it, and lowers the amount of stress that top executives ar used to when having to make sure that every activity is working up to par. Accounting is a big part of outsourcing, and it would not be hard to believe that more aspects of businesses will begin to be outsourced as well.
References:
1.) http://www.outsourcinghubindia.com/why-outsource.asp
3.) Puranam, Phanish and Kannan Srikanth. “outsourcing.” The Blackwell Encyclopedia of Management. Cooper, Cary L. Blackwell Publishing, . Blackwell Reference Online. 04 March 2010 http://www.blackwellreference.com/subscriber/tocnode?id=g9780631233176_chunk_g978063123536119_ss2-22
a student from West Chester University and an accounting major
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