The world is rapidly switching to a custom of third-party accounting. However, that alone can’t be the reason for you to outsource your accounting operations to a service provider. True, third-party accounting services come with stacked benefits. But one can’t help but wonder if there is another side to this coin.
As you are considering the best way to carry out accounting operations, it is imperative to explore the pros and cons of the most popular choice, i.e., outsourced accounting services.
In this article, we will take a speculative approach and help you find out if delegating your accounting operations to a third-party service provider is your cup of tea.
Before we get started, though, let us go through some basics of third-party accounting services and software.
What is Third-Party Accounting?
Third-party accounting implies delegating your accounting operations to an external body or hiring or taking their assistance to carry out the accounting operations. It is a broad umbrella that includes working with or utilizing:
● Third-Party Accounting Services
Third-party accounting services include a plethora of operations, such as:
- Virtual bookkeeping
- Tax planning and preparation
- Business Taxation
- Individual Taxes
- Audit and Assurance
- Tax advisory
- Online Accountant
- Controller Services
● Third-Party Accounting Software
Businesses can either take the help of a seasoned professional or utilize third-party accounting software to carry out the operations themselves. These accounting software help businesses automate tedious and repetitive tasks, reduce human interventions and errors, and speed up financial reporting.
Outsourced accounting firms also utilize accounting software. However, the financial technology they use is high-end and delivers a higher-quality output.
● Third-Party Accounting Firm
Third-party accounting firms are a group of certified accountants who cater to the accounting requirements of individuals, groups, small businesses, and large corporations.
● Third-Party Accountant
A third-party accountant is a certified individual working independently or as a part of a firm. They provide accounting services to self-employed individuals like business owners and freelancers, high-income individuals, and small and large businesses.
● Third-Party Accounts Receivable (AR)
The accounts receivable can be managed by the business or delegated to a third party. To be frank, third-party AR companies are very efficient in collecting the payment timely. This aids the cash flow and profitability of the company and boosts its performance in the long term.
Dig into the deep: Cash Flow Metrics and KPIs: A Guide to Cash Flow Management
On the other hand, managing the accounts receivable in-house risks turning them into bad debts. This means losing the company’s hard-earned money, which could have been invested again.
Therefore, not managing accounts receivable is a two-fold loss, which impacts the business in a huge way. This explains the increasing popularity of third-party account receivable services.
● Third-Party Accounts Payable (AP)
Third-party accounts payable services come as a great help when your in-house AP team is burdened with high volume. The businesses utilize third-party accounts payable services to carry out invoicing and billing.
The third-party AP services include invoice capture, processing, matching the purchase and order, reporting, etc.
Third-party accounts payable services support the sales operations to meet the quality and quantity the latter promised. This builds a good business and client relationship and fosters customer satisfaction and business growth.
Third-Party Accounting Vs. In-House Accounting
Third-party accounting is different from in-house accounting in the regard that it doesn’t require the company to employ accountants and manage the operations. Instead, the business owners and management can take a backseat and let the third party take care of the core accounting operations.
Here’s how hiring an outsourced accounting service makes a difference.
- The business doesn’t have to worry about finding qualified accountants and training them.
- It is hard to find qualified accountants who can make the best of the latest accounting software and deliver high-quality operations.
- The business no longer needs to procure high-end accounting software and train employees on how to use them.
- The management and employees can focus on core business activities and leave accounting operations to the third party.
Why Do Businesses Switch to Third-Party Accounting Services?
A few decades ago, outsourced accounting services weren’t so much in practice. However, the popularity of delegating accounting operations to a third party grew exponentially.
Here are some reasons why outsourcing to third-party firms became famous among businesses.
● Finding good accountants is hard
Conducting rich-quality accounting operations starts with hiring proficient accountants. However, that is a difficult process, and it takes time and many interviews with the prospects to find the right employee.
Budget is always a challenge. Experienced accountants usually cost more to the company. Therefore, to reduce the business expenses, the company sticks to beginners or less experienced accountants.
This is because in-house accountants mean additional costs for maintaining your employees, infrastructure, and employee benefits.
● Training your employees is time-consuming
Hiring accountants is not the end of the operational activities but only the beginning. Carrying out in-house accounting requires periodic training and supervision.
Therefore, in-house accounting is an involved process that requires much time and resources for the business.
For businesses that don’t have additional time and money to spare on in-house accounting, they prefer to switch to third-party accounting services.
● Affordable help is challenging to find
Traditionally, small and mid-sized businesses would make do with few or no accountants. They would contact the tax experts during tax season to help them prepare and file tax returns timely.
However, it is not easy to find high-grade assistance in the budget of small and mid-sized businesses.
Therefore, when the businesses discovered they could delegate to experienced accountants at a much-reduced cost, they started switching to these services.
Pros and Cons of Third-Party Accounting Services
Hiring outsourced accounting services has various benefits and consequences. In this section, we will explore the upsides and downsides of delegating your accounting operations to a third party.
Pros of Third-Party Accounting Services
Take a look at these pros of delegating to a third-party accounting service provider.
1. Cost Effective
Perhaps the most sought advantage of outsourced accounting is that it is cost-effective and offers a good value for money. Therefore, with the help of outsourced accounting, you can do much on a smaller budget and minimize business expenses.
2. Proactive Approach
More often than not, the in-house accountants are less innovative and active when it comes to financial operations. On the contrary, third-party accounting firms take a proactive approach to managing the accounts and finances of their clients. This has great results in elevating the performance and growth of the company.
3. Fraud Check
Without expert supervision and audit, the business can give bloom to unchecked fraudulent activities. Third-party accounting firms keep fraudulent activities in check and ensure no such activities affect the business.
Moreover, many come with audit and assurance services to evaluate the correctness of financial records and provide their suggestion on the company’s performance.
4. High-Grade Quality
Outsourced accounting firms conduct higher-grade operations by leveraging advanced financial technology and the expertise of the professional onboard.
This means businesses can benefit from high-quality accounting operations at a reduced cost. Moreover, they keep compliance in consideration and make sure the businesses don’t have to deal with penalties or lawsuits.
5. Scalable
It requires time and resources to onboard and relieve the in-house accountants. This makes in-house accounting rigid and less scalable.
With third-party accounting services, the business can scale its accounting operations per the market and industry environment.
Therefore, the business has to only spend on the operations they think are essential when the company is slow, or the economy is going through a recession.
Cons of Third-Party Accounting Services
Hiring a third-party accounting firm also comes with downsides, which are listed down below.
1. Hidden or Additional Costs
While the outsourced accounting services come at reduced costs, there could be hidden or additional charges. Many service providers use cheap plans to attract customers and tell them about additional charges later.
However, these additional charges and conditions are usually described on their plans or websites. Therefore, when you wish to delegate your accounting operations to a third party or a firm, make sure you know about the additional charges.
2. Loss of Control
Many businesses fear the loss of control as it comes with risk and quality concerns. The risks here are the loss of data and security. The companies worry that their data can be lost or corrupted or, worse, stolen if shared with a partner.
Moreover, after delegating the accounting operations to a third party, the organization has less control over the quality.
Therefore, when the business cannot trust that the outsourced services offer rich quality, they cannot be sure whether to delegate. Many outsourced accounting firms fail to meet the expectations of businesses when it comes to quality and assistance.
Bottom Line
In a qualitative context, the third part of accounting has benefits and downsides. However, these downsides can be taken care of if you manage to find a credible service provider offering high-quality and advanced data safety.
To address that, you can take a free trial of our outsourced accounting services at no cost. The free trial will help you know if our services fit the requirements of your business. Dial +1(800) 580-5375 and connect to our accountants today!