CFO Outsourcing Seeks a New Balance

With more options for outsourcing high-end functions—and better options for improving processes in-house—finance teams are rebalancing.

The worldwide trend to outsource CFO and treasury functions has been gaining steam for the past decade. These initiatives started in the accounting arena, with a focus on activities such as payments, collections, payroll, accounts payable, reconciliations and cash transactions, and have moved up the value-added scale to encompass data analysis and advisory functions. A wealth of outsourcing options exist. Yet, outsourcing isn’t always the best answer.

In a counter-trend, some operations now are coming back in-house. “CFOs have figured out they can fix many of these processes themselves. Why pay a premium?” asks Mary Driscoll, senior research fellow at APQC, a nonprofit research firm.

New regulatory requirements also are driving outsourcing. “CFOs are now so concerned with regulation that they often seek external support to help them be compliant,” says Ray Kelly, financial services partner at EisnerAmper Ireland.

With these contradictory factors in play, CFOs and corporate treasury departments are seeking to “rightsize” their outsourcing, pinpointing where value is best found internally and where efficiencies can be maximized by outside help.

A Wide Range Of Options

“Outsourcing” in common parlance refers to sending relatively mindless repetitive tasks to business processing firms in low-cost jurisdictions such as India. But there’s outsourcing at the high end—as with legal or accounting services—as well. The preference for outsourced vs in-house solutions waxes and wanes with the times and with a company’s specific circumstances. For example, identification of key performance indicators and their reporting at the team, executive and board level may be outsourced in a start-up but later taken in-house.

What to outsource depends partly on size. “If a company is growing, it may not want to spend $150,000 on an expensive CFO if they already have a controller,” says Karl Dostal, partner at MCM CPAs and Advisors. “Larger operations over $25 million might outsource payroll.” Recently, says Kelly, “where companies realize that data they really need is buried within large data sets, we are seeing a return to [out-]sourcing even at a larger company level.”

Today, finance departments are retaining strategic planning, preferring to keep the ability to react to market conditions that drive future growth and transformation. Support functions like number-crunching, though, can be dispatched elsewhere. In general, those tasks are routine, repeatable and rules-based. Driscoll describes such defined and documented jobs as “meat and potatoes” work, like invoicing, paying bills and the other operations that keep a business running.

Driscoll, APQC: Outsourcing is ideal for automated tasks, less so for critical decision making

Robots can cut labor costs for mindless activities, but they cannot produce a good cash flow forecast or strategize with senior managers. “Would you outsource to some algorithm or third-party provider a complex and sophisticated job like managing your foreign exchange portfolio in a way that optimizes it from treasury’s standpoint?” Driscoll asks pointedly. Still, certain types of analysis—whether conditions are good for getting a loan or which piece of equipment to buy—can be successfully outsourced even to robots, according to Dostal.

A Host of Benefits

Marc Palker, global board chair of the Institute of Management Accountants, testifies to the value of “letting someone else look in.” “Having an outsider, you constantly get a fresh view,” he says. Outsourcing can enhance flexibility and enable better focus on core competencies. By tapping global time zones, “you can leave your office at five and find [work] on your desk the next morning,” says Allan D. Koltin, CEO of Koltin Consulting Group. Outsourcing can handle seasonal or cyclical surges. “There may be no reason to hire internally a full-time support staff year-round, because projects vary in time and length,” says Koltin.

Money is not always the determining factor. “Companies we work with are choosing ‘rightsourcing’ and finding the best solution to fit the commercial needs of their business, not the cheapest cost-saving solution,” says Kelly. Speed is as important as cost. Some elements of general accounting, like consolidating sales and expense data per quarter, could indeed be outsourced to a regional accounting firm. “But that’s not ideal because of cost, and just as important is the time required to coordinate that heavily manual process,” says Driscoll.

CFOs must address strategic issues, like the opening of new markets, the introduction of new products and the expansion of the worldwide footprint. Insights may better come from the field than what one can “guess at from headquarters,” says Palker. He observes, “There is always a learning curve for different geographies, and when you add the work ethic, culture and methodologies, it can become confusing and time-consuming.”

Lastly, coordination and centralization are linchpins in today’s world. Ever Rodriguez is financial controller for Central America operations at Hussmann, a multinational provider of refrigeration gear. From a Costa Rican hub, he travels monthly to each of the region’s five countries, where he has hired local accounting firms to address diverse regulations and tax regimes.

“We would need to hire very expensive employees in-house, to bring the knowledge of all those tax and accounting principles,” he explains. He emphasizes that the rationale behind his outsourcing is not to achieve direct cost saving, but rather to tap the deep knowledge and sophistication of local accountants. Shorter waiting times help too. Having mandated a team to work on standardizing the chart of accounts and local and statutory compliance, he reports: “The goal of this work is to accelerate regional financial data processing and information review. We will be able to see entries instantly if need be.”

Risks and Concerns

However, outsourcing brings its own risks. Companies still demand control of proprietary information to secure against competitors and ever-lurking cybertheft. Many companies trust only their own employees, whom they can control. An outsider who is not on site may not be immediately available. “What if you need an answer right away, and they aren’t around on Thursdays?” poses Dostal. If the CFO and CEO must meet with investors, “they can’t afford to get hung up because they are missing important data from outsourcers,” Driscoll notes.

Quality is another critical concern. “The company you outsource to may be well-intentioned, but your work is outside their area of expertise,” warns Koltin. “In addition, outsourcing companies have employee turnover and may lose key people midway through engagements.”

Deciding what to retain in-house ultimately comes down to responsibility. The CFO must always oversee the final compilation of accurate and timely financial information. Preparation may be performed by a third party, but in the final analysis, the buck stops in-house, says Koltin: “Over the past 10 years, that responsibility of the CFO remains the same.”