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Having a complete set of back-office functions is crucial for any organization, but maintaining these operations in-house can be expensive. Back-office processes typically include human resource management, payroll, finance and accounting, information technology management, and data entry. By opting for back-office outsourcing services to handle these essential tasks, businesses can significantly reduce costs.
While there are many business process outsourcing services available, not all of them provide good value. This article aims to guide you towards back-office outsourcing functions that are truly worth the investment.
What is Back Office Outsourcing?
The back office is like the engine room of a business. Similar to a vehicle that cannot start if its engines are not properly working, a business will also fail to function properly if the back office is mismanaged. The whole system is at risk of collapsing and creating complete disorder in the front office. The back office proves to be a very important part of the business since no business owner wants its operations to be put at risk.
Back office outsourcing is the process of delegating back-office functions to a third-party service provider. The primary reason for back office outsourcing is to save on costs brought by hiring more employees and purchasing office equipment. Many businesses are slowly beginning to realize the value of handing over non-core functions to back-office outsourcing services in order to free up time for more important functions.
As a business, your main focus is the expansion of your horizon. Having robust back-office support gives you the critical time you need to expand your business and focus on primary competencies. It allows you to determine where most of your resources are spent, offers you ways to optimize your money, and designs an altogether new strategy for improving business operations.
Back Office Outsourcing Services Include:
Back office outsourcing services are helping more businesses get high returns. They are not only able to improve the quality of their operations but also expand business strategies. Nearly all functions that do not require you to be present for customer-facing tasks can be outsourced. But, take note that the success of an outsourced process will vary depending on the nature of your business’s operations. To give you some examples, here are some of the most commonly outsourced back-office functions:
Data Mining Services
Businesses often need to refine huge quantities of raw data in order to extract valuable information. This process not only demands a large amount of time but also requires you to invest money and other resources. Outsourcing data mining to back-office outsourcing services makes the most sense for many businesses because it allows for more reliable and glitch-free data mining.
Human Resource Outsourcing
Outsourcing human resources allow businesses to achieve more optimized processes and the highest level of team satisfaction. There are plenty of benefits to human resource outsourcing. Throughout the years, it has helped many companies not only free up time but also create better and more effective HR strategies. These strategies include leave management, compensation, employee screening and hiring, performance management, employee retention, performing audits, and building an overall better workflow and procedure. It helps enterprises of all sizes save resources while still enjoying the fruits of improved inter-departmental coordination and higher return on investment.
Processing of Transactions
Processing large numbers of transactions for efficient and accurate operations is a frantic job. Transaction processing includes a synchronous database that is connected to another database system which can assist in the immediate processing of transaction requests and transaction information. For instance, if you ask for a transaction request in an ATM, the system will instantly respond to you, either granting or denying your request for a transaction depending on its availability.
Information Technology Support Outsourcing
Technical support or post-sales support is essential for any organization as it directly impacts customer satisfaction and retention. Customers contact support to discuss product issues, warranty concerns, or other technical problems requiring troubleshooting. Therefore, it is crucial to have a team of professionals with expert-level knowledge to address these issues effectively.
Outsourcing back-end tasks to specialized back-office services not only ensures higher customer satisfaction but also frees your employees from juggling multiple responsibilities. This leads to improved employee morale and an excellent return on investment.
Document Verification Services
It is imperative for businesses to detect forged documents such as customers’ proof of identification or know your customer (KYC) compliant requirements. Research suggests that businesses in the United States alone lose billions of dollars due to fraud every year. So it’s a no-brainer that businesses must invest in document verification services to ensure the authenticity of each document they are dealing with. Many back-office outsourcing services include support for customer onboarding and authentication of applicants. From BFSI to EdTech, back office outsourcing services can support such verification measures to assure authenticity.
Finance and Accounting Function
For the majority of businesses, finance and accounting functions are both important and mundane simultaneously. As significant finance and accounting area, they eat away a large amount of precious time from your internal staff and require a high level of accuracy and proficiency with complete compliance to regulatory guidelines. Through the years, plenty of organizations has witnessed the importance of delegating finance and accounting to back-office outsourcing services. These firms have state-of-the-art software and infrastructure as well as a team of licensed accountants and other industry experts with plenty of experience in the field. Managing finance and accounting internally requires a hefty amount of time and money to access software such as Peachtree, QuickBooks, Quicken and Sage, MYOB accounting among others. Back office outsourcing services already have the required software and a dedicated team who can provide you with all the necessary guidance you need. Income statement, cash flow statement, balance sheet, ledger maintenance, tax report, and liability, accounts payable management, and bank reconciliation is only some of the tasks that fall under the functional category and require expert management.
Catalog Management Services
These services continuously prove their vital role in reaching possible clients as market competition increases. The importance of digital catalog management is applicable whether you are a distributor or a manufacturer, both of which need to fast-track showcasing of product information to consumers. Catalog management services include maintenance, conversion, updating, and indexing of data. These can be done both online or offline, through inventory or database management. Regardless, the process requires a large amount of time and attentiveness which is why delegating it to back-office outsourcing services makes the most sense for many companies.
Data Entry
Data entry is probably one of the most often outsourced back-office functions. The reason behind this is that data entry simply takes a large amount of valuable time and resources. Choosing to hand data entry to back-office outsourcing services can considerably decrease your employees’ workload. This is a win-win situation for your business since you’ll achieve a higher level of accuracy and precision. On top of that, you get to take advantage of a growing market. A report noted that the global data-entry outsourcing service industry is expected to grow by about $351.84 million by 2023.
Translingual Data Entry
Translingual data entry is vital and requires the proficiency of multi-lingual data entry professionals who can fulfill data mining and migration as well as online and offline data entry tasks.
Data extraction
The management of a large amount of data is no easy feat. Data allows you to create reasonable and strategic business decisions. For this reason, data extractions need to be managed by dedicated professionals and data specialists.
Data enrichment
A real problem arises when data is taken from multiple sources but is incorrectly compiled. The purpose of data enrichment is to guarantee accuracy and consistency so that you can rely on the data and make the right decisions.
Payroll Outsourcing
It’s an outsourcing myth that only established companies and large enterprises can reap the benefits of handing off-payroll management to back-office outsourcing services. Over the years, start-ups and small businesses have seen the importance of outsourced payroll in their overall processes. Apart from saving costs, companies have been able to increase their bottom line.
Document Imaging
Document imaging is the process of converting data from one source – such as receipts, forms, paper documents, images to electronic format. Data imaging enables businesses to store a hefty amount of data in digital format. Outsourcing this process to specialized staff achieves better production efficiency.
Challenges in the Back Office
Your back office comprises complex operations with multiple roles that rely on interdependence. To put it simply, if one function is not working properly, the others will suffer. With that, here are some of the most common setbacks in back-office operations.
Heavy Workloads. Not having enough manpower is often the culprit of the seemingly unending workload in the back office. If this remains unaddressed, backlogs will pile up and affect employee work quality.
Tedious Tasks. Apart from the amount of workload in the back office, having to accomplish mundane and repetitive tasks influences employee productivity.
Inadequate Workforce. Internal back-office support often needs a rigorous hiring process and continued training to fit the bill.
Insufficient Infrastructure. Purchase and poor implementation of high-standard systems, structures, and facilities tend to be expensive and may require professional expertise to best operate.
Why Do Businesses Outsource Their Back Office Services?
Since back-office functions do not require facing various clients, outsourcing your services in any part of the globe is a great alternative. Back office outsourcing is just as effective as hiring internal employees but at a more affordable price.
According to a survey conducted by Deloitte, roughly 80% of companies in the world find outsourcing back office to be a positive experience. The same survey suggested that internal teams of these companies were able to put more focus on their core operations. Outsourcing as a strategy enabled them to solve capacity issues and enhance the overall performance of the business.
As a business owner, your time is extremely valuable. Working with reliable back office outsourcing services will reduce the load of personally screening back-office staff. Outsourcing your back office not only lowers wage fees but also takes away other expenses brought by office space allocation or buying new equipment. For instance, rather than purchasing new units for additional IT support, you can partner with an outsourcing firm and just pay a fixed operational cost. 34% of companies would much rather outsource tech and IT support to avoid spending on equipment that is not available internally.
Advantages of Back Office Outsourcing Services
Outsourcing back-office operations has been a great option for organizations hoping to increase their profit and improve productivity. Starting from small to mid-sized enterprises to multinational companies, plenty of businesses nowadays go for passing certain business operations, especially back office to outsourcing firms. When done correctly, multiple benefits accompany choosing back office outsourcing services. Here are some of the most notable advantages:
1. Scalability
A robust back office outsourcing service provider will allow your organization to upscale in size, productivity, or profit. The improvement of the business is directly comparable to the outturn of your outsourcing partner. Occasionally, the outsourcing firm will also handle the recruitment and training process, thus offering better support to the hiring company.
2. Cost Efficiency
Back office outsourcing is shown to be more cost-effective than organizations that struggle to support back-office teams. Outsourced teams supervise the equipment, infrastructure, recruitment, training, and other associated expenses and tasks.
3. Access to Latest Technologies and Expertise
Another important upside of back-office outsourcing is that organizations gain access to skilled agents, industry professionals, the most up-to-date tech resources, and top-of-the-line services. Apart from offering back-office support, outsourcing companies emphasize access to the latest technologies and provide education to their employees about employing these technologies so they can fulfill the tasks as needed.
4. More Focus on Core Business Activities
Outsourcing back-office functions such as HR management, data entry, IT services, payroll, and the like takes a considerable amount of workload from internal employees leading to increased productivity. Businesses can then assign these resources more effectively, leading to more sales and revenue.
5. Time Zone Differences
Some businesses have clients from all over the globe. Companies that fall under this category will find that outsourcing certain back-office functions and customer care ensure a smooth flow of business operations. As a business, it’s your responsibility to look after your clients as well as your primary business model in order to expand your footsteps in the overseas market. Off-shore outsourcing firms come to the rescue as your company makes its way into the foreign market.
6. Reduce Corporate Overhead
One of the biggest benefits of back-office outsourcing is that it decreases corporate overhead. Companies can save 30% to 40% of their operating cost since they don’t have to hire extra employees and integrate infrastructure for back-office functions. They also have more time to spend on core business activities.
7. Reinvest in your business
The true value of outsourcing can be found in your budgeting. No longer having to spend resources on internal teams, leads the way to countless avenues for reinvestment. If you were considering sizing up your organization, back-office outsourcing can provide you with much-needed flexibility so you can work towards your business goals through more amplified investments and perhaps achieve them faster. This can also be used as a quick remediation buffer and you can employ more talented staff in your internal departments to fortify your core business activities. The ball still remains in your court with back-office outsourcing.
8. Remain in Control Within a Competitive Market
The global market continues to become more competitive each day. This is mostly because of the role of new technologies in the ever-changing business environment. This drives businesses to cut costs wherever and in whatever ways they can.
The majority of business owners are not willing to give up control of these functions. However, you can maintain control of how and when you utilize outsourced functions.
Before you proceed to outsource your back office, you need to be clear about what you want to achieve. Do you want to grow your business? Do you want to expand your business to international markets? Think about your answers to these questions as you choose your outsourcing firm. You will want to work with someone who can stick with you as your needs change and grow over time.
Disadvantages of Back Office Outsourcing Services
Even though you choose to outsource your back-office functions to a firm that can provide well for your needs, this option comes with its own set of challenges and disadvantages. It is crucial to know how this arrangement works, both its pros and cons, before you make your decision. Here are some of the most common worries among business owners about back-office outsourcing services:
1. Insufficient Attention
Don’t forget to be mindful as you investigate available back office outsourcing services. Make sure you are selecting a firm that is tailored to your needs. Businesses that fail to maintain proactive and open communication with their outsourcing partners often receive poor-quality service. Thus, failing to pay enough attention to the outsourcing firm can cause loss of clients and reduced profit.
2. Cultural and Language Barriers
Typically, back office outsourcing services include offshore business process outsourcing (BPO) firms. Many businesses go for the offshoring route instead of domestically available firms for such factors as affordability and customer base. Remember to check if your vendor offers round-the-clock support so they can efficiently take care of your customers and your back office. Language is another important aspect of the communication process. So, go for offshore outsourcing companies where you reduce the language barrier as much as possible.
3. Challenges to Quality Control
Every time a business outsources its back-office functions to an outsourcing firm, it instantly loses full control of those operations. It’s crucial to keep an eye on the third-party provider. Be aware of whether they are fulfilling their tasks diligently and according to the agreed-upon quality standards. Sometimes agencies do not meet the hiring company’s expectations, leading to a decline in productivity and a huge drop in business.
4. Data Security
Allowing an external service provider to take control of a company’s internal operations often requires giving the provider access to sensitive information. Data security is one of the biggest concerns of companies that outsource back-office activities since they no longer have sole control of private information. For this reason, it’s imperative to check the service provider’s security measures so you are confident they are using the best, most up-to-date measures to keep your information safe.
5. Difference in Time Can Influence Service Hours
Finishing work remotely with a time difference, even if it’s minimal can be a challenge. This is truer if you are outsourcing to a foreign country with a major time difference. Business interruptions are inevitable and can lead to frustrations.
However, many BPO companies are willing to work on shifting schedules to go along with your schedules. For example, companies in countries like the Philippines are willing to schedule graveyard shifts to serve US-based customers, early morning shifts for Australian consumers, and mid-day shifts for European clients. Ultimately, you need to select an outsourcing partner that is flexible enough to accommodate your needs and has a solid track record of open communication when it comes to possible work disturbances,
Despite the downsides of back-office outsourcing services mentioned, do not let them scare you off from outsourcing your non-core activities. The key here is to find the appropriate outsourcing firm that complements your needs and business model.
How Much Do Back Office Outsourcing Services Cost?
When businesses decide to outsource back-office services, they often conduct a cost and service comparison. Often this comparison only involves looking at the outsourcing service fee against the salary cost of accounts staff which is not a true representation of the company’s cost savings. Analyzing all the expenses and the difference in services is the proper way to measure the savings made as a result of outsourcing.
Below is the full list of expenses that need to be set side-by-side when deciding about back office outsourcing services.
1. Complete Salary Cost (Not Just Base Salary)
When computing the full salary of in-house employees, you need to consider their base salary, benefits, and training expenses. Also, consider redundancy costs and pay in lieu of notice.
2. Office Space
In-house back office and admin staff will consume limited space inside the office that could be used for other things. The space can be turned into storage for accounting data or filing. By looking at the amount of space that hiring internal employees would take up and examining the additional revenue that could be generated by moving it to outsourced agents, you might be able to find a much better use for the office space.
3. Stationery and Printing
There will always be added costs for stationery, postage, and printing if the back office is handled internally. Despite the fact that the majority of tasks are now done with a paperless office system, office supplies will still be a cost to the business.
4. Hardware and Software Costs
The majority of back-office processes, especially accounting and bookkeeping, are accomplished on a computer which often needs specific applications or software. These bookkeeping packages are not cheap. As your business expands, it would require more complex software to accomplish more back-office functions such as producing VAT returns and managing year-end accounts. You should also calculate added expenses for printers, scanners, and photocopiers to the total computer costs. These infrastructures not only take up a fair amount of office space but are also expensive to maintain.
5. Telephone Cost
Internal back office and outsourced accounts can sometimes generate similar telephone costs since they’ll need to communicate with customers, banks, finance companies, candidates, suppliers, and more. If the back office is handled internally then that will also affect the cost of telephone bills.
6. HR and Contingency Cost
One expense that is often missed when conducting a cost vs. service comparison is the HR and contingency cost. This pertains to the times when your internal back-office staff are out of the office for whatever reason. It could be because of holidays or sickness and maternity or paternity leaves. It could also be because the office is unavailable due to power outages, bad weather, or other circumstances. These also will have an effect on contingency expenses. Outsourcing the back office will save you potential financial losses due to the aforementioned costs.
7. Consultancy Fees
Many businesses will sometimes look for consultants and experts who can provide some of the services they need should internal employees not have the right expertise. This can include managing tax returns and year-end accounts, product management, and other bookkeeping services. However, with outsourcing, you can save on paying for these consultants since you can delegate the tasks you need to be accomplished to the outsourcing team.
When these costs have been calculated and the services identified, it will be easier for you to know what you need and how much you can expect to save. You may also consider spreading the outsourced team across various companies or placing them all under one outsourcing firm that can provide everything. Ultimately, it is important to be aware of what you need from your outsourcing partner to ensure that you don’t end up with the same costs as you did before outsourcing.
The Bottom Line
Your business and the people in your organization can immensely benefit from outsourcing back-office functions. You can expect to enhance processes, save on costs, gain access to new resources and work with experts. But an outsourcing partnership requires very careful consideration. As with any business relationship, you will experience upsides and downsides. The best thing you can do is to remain involved, ensure compliance, and prepare for any potential setbacks.
Back office outsourcing is an ongoing process. It needs continuous supervision and performance monitoring. Be sure to keep your communication lines open and establish a positive working environment with your chosen outsourcing firm. By working together and communicating properly with your outsourcing provider, you can guarantee optimal efficiency, productivity, value for your money, and, ultimately – your satisfaction.
Want to hear more about how you can effectively outsource back-office tasks? Contact Unity Connect to help you get started.
