Posted by Alyanna Tagamolila
Feb 27, 2024
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For most companies, being able to hire outside accounting support allows them to make sure that their finances are in order – paving the way for efficient company processes and operational excellence.
With a company's finances being the lifeline of a company, however, outside support is given a big responsibility. Luckily for companies, there are several providers to choose from – allowing them to find a partner that can provide quality finance and accounting services and complement their organisational culture, practices, and standard operating procedures (SOPs).
This is where offshore accounting and outsourced accounting come in – two different models for outside accounting support. While both offshore accounting and outsourced accounting allow companies to employ finance and accounting services from external service providers, there is quite a difference between the two. Often used interchangeably, the way these two types of accounting services handle their operations vary, with each presenting their own strengths and weaknesses.
Read: Outsourced Accounting Challenges and How to Overcome them
What are Offshored Accounting Services?
Offshored accounting services involve managing financial tasks in a different country to leverage cost savings, specialized skills, or market access. This approach relocates a company’s accounting operations abroad, covering functions like bookkeeping, payroll, or tax preparation for the company. It allows companies to tap into global resources while aiming for efficiency and financial advantages in a diverse market landscape. This approach removes limiting factors that companies must consider when outsourcing.
What are Outsourced Accounting Services?
Outsourced accounting services, on the other hand, is the ability to outsource or employ a partner for your finance and accounting whether local or international. This strategy generally means tapping third-party service provider and entrusting them with specific accounting functions, like bookkeeping, payroll, or financial reporting but focuses on looking for external experts or firms both within their vicinity and in offshore locations.
This mode of service delivery removes routine tasks from your company’s finance department, empowering you to partake in other value-adding ventures. The best outsourced accounting services are those that can act as an extension of your team – adapting your own company's processes.
In a nutshell, all offshore accounting is a form of outsourced accounting, but not all outsourced accounting is necessarily offshore accounting support.
How Can We Differentiate Offshore and Outsourced Accounting?
Mode of Services
The primary distinction lies in the service delivery process of each company. Offshoring is about relocating operations to a different geographic location, whereas outsourcing pertains to the delegation of specific tasks or functions, regardless of location. Offshoring inherently involves a physical move for your company other than outsourcing services, while outsourcing emphasizes the engagement of external expertise or resources.
Cost and Expertise
While both are ways for a company to source their accounting needs in a cost-effective manner, they do so in different ways.
Offshoring primarily seeks cost savings through factors like lower labor costs in a specific country, accessing cheaper resources or production facilities in different economies.
Outsourcing, on the other hand, targets cost efficiencies by leveraging the expertise and specialization of external service providers, often with established processes in place to make sure that you are getting quality services at a cost-effective price.
Now that we know how to differentiate each, let’s see some of the benefits that offshore accounting and outsourced accounting may have for companies looking to employ an external finance and accounting partner:
Offshoring Benefits
Offshore accounting is a common solution for those looking for service providers outside their locality as it gives them the diversity to find a partner perfectly suited to their needs. Here are some of the key factors that they look for:
Cost Savings: Lower labor and operational costs in offshore locations.
Access to Talent: Leveraging specialized skills or expertise available in specific regions.
Operational Control: Direct oversight and control over offshore operations.
Offshoring Considerations
Logistics: Having team members manage operations across different time zones, languages, and cultures.
Regulatory Compliance: Navigating diverse legal and regulatory frameworks in multiple countries.
Quality Control: Ensuring consistent quality standards across different locations.
Outsourcing Benefits
Outsourcing on the other hand, is a common strategy for those looking for quality service providers whether within or outside their locality. Their focus when looking for outsourced partners is the partners’ capability to act as the extension of their company. Here are some of the benefits of outsourced accounting:
Focus on Core Competencies: Allowing companies to focus on their core business functions.
Access to Expertise: Leveraging specialized skills and resources without internal development.
Cost Efficiency: Reducing operational costs by utilizing external resources.
Outsourcing Considerations
Dependency on Third Parties: Reliance on external vendors for crucial functions.
Risk of Quality Control: Ensuring service quality meets company standards.
Data Security and Confidentiality: Managing sensitive data shared with external partners.
Companies must carefully evaluate their goals, operational needs, and risk tolerance when assessing whether to employ offshore accounting or outsourced accounting services. While both offer distinct advantages and reservations, it will still depend on your own company’s operations and capabilities to see what works best for you.
Ultimately, employing offshore and outsourced accounting services helps ensure both yours and that of your clients’ finances are managed well, protected from vulnerabilities and remain compliant with any laws and regulations that are applicable.
Looking at the considerations above, here's how you can apply it if you're looking for additional support.
Get Outsourced Accounting Support When...
Outsourced accounting support is usually the go-to choice for those who are looking for outside professionals in the field of finance and accounting but don't necessarily need the expertise and proficiency of accountants with international experience. This usually encompasses companies whose operations focus on local communities with no need for international transactions.
In this regard, here's when companies usually opt for outsourced accounting support:
The Need for Expert Finance and Accounting Professionals
This specific need applies to offshore accounting as well and is one of the main reasons why companies start looking for outside support in the first place. Whether it be because your operations are not yet expansive or due to budget limitations, hiring in-house talent may not be within your company's priorities right now.
Rapid Scaling up of Operations
As your company scales up and takes on more clients with different financial management needs, so does the complexity of your financial processes. Sometimes, when your business booms in unexpected ways, it's as if the scaling happens overnight.
During times like this, outsourced accounting is usually the go-to solution for companies who are looking for additional support to manage their load immediately. Outsourced accounting providers can easily scale their services based on your business needs and are easier to vet, especially if they are within your locality than international offshore providers.
You Need Technology Without the Upfront Investment
Again, this specific scenario also applies to offshore accounting support. Many outsourced accounting providers use advanced accounting software and tools. Instead of investing in expensive systems yourself, outsourcing gives you access to the same technology and real-time data reporting, enhancing accuracy, transparency, and decision-making without a steep learning curve or upfront costs.
Outsourced accounting support from a local partner is usually the first choice for companies with an immediate need and gap to fill – especially when your service offerings require you to be constantly updated on the trends in finance and accounting. When they start looking for long-term and sustainable solutions, however, that's when an offshore partnership is formed.
Get Offshore Accounting Support When...
Offshore accounting services include a more expansive scope. It becomes a strategic advantage when you’re ready to scale up, reduce operational costs on a larger scale, or tap into a pool of international finance professionals.
Here's when offshore accounting support becomes the smarter and more sustainable option:
Fixed and Reduced Labor Costs
When tapping into international talents and service providers, you get fixed pricing that does not shift or change according to your local economic situation. This means that if your country is currently undergoing an upward trend in inflation, you can rest assured that your provider's prices stay constant.
Alongside this, high quality global talent also allows you to take advantage of lower labor costs such as those in countries like the Philippines. By relocating your accounting functions abroad, you get the same level of professional service at a fraction of the cost compared to hiring domestically—especially beneficial for firms handling high transaction volumes.
Full-time and Long-term Talent
While outsourced support generally operates on a project or as-needs basis (for example, seasonal payroll services) -- offshorehore accounting partners can help you provide you with a full-time and long-term team who can get to know your operations on an intimate level and become value-adding members of your company – an extension of your own team.
For example, if your company requires round-the-clock support or has ongoing financial activities that demand constant attention, offshoring offers the manpower and consistency needed for seamless execution – making sure your operations are managed 24/7, mitigating any risks you may face.
You’re Expanding into Global Markets
If your company is entering new international markets, an offshore accounting team with knowledge of local regulations, tax laws, and business practices can be invaluable. They can help with local compliance, reporting, and even customer payment processing, acting as your boots on the ground in unfamiliar territories.
You’re Seeking Long-Term Scalability
Offshoring is perfect for companies that foresee consistent or growing demand for accounting services. Once your offshore team is set up, scaling is easier and more cost-efficient than hiring in your home country. You can add roles, implement new services, and grow your finance department without increasing local overheads.
You Need to Operate in Multiple Time Zones
With an offshore team, you can benefit from a “follow the sun” model where work continues even after your local office hours. This is particularly beneficial for multinational companies or those operating across different regions. Tasks can be completed overnight, ensuring faster turnaround and improved service levels – overall enhancing your operational efficiency and optimizing your company's service delivery process.
Offshore accounting – which is again a type of outsourced accounting, offers a more long-term and sustainable solution. Ensuring you get access to the best talents that can help contribute positively to your own company's goals and objectives. This is usually chosen by companies who took the time to sit down and assess where they are headed and created a growth strategy to sustainably implement in order to achieve their goals.
The Bottomline
If you're feeling daunted by the process of employing either outsourced or offshore accounting support, it's alright to take a step back and holistically assess your company's needs and situation.
In the end, you can approach it as a positive thing -- it's a growth pain that means your company is doing well and heading for the next step. Employing additional support such as looking for finance and accounting outsourcing in the Philippines is just one way for you to make sure that your growth continues so that you can plan for your company's continuity and long-term success.
Read Next: When to Consider Back-Office Support for Your Company
Interested in Getting an Offshore Accountant?
D&V Philippines is an offshore accounting solutions provider with clients all over the US, the UK, Australia, and other parts of the world. We have a wide expertise in handling the numbers of companies across various industries. We also make it our duty to stay up to date on the latest trends in the accounting industry to make sure our clients’ data is safe with us. Contact us today and we’ll help you find the right solution for your needs.
You may also download our Outsourcing: How to Make it Work guide today and discover how we can help in managing your company’s finances.
