Top Finance and Accounting Outsourcing Trends in 2024

Introduction

The strategic importance of finance and accounting outsourcing (F&A) is increasingly vital for businesses aiming for efficiency and expertise amidst global economic changes. F&A outsourcing now plays a critical role in enhancing operational flexibility and financial performance, influenced by rapid technological advancements, regulatory shifts, and economic fluctuations. This blog explores key trends that are expected to shape financial operations in 2024, offering insights to leverage these developments for growth and resilience in challenging times.

In recent years, finance and accounting outsourcing companies have become essential in the business world. A Robert Half survey revealed that 91% of senior managers faced challenges hiring in-house accounting staff, pushing more companies toward outsourcing. Furthermore, Grand View Research predicts the accounting outsourcing market will grow at a 9.1% compound annual growth rate (CAGR) until 2030, highlighting its increasing adoption.

As finance and accounting outsourcing continues to grow rapidly, it’s crucial to forecast the trends shaping this sector in 2024. This blog offers a forward-looking analysis of these anticipated trends.

Rise of Automation and AI in F&A

The adoption of automation and AI in finance and accounting outsourcing services is revolutionising financial management by enhancing efficiency and transforming traditional tasks like bookkeeping, payroll, and compliance reporting.

AI and Automation in Bookkeeping

AI and automation are significantly reducing manual data entry in bookkeeping. AI systems categorize transactions based on historical data, increasing speed and accuracy. They also use predictive analytics to forecast financial trends, aiding strategic planning.

Transforming Payroll Management

In payroll management, automated systems efficiently handle complex calculations for taxes and benefits. AI enhances these systems by detecting anomalies, ensuring accurate payroll processes, compliance, and employee satisfaction.

Compliance Reporting

Automation and AI have transformed compliance reporting, keeping pace with stringent regulations. These technologies generate consistent, timely financial reports and adapt to regulatory changes in real-time, crucial for companies operating internationally.

Broader Implications

These technological advancements not only improve efficiencies but also foster strategic decision-making and risk management. Automating routine tasks allows finance professionals to focus on strategic analysis and decision support, driving business growth.

Focus on Cybersecurity and Data Protection

In 2024, as AI technology advances, data security becomes a critical priority for businesses using cloud-based outsourced bookkeeping and accounting services. With AI increasingly targeted by cyber-attacks, companies must prepare for potential breaches. Gartner projects a 14% rise in data security and risk management spending this year.

It’s essential for entrepreneurs to stay updated on accounting outsourcing trends and cyber threats, which are growing more sophisticated. Outsourcing providers and their clients need robust defenses against these risks.

Outsourced accounting firms are enhancing their remote systems and may face liability for security lapses. The industry is also calling for extensive cybersecurity training for accounting professionals to better safeguard businesses.

Key security measures include:

• Encryption and Tokenisation: Advanced encryption renders data unreadable to unauthorised users, while tokenisation substitutes sensitive data with safe equivalents.
• AI and Machine Learning: These technologies identify unusual behaviors that may indicate cyber threats and adapt to new threats continuously.
• Blockchain Technology: Blockchain secures transactions, prevents fraud, and ensures transparent, tamper-proof records, aiding in secure contracts and banking.
• Zero Trust Architecture: This approach verifies all users accessing network resources, reducing internal threats by not automatically trusting any user.
• Advanced Authentication: Techniques such as multi-factor authentication, biometrics, and behavioral analytics strengthen security beyond traditional passwords.
• Regulatory Technology (RegTech): RegTech aids financial institutions in efficiently meeting compliance demands using cloud technology for regulatory data management.
• Incident Response and Anomaly Detection: Systems that monitor, detect, and address security incidents in real-time, reducing the impact of breaches.

Emergence of Hybrid Models

Business operations are increasingly adopting hybrid models that combine the strengths of in-house teams with the specialised expertise of outsourced services. This approach enhances efficiency, flexibility, and competitive advantage.

Leveraging Strengths for Enhanced Performance

In-house teams contribute deep knowledge of the company’s culture and goals, essential for maintaining core business identity. Outsourced services provide access to global talent and advanced technologies, allowing companies to focus internal resources on their strengths and allocate external expertise where needed.

Cost Efficiency and Scalability

Hybrid models offer significant cost savings by reducing the need for large infrastructure investments and operational expenses like staffing and training. They also provide scalability, enabling adjustments in workforce size with more flexibility than in-house hiring.

Access to Specialised Skills and Technologies

Outsourcing enables access to specialised skills and the latest technologies without the full costs of acquisition and maintenance, crucial for areas like IT, customer service, and back-office operations.

Enhanced Agility and Risk Management

Hybrid models improve agility, allowing companies to respond swiftly to market changes and manage volatility. Outsourcing can also mitigate risks in critical areas like compliance and cybersecurity.

Challenges and Considerations

Despite the benefits, hybrid models require effective management of communication and cultural alignment between in-house and outsourced teams. Companies must ensure data security, maintain quality standards, and align all members with the company’s objectives and ethics.

Impact of Global Economic Shifts on F&A Outsourcing

Influences of Global Economic Conditions on F&A Outsourcing Decisions

Global economic conditions significantly impact F&A outsourcing strategies. Economic downturns prompt companies to outsource for cost efficiency and operational agility, while economic booms may expand outsourcing to strategic areas like financial planning to leverage external expertise. In recessions, the focus often shifts to outsourcing routine tasks like payroll for cost reduction.

Geopolitical tensions and economic stability influence outsourcing locations to mitigate risks or benefit from favorable trade conditions. Technological advances, especially in AI and automation, are increasingly integrated into F&A outsourcing, enhancing analytics, compliance, and efficiency.

Future Predictions for F&A Outsourcing Based on Economic Trends

• Increased Automation and AI Integration: Technological advancements will lead more companies to integrate AI and automation, changing the service types needed and the skills required from outsourcing providers.
• Focus on Cost-Effectiveness and Flexibility: Economic uncertainties will drive demand for outsourcing contracts that offer scalability and flexible pricing, allowing companies to adapt without sacrificing quality.
• Regulatory Compliance and Risk Management: With stricter global regulations, companies will depend more on outsourcing for compliance and risk management, requiring providers to stay updated on regulatory changes.
• Sustainability and Corporate Responsibility: Increasing emphasis on sustainability will make outsourcing partners with strong ESG commitments more appealing to companies aiming to boost their ESG profiles.
• Geopolitical Adjustments: Trade agreements and geopolitical shifts will necessitate reassessment of outsourcing locations, with preferences for regions offering stability and favorable business conditions.

Onshoring a Global Talent Pool

Before the pandemic, outsourcing to Asia presented challenges like time zone differences, travel complexities, and cultural barriers. The shift to remote work during the pandemic added issues with telecommunications and power infrastructure, and regions faced global talent shortages and demands for work-from-home flexibility.

India’s BPO sector responded to a high 24% attrition rate with 10% salary increases in 2023, according to WTW’s 2023 Salary Budget Planning report. Consequently, many companies are now opting for nearshore partners, shifting focus from offshore to closer markets like Latin America, which has emerged as a preferred destination over the last decade.

Global businesses are increasingly turning to nearshore services for complex finance and accounting tasks, with countries like Costa Rica and Mexico ranking in the top 10 for shared services globally, per Deloitte’s 2023 survey. Costa Rica notably scored 22% higher than India for its business environment in Kearney’s 2023 Global Services Location Index. Colombia also stands out for its cost competitiveness, closely rivaling top Asian locations like the Philippines.

RELATED BLOG: Maximising Digital Finance Transformation: Is Outsourcing the Key?

Digital Transformation is Not as Easy as it Sounds

Digital changes like automation, AI, and data analysis are transforming finance departments, boosting productivity, efficiency, visibility, collaboration, and strategic decision-making. However, achieving digital success is challenging:

• According to Gartner, 92% of CFOs plan to invest more in finance technology, but only 30% of these projects succeed.
• A recent report by EY says that only 16% of finance leaders see their department as top-notch in key areas like technology and operating models.
• 88% of CFOs struggle to get value from their tech investments, according to a recent report by PwC.
• Hackett Group found that finance executives lack confidence in meeting business goals in crucial transformation areas, including retaining the right skills and talent (60% low confidence), using advanced analytics for actionable insights (57%), improving finance agility (50%), and reducing costs (50%).
• With companies expected to spend nearly $2.8 trillion annually on digital transformation by 2025, ongoing failures and delays cause significant waste and frustration.

What’s the Bottom Line?

The 2024 landscape of outsourced finance and accounting services is transforming due to advanced technologies, market evolution, and strategic cost considerations. AI and automation are streamlining operations and enhancing data management and compliance, improving efficiency and decision-making in financial services. The rise of hybrid models integrates outsourced services with in-house operations, optimising cost efficiency and operational flexibility.

As global economic conditions evolve, businesses are shifting towards sophisticated, outcome-oriented outsourcing partnerships focused on driving business transformation and operational excellence. For companies to stay competitive, understanding and adapting to these trends is crucial. Embracing these changes helps manage costs and risks, leverage technological advancements, and sustain growth in challenging times.

Originally published Jun 18, 2024 09:06:08, updated Jun 18 2024

Topics: Finance and Accounting Outsourcing Services, Finance and Accounting Transformation