The term “outsource” by Oxford definition, refers to “obtain (goods or a service) by contract from an outside supplier” while Investopedia defines “outsourcing” as to “practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally”.
So what is Outsourcing?
In simple terms, outsourcing is to engage external parties to assist in the company’s internal work.
Why should we consider Outsourcing?
Outsourcing is a cost-saving strategy where companies engage external parties to perform specific work requirements based on their expertise, and the scope of work outsourced will determine the fees companies are required to pay. Employee-related expenses will be reduced as the company will not need to factor in additional employee benefits like bonus, commission, and CPF etc.
On top of that, companies who have outsourced their work are assured that the required work will be completed on time and on top of that, the information submitted to the respective government body corresponds with the documents provided to the outsource company.
Outsourcing for financial institutions was a concern for the Monetary Authority of Singapore (MAS). As extracted from MAS, they first issued the “Guidelines on Outsourcing” in 2004 to promote sound risk management practices for outsourcing arrangements of financial institutions. Over the years, revisions have been made to the guidelines as outsourcing arrangements become more prevalent and complex. It also provided further guidance on sound practices relating to the “Responsibility of the Board and Senior Management” and “Monitoring and Control of Outsourcing Arrangements”. These are part of MAS efforts to raise the standards of Institutions’ risk management practices.
When do we need Outsourcing?
Driven to further expand businesses, business owners prefer to have their resources on hand to focus on the company’s KPIs (Key Performance Indicators). However, with the perennial challenge of high staff turnover rate that is common in a lot of industry sectors, companies often find that the the amount of time invested in training new employees does not justify the benefits they have reaped because by the time the new employees are well-trained to deliver the required work, they choose to move on to another company. Inevitably, the resource-consuming and tedious routine of training new employees repeats itself again which often requires companies to reinvest significant amount of resources and time to retrain new hires.
In order to overcome this situation, business owners should consider engaging external parties to outsource these functions. The accounting and payroll functions require experienced personnel who are equipped with the necessary specialised knowledge. On top of that, an in-depth understanding of the latest regulatory and reporting standards from the government and other relevant reporting sectors is required in order for the said functions to be performed well. Given the tangible outsourcing benefits, business owners should consider outsourcing these support functions to professional specialists if they want to step up their focus to pursue their company’s KPIs – this approach is particularly useful for companies with limited resources.
Who should we engage for Outsourcing?
Selecting the right external parties is an important step towards outsourcing. Outsourcing can be provided by individual freelancers or corporate service providers. It depends on the work requirements and the range of services the freelancers/service providers can provide before the company owners decide in their appointment. Engaging a freelancer may incur less cost than engaging a corporate service provider. However, as corporate service providers possess a higher level of resources and segregated expertise from different industry sectors, they are usually in a better position to assist companies, especially for more complex work requirements.
Where can we find these services?
Nexia TS offers outsourcing services which can be customised to fit your specific company needs. We are a one-stop solution centre that offers professional outsourcing services that comply with the reporting requirements in Singapore.
This article is authored by Esther Tan (Manager, Accounting Services, Nexia TS).
For more information, please contact:
Mr Chin Chee Choon
Assurance and Advisory