Shared Services Accounting Or Outsourcing? Make the Smart Choice
What’s better for your company: shared services accounting or accounting business process outsourcing (BPO)? The answer depends on several factors, including your business objectives, budget, and required implementation speed. In this post, we’ll focus mainly on shared service centers (SSC). You’ll learn how they differ from BPOs, when they’re the more suitable option, and why you should make sure your accounting SSC uses automation and artificial intelligence (AI).
If your company has a need for accounting speed, you’re in good company. Finance is one of the slowest corporate functions, so it’s no surprise that the vast majority of finance teams are under pressure to perform faster. You can relieve this pressure with an accounting SSC or BPO, both of which can increase accounts payable (AP) efficiency and streamline your organization’s finance function.
These two approaches are similar in the sense that they can take over manual back-office tasks that are slowing your AP team down. You need to look closely at their differences to determine which can best help your company meet its business objectives.
An SSC is an internal function that provides a service throughout your organization. The concept of shared services dates back to the late 1980s, and is defined as follows:
“Shared Services is the delivery of those functions or processes that can be delivered to the corporation from a ‘shared’ delivery model. This ‘sharing’ not only leverages the delivery of services across business units, but also represents a ‘sharing’ of accountabilities and responsibilities between the shared services organization and its customers.”
In the case of AP, your SSC serves the AP needs of multiple business units. For instance, accounting shared services can process invoices for all departments. This can translate to cost savings, greater efficiency, and higher productivity for AP and your organization as a whole.
While shared services are an internal function, BPOs are external vendors. Both can serve multiple business units, and both have their advantages and disadvantages.
BPO advantages over SSC
As external vendors, BPOs have expertise, experience, and resources that your organization may lack. As a result, they generally offer more cost savings, higher productivity boosts, greater efficiency, and faster time to implementation.
BPOs also tend to use best-in-class technologies, systems, and economies of scale that enable them to deliver higher quality results for common back-office processes like AP workflows. Handing these over to an external supplier frees finance and accounting experts from repetitive administrative tasks such as invoice processing.
If you’re looking for flexibility in terms of cost, a BPO’s variable pricing structure allows to improve processes gradually, rather than committing resources to an SSC solution that must make the same improvements in a limited timeframe. That said, the outsourced model has a higher initial cost, so it may take a little more time before you see a return on your investment with a BPO compared to an SSC.
Outsourcing saves you the expense of system upgrades, provided you’re working with a BPO that stays on top of their IT infrastructure. You gain an important qualitative advantage by outsourcing as well: as an external entity, a BPO’s progress is not subject to internal processes and politics.
So if you’re looking for a relatively fast cost-effective solution that can take over common high-volume repetitive AP tasks like invoice data extraction, or even the end-to-end AP process, outsourcing could be your best option.
SSC advantages over BPO
One of the fundamental advantages a shared services unit has over an outsourcing vendor is its alignment with your company’s business objectives. Operating internally, an SSC gives your organization cross-functional support while saving you the potentially high cost of shifting administrative and transactional processes to a BPO.
Control is another key reason for choosing the shared services model. Because you’re working with internal suppliers, your organization maintains complete control over all processes. This ensures better support for your company’s specific business requirements and keeps your competitive differentiators in-house.
SSCs compensate for their longer setup time and higher demand on internal resources by providing expertise and processes that are in tune with your organization’s vision and objectives. Because of this alignment, shared services divisions tend to have stronger relationships with corporate functions and are more responsive to the needs of these functions.
If your company has the capacity to scale shared services units, it will not only eliminate external spend, it will likely receive better results than it would from a BPO. You gain an even greater quality boost through your SSC’s system upgrades, which serve your company and your company alone. This helps expand your opportunities to improve end-to-end processes, such as invoice processing.
The shared services approach is an attractive option if your organization has critical mass and needs a custom support solution that meets its specific business requirements. You’ll need to take the timing and cost of setting up an SSC and onboarding its staff into serious consideration, but the value you gain could very well be greater than what you’d gain through outsourcing.
You Can Always Go Offshore, But…
In the interest of cutting labor costs, you could opt for offshore solutions for either approach. However, your company would need to invest in the setup and management of its own offshore SSC operations. BPOs, on the other hand, are ready to start serving you as soon as you have an agreement in place, regardless of where they’re based.
The SSC approach gives your organization reliable, competitively priced services. For AP, this means your accounting experts can focus on their function’s core competencies as the shared services accounting unit processes invoices and, ideally, pays suppliers on time.
Centralization and standardization of invoice processing helps streamline your AP operations, cutting costs and freeing up resources. You’ll have greater control over performance and reporting, and you’ll collect accounting data in one place in real-time, which ensures accurate and timely analysis.
In general, the SSC approach is most frequently adopted by finance and accounting departments, according to SSON. A shared services accounting unit can take care of repetitive high-volume processes like capturing invoice data and entering that data into business systems. SSON also reports that the key benefits that SSCs provide to the finance and accounting function are:
- Control, standardization, and optimization
- Increased productivity
- Agility and scalability
- Better customer service
Centralizing your AP activities in a service center offers deeper insights into accounting processes, helping you further optimize your accounting team’s performance.
Benchmarks for Accounting SSCs
Should your organization settle on a shared services accounting model, you’ll need to measure its performance carefully to ensure you’re getting the most out of it. Full-time equivalent (FTE) productivity will help you quantify your SSC’s efficiency.
According to CFO.com, the best accounting SSC’s possess the following characteristics:
- Reporting to the CFO or another finance executive
- Financial experts take care of inquiries, ensuring more first-contact resolutions
- Increased handling of end-to-end processes
- Ownership and governance of global processes
- High-value service delivery through centralized models
- Use of best-in-class technology, including AI, cloud computing, and robotic process automation (RPA)
Manual Methods Can Sink Your Accounting SSC
If you’ve spent any time reading our blog or browsing our website, you’re aware of all the disadvantages of manual invoice processing. Despite all that has been written and said about this slow, expensive, and error-prone approach to data entry, a lot of SSCs are still using this method on a massive scale.
A shared services accounting unit that has humans process invoices rather than machines will nullify all the benefits it’s supposed to be providing – in fact, it could end up creating even more inefficiencies as it forces your AP team to clean up the mess.
The control your organization gains from centralizing invoice processing won’t be of much value if its accounting SSC is delaying or missing payments, delivering inaccurate reports, and creating an untrackable workflow.
When paired with automation, cognitive invoice processing can prevent inefficiencies in your accounting SSC quickly and easily. Additionally, it can transform AP from a transactional function to a function that adds value and drives profits.
A shared services accounting unit that uses RPA to capture invoice data can serve your organization more quickly than one that uses a manual data entry approach. Robots take care of the tedious clicking, copying, and pasting, while the AI component of your SSC’s invoice processing operations ensures that the RPA is capturing data accurately. The system requires human operators to quickly validate the extracted data; however, cognitive AI learns through each validation so it gets more precise with use.
Improvements in data quality ensures higher quality AP reporting and analytics across departments. And because your shared services accounting team has RPA and AI handling data capture, you don’t have to waste valuable resources and budget on checking their work. This opens up a world of opportunities for your AP team to provide strategic support for the finance function’s core competencies.
In addition to a productivity boost, AI-enhanced RPA enables shared services accounting to:
- Ensure timely payment
- Maintain strong vendor-customer relations
- Process nearly 100% of invoices according to SLAs
- Simplify financial accounting and audits through improved reporting
At the end of the day, your accounting shared service unit’s performance is determined by the quality of its processes – only competent execution will ensure its success.
Your shared services accounting unit can use a cognitive data capture solution like Rossum to extract data from thousands of documents in just minutes. The platform’s unique cognitive AI gets more precise with use; accounting SSC operators can validate data swiftly with Rossum’s intuitive UI. Ultimately, as accuracy increases, you’ll be able to skip costly rounds of manual review. The handy usage reporting interface enables your shared services group to optimize its performance at individual, team, and deal levels.
Automated data extraction helps your accounting SSC deliver data faster, streamlining the end-to-end AP process and ensuring suppliers get paid on time – this is how accounting can become a profit center.
All of this is causing a new market trend to pick up steam – new automation opportunities are shaking the economics of the BPO versus SSC dilemma to its core. Of course, this means BPO prices are falling; however, declining implementation costs and smaller teams mean that rolling out an SSC has never been easier.