How Companies Outsource the Back Office

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Written by Rene Mallari

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Back-office tasks are the most time-consuming and tedious activities in your organization. They can take plenty of your business resources, distracting you from what you do best as a business owner. 

Yet, the back office is a vital part of any business operation. It supports the other parts of your business, and without it, the rest of your business cannot function properly and efficiently. 

If your back-office tasks overwhelm your company, then outsourcing them is an ideal option for you. Read on and learn how to outsource them the right way.  

What Is Back-office Outsourcing? 

First, let’s define the back office. What is this important aspect of almost all businesses?

The back office is the teams or departments in your organization that support daily business operations and processes. While the back office is not revenue-generating, it is indispensable to how your business makes money. Without the back office, your firm’s overall performance will decrease or stagnate. 

Processes in the back office that support other business processes include database management, accounting and bookkeeping, technical support, digital content generation, human resources management, customer order handling, IT development, and records management. Each of these activities will be discussed in detail later on.

Back-office Outsourcing: Its Definition and Growing Popularity

Back-office outsourcing refers to the commercial practice of subcontracting back-office functions to a business process outsourcing (BPO) company or another third-party vendor.  

Outsourcing back-office activities is a rising trend among businesses worldwide in the wake of the Covid-19 crisis. Business news platform Yahoo! Finance reports that the outsourcing industry is expected to grow to almost $216 billion in the next four years, increasing at a compound annual growth rate (CAGR) of about 5% from 2022 to 2026.

Of back-office services, customer service will show a CAGR of roughly 5% within the next few years, reaching close to $70 billion by 2026. And human resources (HR) will register a CAGR of 4.5%.

What Are the Common Tasks and Responsibilities of the Back Office? 

Common Tasks and Responsibilities of the Back Office- image screenshot of reports and back office teams

Your business engages in many back-office processes to keep your organization running smoothly. Below are the back-office activities mentioned earlier and more.

Information Technology (IT) Development

Your IT department designs, programs, tests, documents, and checks your IT systems applications and other software and hardware components for bugs. IT developers help your organization set up and maintain a digital infrastructure for efficient business operations.

Digital Content Generation 

No matter your business, you need to market it. Your digital content people do this through developing content for your products or services for online publication via blogs, social media posts, or similar formats. They help promote your line of business to potential customers and retain your existing ones through regular engagement.

Tax Payment Processes 

Recording, classifying, organizing, and filing your business taxes are complicated business functions.  Businesses need an in-house or a third-party service provider to handle complex tax filings and help with tax strategies.

Database Management 

If you have a network of any kind, you have a database, and professionals engage in management and upkeep to ensure that your database network is always up and running. A database manager and team monitor, troubleshoot, secure, and plan your system to help you achieve your business goals. Data entry duties performed by this team are also part of this function.

Technical Support     

Tech support personnel are responsible for repairing and maintaining your IT system. They also diagnose and fix technical issues with your computer systems, address network bottlenecks, and install and configure hardware and software in your office devices.

Human Resource Management  

Vetting, hiring, and training personnel are critical to your business. Human resource management teams onboard, train, and evaluate the performance of staff members. They help set personnel policies and ensure your business complies with labor laws. In addition, they have a say in compensation and benefits packages for employees.

Customer Order Management. 

This business process helps you monitor all customer orders and check their status from shipment to delivery of your products. This function also keeps track of your entire transaction history to provide data-based insights. Employees in this department handle, collect and process customer orders.

Records Management 

Generating, using, maintaining, and disposing of business records is the job of a records management team. Your business’ records can include database files, reports, instant message entries, memos, contracts, videos, and emails. Paper records can be organized physically (on-premise), while digital ones can be stored on hard drives or in the cloud. 

What Is Back-office Processing? 

Rear view of female business executives analyzing charts and business strategy

An article on WiseGeek, a website that answers common questions covering various subjects, defines back-office processing as handling all the documents of a company’s day-to-day transactions and operations, from customer order and payroll processing to database and invoice processing. 

Back-office personnel does the paperwork for customer billing, invoices from suppliers or vendors, verification documents, payroll requests, job application forms, and more. All records or files, regardless of type, typically go through the back office. Back-office personnel can handle documents through manual or automated processing or a combination of both.

Many organizations have their own back offices to process their documents. However, a growing number of businesses have outsourced these functions to reduce costs and increase revenue.

How Is the Back Office Different from the Front and the Middle Office?  

The front office specializes in communicating with existing and potential customers. Marketing, sales, customer service, and public relations make up this function. Front-office teams bring in new and maintain current clients to increase your company’s revenue.

The middle office is a function mostly found in financial institutions such as banks or insurance companies. It supports the front office by analyzing the risks of financial transactions the company is engaged in as well as monitoring profits and losses in real-time.  

How Can Outsourcing Improve Back-office Operations? 

When you partner with the right BPO company, outsourcing your back-office process brings several benefits that improve your business operations:

  • Back-office process outsourcing can reduce operating costs because you no longer need to spend on building your own staff. You eliminate the costs of recruitment, onboarding, training, and compensating staff. 
  • Thanks to back-office process outsourcing, you can access a large pool of first-rate and affordable talent. BPO companies can provide specialists who can manage your human resources, accounting and bookkeeping, technical support, and other back-office functions.  
  • Back-office process outsourcing can improve productivity, freeing a significant portion of your workforce from repetitive tasks that back-office operations demand. BPO companies specialize in these types of work and can deliver the services in a timely and accurate manner compared to in-house teams. 
  • You’ll be focusing on core competencies, such as developing a product or service, expanding your market reach, or accelerating sales growth, because your BPO provider oversees your non-core operations while you concentrate on your business. 
  • The latest technology and top-notch expertise are at your fingertips as soon as you adopt back-office process outsourcing. Reputable BPO companies invest in next-generation systems to further streamline your back-office functions. Plus, you can readily access expert opinions to help address your business challenges. 

What Services Does Back-office Process Outsourcing Include?

Business office - group of young people working.

Back-office process outsourcing provides services for almost all the administrative activities that are non-client-facing tasks. For example, you can outsource:

Data Entry

This is one of the most commonly outsourced back-office functions because it commands a substantial portion of your company’s resources. If you outsource data entry services to a third-party vendor, your employees no longer face these tedious tasks. You can improve data accuracy and timing using the highly skilled data entry specialists of your external service provider.

Bookkeeping and Accounting 

BPO companies are equipped with advanced platforms that can harness the features of the latest accounting software such as QuickBooks and Peachtree. These service providers have teams of licensed and seasoned accountants who can provide you with valuable financial tips and guidance.

Data Mining 

Among the most complex parts of data management is sorting through large data to obtain critical information that helps you gain insights for better decision-making. Like data entry, this is a burdensome task that you can subcontract to a BPO company.

E-commerce Catalog Management

Cataloging management is a time-consuming process. External service providers can help you index, convert, update, and maintain your product database. They can enhance your product or service showcase on your e-commerce sites to attract more customers.

Payroll Management

Outsourcing payroll to a BPO company can save you time, decrease computation errors, boost security, sustain compliance, and help employees with self-service. Contractors specializing in payroll management have the experience, knowledge, and technology needed to deliver precise and timely results.

Other Less Common Back-office Services

Photo Editing

Third-party vendors offer a wide range of photo-editing services, from capturing high-quality photos and retouching them to clipping and fixing images. Online retailers, advertising agencies, and professional photographers can depend on a BPO company for this function.

Document Verification 

Outsourcing this function can save you a lot of money from forged documents and fraud. BPO companies have the technology and knowledge to screen and confirm whether documents vital to your business are real or fake. 

What Does Offshore Outsourcing Mean? 

Offshore outsourcing - reasons why business should consider back office process outsourcing

Techopedia defines offshore outsourcing as a business model that many companies use to design, provide, and handle IT or IT-enabled services to save on costs.

An organization that takes this approach contacts, communicates, and hires an external service provider online through email, messaging, or IP telephony. The service provider is typically located in a country where labor and other costs are lower.

The service provider performs outsourced tasks remotely or sends the completed tasks virtually. The services commonly offered by an offshore service provider include customer service, network administration, website design and development, content creation, and software development.   

Offshoring and Outsourcing: What’s the Difference? 

Outsourcing is the general term for recruiting an external service provider to handle some business activities. Offshoring is one of the three types of outsourcing strategies; the other two are nearshoring and onshoring.  

One key difference is that with offshoring, your service provider builds an exclusive team to perform specific tasks. You have control over this dedicated team and consider them part of your workforce. With outsourcing, your service provider manages its own employees assigned to your organization. 

Another distinction is that offshoring focuses on complicated activities that your overseas, specialized team handles. The team’s knowledge and experience make them suitable for the specific work. Conversely, tasks for outsourcing are repetitious, cumbersome, quantity-based, and time-dependent. 

Using Both Strategies

You can combine offshoring and outsourcing in your business strategy to achieve high-quality customer service, maximize productivity, and minimize costs. Each approach has its own advantages, disadvantages, and unique characteristics. After evaluating and considering all the factors, it’s up to you to make full use of them to fully benefit your business.

The Bottom Line 

Your back-office functions play a significant role in making your business profitable and sustainable. Outsourcing them to a reputable and trusted third-party vendor can help your organization reach greater heights. Whether you run a startup or a large company, back-office process outsourcing is a readily available option.

When you take this cost-effective approach, make sure first to identify the back-office activities you can subcontract to a BPO company and then reach out to your potential partner.

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