Ultimate Guide to Offshoring Accounting to India

Your business management depends greatly and heavily on your accounting. You may keep track of all incoming and outgoing financial transactions in this category. The majority of companies rely on offshoring accounting services. To assist you in understanding more about this position, we’ll go through every possible aspect of offshoring accounting firms in India and the various benefits and challenges surrounding this topic.

In order to make business decisions, you need to have access to all of your financial data as an entrepreneur. Another essential component of keeping your business operating smoothly is keeping all of your financial documents correct and current. 

You need someone with the required credentials and knowledge to handle your money and accounting in light of the facts given. You could find that offshoring accounting experts are a better option for you than hiring inexperienced workers with low-quality abilities. 

After the IT sector, offshoring accounting services are among the most outsourced jobs today. Because it is more practical, economical, and efficient, businesses are increasingly preferring to offshore their accounting functions. 

Guide to Offshoring Accounting Firms in India

What is offshoring accounting?

The practice of outsourcing your company’s accounting requirements to another country is known as offshoring accounting. There are several reasons to do this, but the most popular one is to reduce labour expenses.

Accounting outsourcing is a fantastic strategy to improve your company’s bottom line. You can free up internal resources that would be better utilized elsewhere in your company by outsourcing your accounting requirements. Offshoring can also lower your labour expenses and provide you access to qualified accountants in other countries.

There are a few things to consider if you’re thinking about outsourcing your accounting requirements. Finding a respectable and trustworthy accounting company in the country where you desire to outsource is the first step. 

Second, you must create clear channels of communication between your business and the accounting firm. Finally, you must draft a comprehensive agreement that specifies the parameters of the task and the obligations of both parties.

What Common Business Activities Can Be Offshored to a Foreign Country?

Offshoring is a fantastic option for companies to save costs and boost productivity. You may free up resources by outsourcing specific jobs, allowing you to concentrate on your company’s essential skills. To ensure that the company receives the most benefits from offshore, it is crucial to identify which business functions are appropriate for it. 

Let’s examine the most typical company jobs that might be delegated to another country. Read on to learn how to use offshore resources for business success, from bookkeeping to financial planning:

Payroll processing

The process of calculating an employee’s “net pay,” which takes into account all applicable taxes and deductions, is known as payroll processing. The person in charge of payroll must organize the payroll process step-by-step to handle payroll effectively. Labour laws, federal regulations, and legal compliance are only a few of the rules and processes that must be followed. 

It is necessary to follow these recommendations. Non-compliance, however, is not always a conscious choice; many people simply cannot understand complex laws. Due to this, there are issues with compliance and significant fines.

Bookkeeping

The regular recording of a business’s financial operations is known as bookkeeping. Companies can track all of the information on their books to make crucial investment, operations, and financing choices with the help of effective bookkeeping.

People who manage all of a company’s financial data are known as bookkeepers. With bookkeepers, businesses would be aware of both their internal activities and present financial situation.

External users, such as investors, financial institutions, or the government, who require access to reliable data to make better investment or lending decisions, depend on accurate bookkeeping as well. Simply expressed, for both internal and external users, corporate organizations depend on precise and trustworthy bookkeeping.

Accounts receivable/payable

Short-term obligations that your business has to suppliers and vendors are known as accounts payable. Products, travel, raw materials, and transportation costs are a few examples.

The cost of your home, long-term debt, and salary are often not included; nonetheless, you should record each month’s payment for liabilities in the accounts payable. Additionally, your payroll system processes wages in distinct batches.

On the other hand, Accounts receivable is a term used to describe money that clients owe your company; it is seen as an asset. Bills or outstanding payments for services provided to customers or consumers are a few examples. Accounts receivable is a tool used by businesses to monitor outstanding payments from clients.

Tax Preparation

The process of preparing and submitting a tax return is known as tax preparation. It usually only takes place once, and it ends with you signing your return and learning whether you owe the IRS money or will be getting a refund.

Most people prepare their taxes by observing their accountant (CPA) once or twice, usually during tax season too hand over any financial papers required for the preparation of their return and to sign it. Additionally, they will ensure that all tax reporting on your return conforms with applicable federal and state tax laws.

Forensic Accounting

Forensic accounting is the branch of accounting that examines financial data for potential criminal evidence. To ascertain if a person or company has participated in financial misconduct, such as fraud or misappropriation, forensic accountants use their knowledge in accounting, auditing, and investigation.

Unlike conventional accountants, forensic accountant uses their legal knowledge to determine if financial behaviour is illegal, and they regularly present their findings in court. One characteristic of forensic accounting is this. Forensic accountants can work with insurance companies, banks, law enforcement, or other governmental agencies in addition to their private business.

Financial analysis

Financial analysis is a review of financial documents and other relevant information to assess an organisation’s performance and financial well-being. As part of this examination, it is common to look at an income statement, balance sheet, and cash flow statement to assess a company’s profitability, liquidity, solvency, and overall financial status. 

By using the right tools and approaches to evaluate your data, you may gain insights that assist you in forecasting and improving performance. You may use these methods and resources to help you make informed financial or business decisions.

The Benefits of Offshoring Accounting

There are a lot of benefits to offshoring accounting, a few of which we have mentioned below.

Cost Savings

One of the most alluring benefits of outsourcing for businesses is cost reduction. In comparison to recruiting internally, pay tends to be significantly lower when employing workers in low-cost countries. Additionally, because of the larger economies of scale, fewer employees are required to complete the same amount of labour. Additionally, you may save money on hardware and software.

Highly Skilled Workers

You can locate highly educated workers who are willing to perform activities like data entry that your local staff would otherwise disagree with in offshore locations. These jobs are simple to do when you have workers who are willing to carry them out.

Communication

Global organizations usually communicate in English. However, other nations, including Japan, Korea, Thailand, and Vietnam, have a small English-speaking population. 

Language is only one aspect of communication; culture and mentality are equally important. For instance, even while speaking in English, Japanese people adopt an indirect style of communication, making it possible for statements to be misunderstood.  

You may expect a high level of communication across all sites when you offshore and centralize your accounting in a country with good English skills and a comparable culture and philosophy, such as Malaysia, India, or the Philippines.

Operational Excellence

There are places on Earth that have a long history of operational excellence because large multinational corporations have used these places as centralized offshore centres for many years. The Philippines, Malaysia, India, and China are prominent locations.

The majority of these centres provide transactional processing with onshore technical compliance assistance. Operational excellence and continual development thus become a top focus and part of the culture at those locations.

Centralization

It is inefficient to have unneeded handoffs when several teams from across the world are working on the same procedure. For instance, would you like one accounting staff to accomplish the same task or twenty? The efficiency of a process can be increased by centralizing it within a single team and removing pointless handoffs. 

The Challenges of Offshoring Accounting

But these are the challenges that you could encounter and should take into account before offshoring your accounting work:

Building an offshore team is difficult.

Building an offshore team remotely is challenging since doing so requires an on-site team builder who is familiar with the local culture and can draw in top talent. Finding a fantastic resident leader or leadership team is the first significant difficulty. Your offshore projects are probably going to fail without this.

Initial Investment

An offshore team requires time and money to set up. It still involves infrastructure investment, time to create internal agreement on the goals, and, if everything goes well, at least a year if you’ve been able to recruit the proper offshore leadership. 

The final return on investment may take longer than expected since change management plays a significant role. Additionally, there is a chance that the original leadership will depart or prove to be unsuitable, forcing you to start over from the beginning.

For some jobs, an onshore staff is still necessary. 

There will always be financial jobs that demand technical expertise and can’t be outsourced. Since you won’t be able to offshore the financial department entirely, you must make sure the onshore and offshore workers can collaborate effectively.

It’s possible that your current onshore workforce will not want to work with offshore personnel.

Changing management is challenging for many businesses. Offshoring may seem like a brilliant concept to you, but your current finance department might need to be more enthusiastic. The existing team may fear that having an overseas staff may jeopardize their ability to keep their jobs or that mistakes will be made, leaving them with twice as much work to do. 

Cultural differences

The majority of countries have precise requirements for the kind of work that must be produced and how it should be done. Even if the quality is good on a worldwide scale, you can find that your onshore team considers the work done by the offshore team to be of inferior quality. The onshore staff can object because they believe it would be simpler to complete the jobs themselves. 

Steps of building an offshoring accounting team

If you’re thinking about creating an offshoring accounting staff for your company, there are a few key steps to follow.

Step 1

The first step in building an offshore team is figuring out your objectives and expected outcomes. Include benchmarks in your plan for reaching your desired results, such as the ratio of accounts receivable to total revenue, timely billing, and quarterly financial reporting.

Remember to include other crucial performance indicators in this part as well, such as the company’s profitability, liquidity, efficiency, valuation, and leverage.

Step 2

The two types of offshoring models are dedicated and functional. Under the dependable model, the offshore company serves as a mediator, finding workers who will complete the necessary job for the customer. The functional model, on the other hand, enables the offshore business to carry out particular duties for the client.

If you wish to make the switch to non-specific tasks like accounting and creating financial statements, a dedicated choice is excellent. Any person who satisfies the fundamental qualifications for the position should be able to do the work because these responsibilities do not call for specific expertise.

The functional approach, on the other hand, is perfect for outsourcing specific tasks like accounting and tax compliance. Giving these specialized and private activities to a particular offshore company will help safeguard your data. After determining which framework is most appropriate for your business, you should think about your budget, organizational objectives, and the competitive environment.

Step 3

The third step is to find the most suitable offshoring accounting firm for your business. Several websites, including Google, LinkedIn, and Facebook, you may get information on offshore companies. Find offshore headhunting companies that have a proven track record of hiring and developing accounting teams. You might also ask your dependable business associates and coworkers for referrals.

Make a list of requirements based on your demands to start, and then filter down your options depending on your needs. While doing this, think about checking the websites of each service to confirm their client list. Then, after analyzing your alternatives, you may choose what you want to do.

Step 4

They are making sufficient infrastructure and technology investments. By reducing errors, standard operating procedures may boost efficiency and provide higher-quality output. Before establishing standards for your offshoring accounting personnel, make sure they understand their specific roles.

After that, decide on your productivity objectives and strategies. By establishing guidelines, you can help your remote workers understand their roles.

Step 5

Step five is putting money into infrastructure and equipment, which can increase production at your business. This includes implementing in your business the industry-standard accounting programs, invoicing devices, and bookkeeping software.

An offshoring accounting staff may complete work more rapidly with the appropriate tools. As a consequence, you may be able to take advantage of business opportunities while also improving your income.

Step 6

After they start working for you, you should arrange several onboarding and training sessions to help your offshore staff become familiar with the procedures and resources used by your company. These lectures aim to increase their competence and boost operational efficiency.

To accelerate the remote onboarding process, it would be advantageous to make investments in systems and tools that facilitate communication, such as software for videoconferencing, the online handbook for staff tools, and customized portals.

Step 7

And the last step is Having your in-house accounting on board. Your offshore and internal accounting staff working together can help you complete tasks more rapidly. It also enables the emergence of a variety of fresh perspectives and ideas, which might result in innovative company ideas.

You may create a live gateway where both staff members can connect, discuss, and help one another to address issues. A phone system with allocated extension numbers is an alternative that would enable more communication. This facilitates communication between the two offices, allowing them to meet their goals more quickly.

What are the Reasons that shows that India is the Future of Offshoring Accounting

Due to a lack of skilled labour in developed countries, there is a high demand for knowledge-intensive services globally today. All geographical barriers have been removed by globalization, making it more straightforward for countries to access resources and talent from all over the world. 

A global standardization of financial and accounting operations has also occurred. India benefits from having a large number of accounting experts, including chartered accountants and tax specialists. All of these elements have given India a favourable situation.

CPAs in other countries, including the US, are overburdened with laborious, monotonous tasks like payroll accounting, bill processing, and bookkeeping. The CPAs may concentrate their efforts on other lucrative endeavours like investing, asset management, and tax preparation by outsourcing these bookkeeping tasks. 

These businesses now send all of their low-skilled, high-volume work to India, a country renowned for its trained labour and effective business practices.

The Benefits of Indian Offshoring Accounting Services Compared to Other Countries

India has an advantage over other countries due to the following factors:

• India offers excellent, efficient financial and accounting services at a reasonable price.
• English-speaking, qualified bookkeepers and accountants are readily accessible.
• In recent years, technology in India has advanced significantly.
• The workforce in India is highly communicative.
• As a result of the developed infrastructure and low cost of communication, people are prepared to work anywhere and at any time.
• India is known for having a low rate of employee turnover. This guarantees the outsourcing firm receives constant service and lowers the expense of hiring and training new employees.
• By outsourcing to India, businesses save the costs associated with recruiting internal staff.

Due to India’s various benefits, more and more nations are outsourcing their accounting and bookkeeping requirements to India each year. As a result, India’s offshoring accounting industry has a very bright future. In the upcoming years, it is anticipated that the nation’s share of the worldwide KPO industry will quadruple.

Conclusion

To increase corporate profitability, many small and medium-sized enterprises choose to offshoring accounting tasks.

However, you must make sure that they meet your specific company requirements when you offshoring accounting to a CPA (Certified Public Accountant) or any other CPA firm. You can consider the advantages and challenges of offshoring accounting for your company by reading the pros and downsides covered in this article.

Frequently Asked Questions (FAQs)

Q.1: What is the difference between offshoring and outsourcing accounting?

Ans 1: Although the phrases outsourcing and offshore are sometimes used interchangeably, they have different meanings. Transferring organizational tasks to a third party is referred to as outsourcing or offshore, determined by where that third party is located.

Q.2 How does offshoring accounting work?

Ans 3: An accounting company located outside of the home country of a customer manages and maintains financial records and statements as part of the professional service known as offshoring accounting. Bookkeeping, tax preparation, financial statement preparation, budgeting, and other financial management services are offered.

Q.3 What are the risks of outsourcing accounting services?

Ans 4: Data Breach: Sensitive Financial Information. The fact that you are giving someone on the other side of the world access to your compassionate company and financial data is by far the most significant risk associated with outsourcing accounting.

Q.4 Is outsourcing accounting a good idea?

Ans 5: You should think about outsourcing accounting for your company if you want a scalable, affordable, and dependable approach to managing your accounting department’s requirements.