What is Business Process Outsourcing?
Business Process Outsourcing (or BPO) is simply hiring another company to perform a specific function instead of doing it yourself. If you hire FedEx to provide shipping services, you have outsourced your shipping. If you hire your electric utility to provide electricity, you have outsourced your electricity production. If you hire a payroll company to provide payroll to your employees, you have outsourced payroll.
All of these you can do on your own but are much better off hiring a specialist firm to do it instead.
Is Business Process Outsourcing Right For You?
How do you know if you should outsource a particular function? One common way is to determine what your company’s core competencies are. If you are a retailer, your core competencies are generally things like sourcing products, keeping on top of trends, how to display merchandise, pricing, etc. These are the things that add value to your customers. Everything else is a candidate for outsourcing.
What Are Some Common Outsourced Business Processes?
Commonly outsourced business process functions include accounting (accounts payable, accounts receivable, payroll, etc.), information technology, and human resources. These are all functions that every company needs to do but is not in the business of providing to their customers.
Other functions may make sense, depending on your industry. For example, if you are a retailer, it may make sense to hire a logistics company to manage your warehouses or to pack and ship products to your customers.
What is the Accounts Payable process in Business Process Outsourcing?
The AP process is commonly performed by BPO firms on behalf of their clients. For example, a company may hire a firm that specializes in Finance and Accounting outsourcing to provide Accounts Payable services. This benefits the company as it can take advantage of the automation, best practices, processes, and scalability of the outsourcing firm versus having to hire, train, and manage staff as well as implement software to handle the accounts payable process.
Although there can be challenges to Business Process Outsourcing, companies that outsource their AP generally have significant cost savings while gaining better internal and management controls, automation, and best practices.
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