Farewell, Finance

A Singaporean holding company whose main assets are run from the U.S., and an American corporation that generates half of its revenues from the Asian region, have taken very different approaches to offshoring the finance function.

The difference is that NOL’s centers can have a headcount of as few as one person, mainly to deal with problems that may be too complicated for the Accenture staff handling their account. “Usually, complications start when customers create customized payment structures,” says Lim. For example, the final destination of a container shipment may be Malaysia, but the payment-processing center of the receiver may be in Singapore, with no advance instruction given. “If the customer also has a processing base in Singapore, Accenture may not understand exactly what’s happening,” says Lim, “so the end receiver [of the invoice] may not be the one [in charge of] paying.”

In a bid to prevent similar problems, NOL worked with Accenture to make sure that clients have no problems with invoices before payment is due. Some clients overshoot the 30-day payment deadline. “You go to a client and the client says, ‘I don’t agree with your US$5,000 (invoice), I think it should be US$4,500 because I actually got a rebate,’” says Lim. By the time the issue is cleared up — which may or may not result in a full payment — another 35 days have lapsed, leading to a deterioration of NOL’s days sales outstanding (DSO).” The solution: If there are disputes, Accenture gets in touch with the client around 15 days after the invoice is sent. “You want any problem to be highlighted before the credit is due, which could be a big improvement since it will bring down your DSO,” says Lim.

Another benefit to outsourcing, he adds, is that it could prevent the incidence of fraud. The reason? Third-party service providers tend to be more stringent in following their clients’ compliance standards. “If they don’t comply, they can get sued,” says Lim. “Whereas if one of our internal finance staff doesn’t follow certain rules and because of that a fraud occurs, we can fire the staff, that’s about all. But we can’t claim the money back.” He adds: “Somebody who is a third-party outsourcer will have insured himself against such negligence or non-compliance.”

Great Save

Lim and Leung are quick to admit that cost savings were the motivation for going offshore. Apart from payroll cuts, Lim says NOL is no longer spending US$100 million a year to upgrade the IT system that supports finance functions. “Most shipping lines spend 2.5 to 4 percent of their revenues on computer systems,” says Lim.

There are other potential gains. In the case of NOL, the deal with Accenture involves a built-in incentive to continue the search for savings. NOL pays Accenture a monthly charge, according to Lim, based on a cost assumption — or projection — of what NOL would incur if it were to run the shared service center itself. If Accenture does better than this target, the two companies share on the savings. If costs are higher than target, NOL will share with the extra cost only up to a certain amount, after which Accenture bears the cost.

For Agilent, the outsourcing center could prove a source of future business as well as savings. Says Leung: “If we feel that we are doing such a good job, then who knows, after two years or three, we would have such a good infrastructure that we could do the outsourcing for other people.” Another route to future benefits from outsourcing/insourcing could involve a build-and-sell scenario. Jimmy Yap, head of Asia Pacific cash management at Deutsche Bank in Singapore, says some offshore insourcing arrangements of large US multinationals, notably in India, evolve to be sold to dedicated outsourcing service providers after three to five years of operation.

In the meantime, finance chiefs and their colleagues can savor the added professional benefit of outsourcing: more time for more analytical tasks. “It’s not very fulfilling if you spend a disproportionate amount of time on data mining instead of analysis,” says Leung. Lim says managing transactional processes used to take up to 50 percent of some of his senior finance staff’s time. Not anymore.

“We’re now making better use of the time … to be partners with the business units, and to offer more analysis and financial support.”.

Abe De Ramos is executive editor of CFO Asia in Hong Kong.

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