Finance & Accounting

Need for Higher Revenue, Lower Losses Fuels FAO Boom

By Dan Berthiaume

The need for CFOs to grow revenues while entering new markets and reducing revenue losses, as well as a general maturing of the finance & accounting outsourcing (FAO) marketplace, are driving a boom in the outsourcing of finance and accounting business processes. This boom helped spur the recent purchase of the order-to-cash (OTC) business of Vengroff, Williams & Associates (VWA) by Capgemini. Executives at Capgemini see the merger as a sign of where FAO is headed, and discussed what the merger means for the future of FAO both in a recent webinar and in a phone interview.

All You Need is Cash

“Five percent of a company’s revenue can be lost due to poor cash collection,” said Bob Williams, former chairman/CEO of VWA and head of BPO OTC of Capgemini.

Jon Bell, vice president and CTO of Capgemini BPO, agreed that OTC is one area of FAO with a future that looks particularly encouraging. “OTC has huge growth potential in the next few years,” said Bell. It was a great fit we achieved with the VWA acquisition. There is also a lot of interest in value-added outcomes and business insight, including compliance/control and governance.”

Williams also commented on the increased client focus on value-added BPO outcomes. “BPO had been focused on basic transactional changes for last couple of years,” he said. “It’s evolving  to a partnership delivering better value for clients; driving outcomes, optimizing working capital, and increasing revenues.”

Williams said FAO clients are also increasingly looking at processes such as risk mitigation credit limits and making sure customers pay within contract terms. “You need to stop revenue leakage and make sure that if customers take deductions, they take them properly.”

FAO as Transformation Agent

According to Bell, a maturing marketplace is expanding the breadth and depth of FAO relationships and further fueling growth. “We are seeing clients getting more mature with their (finance and accounting) outsourcing and getting away from the traditional vendor/client relationship toward a trusted business partner relationship,” he said. “They want a partner in the transformation of the business.”

Bell said that BPO represented 20% of Capgemini’s third quarter growth, with 60-65% of that coming from finance and accounting outsourcing. “It’s a growth opportunity to move into new areas of scope,” said Bell, who added Capgemini is working with brand new clients on more basic business problems as well as with established clients on more mature and transformative projects.

Williams added that many Capgemini FAO clients are employing a “hybrid” model of offshore BPO where roughly 80% of the headcount is based in an offshore location and about 20% is located in or near the client site. “It’s outcome-driven,” stated Williams, who said this model combines offshore cost savings with the convenience of having expertise located in close proximity.

It’s the Economy

To paraphrase a famous dictate of the 1992 Bill Clinton presidential campaign, Bell and Williams agree that when it comes to the resurgence of finance and accounting outsourcing, smart people know the economy is a pivotal factor.

“In the present economy, everyone is focused on their core business, and we have the expertise to take care of finance and accounting,” said Bell.

“Companies need to optimize their working capital and drive costs down, which is leading to the resurgence of finance and accounting outsourcing,” agreed Williams.

While the global economy is hardly in ideal shape, Bell and Williams both indicated that improvements since the nadir of late 2008 and early 2009 are now leading many companies to re-examine their FAO programs. “The economic meltdown of 2008-09 took everyone by surprise,” Williams said. “By the end of 2010 and early 2011, there was a pent-up demand for previously held back transformative initiatives. We are now looking toward producing business outcomes, with risk-based pricing models as opposed to fixed pricing models.”

Providing Capital Results

Bell added that working on the capital side is important to a BPO provider looking into how they can help clients grow their credit management services and fuel growth. “You want to provide a well-controlled environment where clients can extend credit and increase business with customers,” he said. “It’s about providing insight, analytics, and better (financial) controls enabling better decisions.”

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