Accounting outsourcing is being increasingly adopted among multiple small medium firms across countries. It is a growing trend and firms have seen the benefits of outsourcing their accounting. But careful selection of service provider is important to make the process work as quality of services is the utmost factor.

Some points to consider before choosing an accounting outsourcing service provider:

1. You can search for vendor names through a Google/Yahoo search. This throws up multiple vendors with vastly varying capabilities. Prepare an initial list of 15-20 names

2. Study the outsourcers website for quality and comprehensiveness of information, ease of navigation, and clear explanation of services and capabilities. Study their client testimonials, case-studies and client profiles.

3. Shortlist about 8 names from the list for further questioning. Questions that can be asked include the following:

How long have they been in business?

Reliability of operations is important as outsourcing decision and transition involves effort and time. So choose a service provider who will be around. If a firm is new, you can review the credentials of the management team and investors backing the venture and then decide.

What measures will be used to monitor process performance?

Establish KPI (Key Performance Indicators) or parameters that can help you keep track of the service providers performance on the job. For an accounting process, KPI depend on the process being outsourced. So if its just accounts payable processing, then the parameter could be error rate, processing volume in a day and turn-around time.

How will the work-flow be managed in outsourced scenario?

Workflow is defined as the steps required between the receipt of input documents by the outsourced from your staff, to the flow of documents internally within the service provider(usually these documents are downloaded by an admin/IT staff and then made accessible to authorized staff members) , to when the outsourcer delivers the finished output to you. It also will cover the communication flow between your staff and the service providers staff as well. This is a very important consideration in outsourcing.

How will the process migration happen from your location to the outsourced location?

This step is also called process transition and it plays a crucial factor in influencing the success or failure of the process. A well-planned and executed process migration will minimize (possibly even eliminate the hassles related to transition). It should include

Process Mapping
oBusiness processes related to accounting functions
oProcess documentation- process checklists and manuals
oSpecific business practices that affect accounting functions.
oEscalation Procedure for troubleshooting and exception reporting.
Resource mapping (if one of the parts have to be done by a senior resource and all the other parts can done by another resource)
Training assessment including effective handover methodology

For a simple small business accounting process, the migration will be much simpler and primarily focus on setting data transfer guidelines, deciding on monthly reporting, and establishing communication formats.

What will be the total cost of outsourcing (not just the vendor charge out rate)?

This is different from just what you pay to the service provider. You have to determine (initial estimates that can be fine tuned regularly) the time spent by your staff to manage the outsourced process. Add costs of remote license, wire fees, and any other charges arising due to outsourced process (for e.g. depreciation of an additional scanner bought for scanning documents). Usually for a simple process, a simple staffing cost + overhead calculation comparison against the service provider charges is sufficient. Be careful about hidden charges and non-transparent pricing structure.

Decide on the right pricing structure

Pricing structure can be hourly, a fixed slab package, dedicated accountant fee (also called FTE pricing) or transaction based pricing. Though variable transaction based pricing seems the most suitable for you, it may be difficult pricing structure to monitor. It may also be difficult to define what constitutes a transaction like in case of bank reconciliation. Hourly pricing, though beneficial also raised issues about productivity of outsourcers staff.

If your work volume is consistent, then taking a flat fee package works very well. If there is a high variability or short-term assignments, that need to be done, then hourly pricing works better (you can get a time estimate from the provider)

Check for their track-record, experience of their middle management and entry level management team (the armys foot soldiers are as important as the generals!).

Based on the above information, make a final short-list of three-four providers. Do good due-diligence on the outsourcing service providers credentials. This can be done in the following ways:

Ask for references from the service provider. At-least two (preferably three) references from the service provider.
Before making the reference call, decide clearly on the set of questions that you plan to cover. Good questions to ask- length of service engagement, reliability of service, communication levels between outsourced provider and them, quality and timeliness of services.
Also, ask the references for any pitfalls/challenges that they faced while outsourcing and how they were resolved.

The benefits of see the advantages of outsourcing work for you smoothly are sufficient to warrant the time and energy spent on a careful selection process of an outsourcing service provider. As the old saying goes No Pain No Gain