The pros and cons of shared service centres for finance and accounting

Companies looking to consolidate and centralise their finance and accounting functions typically want to do so for a number of reasons. Among them:

• Process standardisation and efficiency: with standardised 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 a no-brainer. Automation and process improvement can reduce costs substantially.
• Business insight: companies with a decentralised accounting function spend a significant amount of time collecting data – but don’t necessarily analyse it. By the time management information is collected and reports are made available, the information might be outdated and irrelevant.

Setting up a shared service centre (SSCs) can help companies to save money and operate more effectively. However, the pros should also be stacked up against the cons.

The pros

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, outward-looking KPIs including AR (accounts receivable) days and AP (accounts payable) days. This 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 things such as 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 personnel 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 re-evaluate 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.

The cons

1. Risk of non-compliance

How do you make sure the SSC remains compliant with the local rules for each of 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 some commonalities and standards, but each country has its own unique regulations and reporting requirements. Our research shows that in 57% of jurisdictions surveyed, local authorities require companies to adhere to a set of local Generally Accepted Accounting Principles (local GAAP), whereas the International Financial Reporting Standard (IFRS) is only required by all companies in 19% of jurisdictions. The percentage of jurisdictions where all companies are required to adhere to some form of local standard has increased since last year, suggesting that accounting practices are becoming more localised.

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, present in more than 85 jurisdictions, not only maintain compliance to current standards, they monitor regulation changes and update clients of developments ahead of 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 lead to 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 smaller, the non-financial aspects (such as a better cultural fit) can be advantageous.

Talk to us

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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