The pros and cons of shared service centres for finance and accounting
Is setting up a SSC the right move for your company? Here are some key factors to consider.
Companies looking to consolidate and centralise their finance and accounting functions are typically wanting to do so for:
- Process standardisation and efficiency: with standard processes, it’s easier to design and update the control environment and build consistent input and output reports. Review work is streamlined and iterations reduced.
- Cost savings: this is the no-brainer. Automation and process improvement can reduce costs substantially.
- Business insight: companies with a de-centralised accounting function spend a significant amount of time collecting data – but don’t analyse it. By the time management information is collected and reports are available, it might be outdated and irrelevant.
Setting up shared service centres (SSCs) can help companies to save money and operate more effectively. However the pros should also be weighed against the cons.
1. Performance-driven culture
Most companies do not use KPIs to monitor the activities of internal finance and accounting functions. Those that do tend to focus on traditional, external-looking KPIs including AR (accounts receivable) days and AP (accounts payable) days. The entire approach changes with SSCs. Finance and accounting functions are managed as a service, measured from an efficiency and productivity perspective.
The most popular KPIs used in SSCs measure the number of invoices per FTE (full-time equivalent), FTE cost as a percentage of revenue, percentage of errors, number of manual entries and so on. Continuous monitoring of these KPIs helps organisations identify areas for improvement and automation.
2. Talent management
In many countries, finance people complain about the challenges of getting the right level of skills and expertise. Centralisation of the finance and accounting functions can help solve some of these problems by locating the activities in countries with the available talent pool.
3. Lean organisation
The move to a SSC model prompts organisations to entirely reconsider the way in which they operate. It’s an opportunity to look not only at how some tasks can be performed more efficiently, but ask whether the tasks are needed at all.
1. Risk of non-compliance
How do you make sure the SSC remains compliant with local rules in all the countries in which your business operates? While transactional accounting can easily be accommodated in a SSC, there will still be a need to meet local tax and financial reporting requirements. Additional processes, including data reconciliation and tools for oversight and tracking, may need to be developed and monitored – and specialist assistance sought to cover any knowledge gaps.
2. The lack of local know-how
Local accounting and tax rules differ from country to country. Yes, there are commonalities, but each country has its own unique regulations and reporting requirements. Our research shows that in 70% of jurisdictions surveyed, local authorities prescribe the format of accounting reports. There are many countries in which local GAAP (Generally Accepted Accounting Principles) is different from IFRS (International Financial Reporting Standards). Both still need to be converted to local GAAP and rules for depreciation, foreign currency revaluation or fixed asset capitalisation considered.
While there is a trend towards rule alignment with VAT (value added tax) and GST (general sales tax), corporate income tax and withholding taxes are based on country-specific rules, and the provisions for expense deductibility or for what represents sufficient supporting documentation can still vary. It is very difficult for a shared service centre to be 100% knowledgeable and up-to-date on every jurisdiction around the world. TMF Group’s experts in more than 80 countries not only maintain compliance to current standards, they monitor regulation changes and update clients in good time.
3. The lack of local relationships
Regular contact with local tax authorities is an important factor in keeping your operations compliant. The ability to converse with authorities in the local language and respond to questions quickly is paramount. Time zones are important, too. Failure to respond in time and in the right way could result in fines and penalties.
Another fundamental issue is location and cultural fit. Do you near or off-shore? Near-shore SSCs are becoming more popular. While cost-savings are less, the non-financial aspects (such as a better cultural fit) can be advantageous.
Talk to TMF
When considering a move to a SSC, it’s a good idea to start the transition process with a less complex region and get specialised advice to help identify the output reports that can be standardised and the country-specific variations that must be considered.
Need more information or have questions about how we can help? Contact us today.
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