Outsourcing during an economic downturn can reduce overhead costs, increase quality control processes, and improve productivity. Commonly outsourced tasks include purchasing, payroll processing, and accounts payable and receivable. The main benefit is reducing operating costs through staff reduction. A properly structured contract with performance and quality metrics can result in a highly motivated outsourcing company. Outsourcing can also distance the company from aggressive tactics in accounts receivable and collections.
Many companies are evaluating the benefits of outsourcing during an economic downturn. Outsourcing is the process of using independent companies to fulfill the needs of the organization. The most common tasks to outsource are stand-alone business processes that are generic in nature.
Typically, only a subset of the entire process is sent to the outsourcing company. The parent company must retain ownership and management of the data. For example, payroll processing is often outsourced, but the actual reconciliation of payroll costs and sending remittances to government agencies and benefit companies is generally kept in-house.
There are three main benefits of outsourcing: reduced overhead costs, increased quality control processes, and increased productivity. Some types of services subject to outsourcing include purchasing, payroll processing, accounts payable and receivable, and collections. The move to outsourcing represents a huge organizational shift, and careful communication with employees and shareholders is required to minimize concern.
Of all the benefits of outsourcing, reducing operating costs is the most important. It is important to note that the main source of savings from outsourcing is due to a reduction in staff. Most organizations eliminate data processing and oversight positions as they transition to outsourcing. In addition to savings in payroll costs, the company can also reduce the office space, heating, and operating costs associated with this department.
When negotiating an outsourcing contract, most companies add performance and quality metrics. These benchmarks are linked to compensation, encouraging the company to achieve these performance levels. There are certain restrictions related to quality control processes in an employment relationship that do not exist in a business-to-business relationship. A properly structured contract will result in a highly motivated outsourcing company that will strive to meet all of the client company’s requirements.
Improvements in productivity and production are additional benefits of outsourcing. This can be attributed to a focused work environment. Employees at an outsourcing company are only working on one aspect of business operations. They are usually well trained in this field and are able to gain greater efficiency due to their focus and skill level.
Another benefit of outsourcing is the company’s ability to distance itself from the aggressive tactics of the outsourcing company. This is particularly important in accounts receivable and collections. The main company can maintain its image of a business in question, while the collections department can ensure that customers pay for services provided and minimize bad debts.
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