Handling accounting and finance is a key function for any business organisation, at all times. Unless your company is operating in the Finance domain, you are likely to find it difficult to handle the nitty-gritty of accounting and finance. Many companies prefer to outsource their financial accounting tasks to professional organisations offering such services rather than setting up internal teams. The company to which one company outsources its financial accounting operations is called that company’s Finance and Accounting Outsourcing (FAO) partner.
There is a lot of demand for FAO companies these days and they get outsourced projects from across the globe. FAO companies have become so specialized in their role that they are now able to handle very complex accounting tasks. They include but are not limited to:
- Accounts Payable (AP)
- Accounts Receivable (AR)
- Pricing administration
- Record to Report
- Financial analysis reporting
- Supply chain accounting
- Payroll processing
- Joint venture accounting
- Merger accounting
- Payment processing
- Travel expense management
Companies normally don’t change their FAO partners too often. In fact, few companies tie up with some FAO Companies for life! Contracts with FAO companies are always long-term contracts lasting at least ten years. During the duration of their contract, companies communicate with their FAO partner/s extensively because of any error in financial operations/transactions can become a serious issue. It is therefore very clear that a company should choose its FAO partner very carefully. But what exactly are the things that it should consider before doing so? Let us have a look in the next paragraph.
STEPS TO BE TAKEN BEFORE TYING UP WITH AN FAO PARTNER:
- Communicate with your investors and stakeholders well: A company must explain clearly to its investors and stakeholders, why it has chosen a particular FAO partner and what SLA it expects from its FAO partner.
- Choose wisely: There are a plethora of F & A (Finance and Accounting) companies available throughout the globe. A company must consider the strengths and weaknesses of each F & A company and also analyse its own financial requirements before choosing one.
- Set your expectations clearly: A company must explain clearly to its FAO partner what its SLA expectations are. A lot of disputes and arguments arise because the FAO partner has not clearly understood the SLA expectations.
WHAT FACTORS SHOULD BE CONSIDERED WHILE CHOOSING AN FAO PARTNER:
- Trust and credibility: Trust and credibility are among the most important factors in the Financial Accounting Outsourcing decision. The senior management profile adds significantly to the weightage here. Multinational clients would lean towards those FAO partners who have served clients in multiple countries, including those where the client is having operations. FAO companies, which have a track record of delivering good services to clients in diverse markets over a number of years, would be preferred over those who do not have such credentials.
- Staff’s skill level: One of the main reasons why you would want to tie up with an FAO company is because they must have hired F & A specialists who know much more about F & A and have valuable experience in that field. A company that has successfully completed outsourced F & A projects in the past, preferably for clients from the same industry and size bracket, is more preferable to a newcomer in the field.
- Value for money: It does not matter too much if your FAO partner is charging more or less for What really matters is whether your FAO partner provides good value for your money. The F & A services your FAO partner provides must meet, if not exceed your SLA expectations.
- Scale of your FAO partner: While large FAO companies have a lot of knowledge, expertise, and experience, they may ignore small companies and only concentrate on their large clients. If your FAO partner is a newcomer in the field, it may not meet your SLA expectations. Therefore, if you are a startup or a mid-sized company, you must choose promising FAO partners who have completed a few outsourced FAO projects successfully.
- Adaptability of your FAO partner: Changes are frequent in the world of FAO. Regulations, tax policies, and accounting guidelines change from time to time. Therefore your FAO partner must be up to date in the domain of FAO. The company must adapt to changes quickly and maintain the SLA.
- Capacity: If an FAO partner completes the first outsourced project well, many companies make the mistake of sending the FAO partner a lot more projects. If your FAO partner does not grow as quickly as your company, it may have difficulty in keeping up with the SLA. You, therefore, might want to tie up with multiple promising F & A companies.
If your employees’ salaries get paid on time and if you pay your taxes, duties, insurances, rents, etc properly, you will not encounter any legal trouble. Therefore, for the smooth functioning of your organization, tying up with a good FAO partner is vital. Consider the criteria mentioned above for choosing an FAO partner before tying up with one and you will be good to go.