Outsourcing the accounting function of the business has gained tremendous popularity in recent years. It benefits the business with enhanced growth and productivity by managing its financial process.
Hiring the right bookkeeping services provider is essential to ensure the business gets all the benefits that outsourcing offers. However, before choosing an outsourcing partner, it is essential to know about the different types of accounting outsourcing.
There are three main types of accounting outsourcing: onshore, nearshore, and offshore. Each type has its benefits and drawbacks. A business can choose the kind of outsourcing it wants by considering its requirements, amount of work, and budget.
Let us understand the different types of accounting outsourcing.
Types of accounting and bookkeeping outsourcing services
When it comes to accounting and bookkeeping management, a business struggles with finding the right outsourcing partner.
However, if a business is unsure about outsourcing, the first step should always be to know more about outsourcing and its types. Choosing the right outsourcing type will help in selecting the right outsourcing partner.
Following are the different types of accounting outsourcing:
Onshore outsourcing – Also known as reshoring or local outsourcing, onshore is an outsourcing type where the business chooses a firm in the same country or region to outsource its accounting process.
It ensures the same language and time zone as the outsourcing service provider.
Near Shore outsourcing – It is a type of outsourcing where the business decides to outsource its accounting and bookkeeping to a service provider in a different nearby country.
The country where the process is outsourced is located in the same time zone as the country where the business is located.
Offshore outsourcing – Offshore outsourcing means hiring an accounting and bookkeeping services provider from a different country with a different time zone. It ensures cheaper labor and thus lower overall outsourcing costs.
An offshore outsourcing firm can be located on the opposite side of the globe. The best countries for offshore outsourcing include India, the Philippines, Ukraine, and some European countries.
Onshore vs Nearshore vs Offshore outsourcing
Onshore, nearshore, and offshore are all different types of accounting outsourcing that helps businesses manage their accounting function efficiently. The top features help decide which outsourcing is best suited for the business.
The important factors include cost savings, implementation and execution speed, quality and expertise, and execution risk.
One of the biggest reasons businesses outsource accounting and bookkeeping services is cost savings. So, the best option is to go with the one with the lowest labor and other related costs.
The execution speed and risk depend on various factors like the complexity of the project and the resources available with the outsourcing firm. All these factors vary in different types of outsourcing and affect the quality and efficiency of their work.
Following is a comparison between onshore, nearshore, and offshore outsourcing based on the top factors that affect their efficiency:
Cost-savings
- Onshore: There is not much cost saving as the outsourcing firm is in the same region.
- Nearshore: The costs are lower than onshore outsourcing but higher than offshore.
- Offshore: It usually has the cheapest labor costs, travel costs, and other similar aspects.
Execution speed
- Onshore: They hire and train resources when there is a new project accordingly. So, the implementation and execution take time.
- Nearshore: Nearshore firms efficiently collect the required technology and resources required for the task. They also don’t have language and cultural issues, which help them in relatively faster execution of the accounting task.
- Offshore: The lower direct labor costs allow offshore firms to pile up advanced technology beforehand and start the implementation more quickly and smoothly.
Execution risk
- Onshore: Execution risk is the lowest as the outsourcing firm is located in the same region, and businesses can conduct site visits at any time to confirm smooth execution.
- Nearshore: The outsourcing firm is near enough for the business to conduct site visits for any transfer of information or data.
- Offshore: The execution risk is quite high as the offshore firms are located far off. The issue of different time zone and languages also adds to the risk.
However, these issues can be solved easily by having specialized personnel help with communication and execution.
If and when a business decides to outsource its accounting and bookkeeping process, it must choose the right type of outsourcing for the best results. Onshoring and nearshoring are the best suited for businesses with limited accounting tasks and transactions to be managed without cost issues.
However, if the business has numerous transactions and focuses on cost-saving and faster accounting processes, it should opt for offshore outsourcing.
Whatever the business chooses, it must decide after proper analysis and consideration of the pros and cons of each outsourcing type. The decision must be taken by keeping in mind the long-term goals of the business and the advantages outsourcing will have in the long run.