Have you been considering whether to outsource some of your treasury functions? If so, you’re not alone. Outsourcing is becoming a popular way for treasurers to cut costs, maximize staff efficiency and improve the bottom line. In fact, recent articles have gone so far as to say that up to 51 percent of firms could be outsourcing by mid-2004.

But is that number realistic for treasury? It depends on how you define outsourcing. Bank of America research shows that many outsourcing statistics are over-inflated, probably because they include payroll functions, which are not considered part of the core treasury.

A 2002 informal Bank of America survey revealed that while the demand for outsourcing the complete treasury function in the U.S is small, companies are prepared to outsource specific functions — particularly those that allow them to benefit from external expertise or free themselves from routine activities. The areas identified as having the greatest potential for outsourcing are investments, foreign exchange and liquidity management.

When deciding whether to outsource, there are many issues you need to consider carefully, including customer impact, security and financial liability. Here are some questions that can help get you started on your decision-making process.

What Are Your Goals?

Before you can decide on an outsourcing solution for your company, you have to identify the improvements you hope to make and the objectives you want to achieve with your current operations. Are you looking to reduce administrative overhead costs? Bolster inadequate resources? Improve service and performance? Upgrade your systems or IT infrastructure without a huge investment? Enhance your market responsiveness? Be aware that each of these goals may require a different solution.

Why Should You Outsource?

There are many viable business reasons why you should consider outsourcing, including:

Cost savings

Outsourcing is a proven method of receiving the most up-to-date services and processes at cost-effective prices.

Lower up-front investment

Rather than keeping up with and investing in the latest technological developments and systems, you can rely on an outsourcing provider to handle it for you.

Better use of company resources

Staff recruitment, training, development, supervision, career planning, and annual reviews all can become the responsibility of your outsourcing provider, freeing up your time for more important activities.

Greater control

An outsourcing provider can bring enhanced control by segregating duties, providing holiday cover, improving process efficiencies, establishing set transaction costs and much more.

Leveraging outside expertise

You can depend on the experience and skills of your outsourcing partner.

Which Functions Are Suitable for Outsourcing?

In general, the treasury processes you outsource should be:

  • A non-core part of your company’s business. Strategic activities that have a fundamental bearing on your company’s bottom line are best kept in-house and under your direct control. True financial decision-making should remain firmly within your company.
  • More cost-effective, when you take into account the scale benefits provided by the selected vendor.
  • Highly repetitive processes. Back office operations and high volume/low value treasury transactions are all functions well-suited for outsourcing.
  • Operations you understand so you can control and measure the performance of the service provider.

A GTNews October 2002 survey showed that functions least likely to be outsourced are risk management and funding/debt management, probably since it’s more difficult to make the distinction between strategy/policy and execution.

How Do You Choose an Outsourcing Partner?

Once you have determined the level of service you need and which functions you are going to outsource, you can begin a formal selection process. You should identify a list of potential providers, provide detailed specs of the services you require, submit RFPs to each agency, and determine your selection criteria in advance.

Keep in mind that outsourcing is usually a mid- to long-term process and you will have an ongoing relationship with whatever provider you choose. Since your outsourcing partner must fully understand your business needs and standards, you should get to know your potential choices for at least two months before making your final decision.

What Should You Look for?

Although it may seem just plain common sense, you need to ascertain that your project is not among the first your potential outsourcing partner has undertaken. Your service provider must have real implementation experience, and be prepared to stay for the long-term. Plus, watch out for conflicts of interest or self-interest. Overall, your partner should be flexible, and have a corporate treasury orientation and the ability to customize services to accommodate your business now and down the road.

The right business partner will bring project management skills and specialized knowledge to both the implementation and ongoing execution of your projects. Your partner also should integrate thoroughly with your in-house operations and offer suggestions about further improvements. In short, your outsourcing partner should be unrecognizable from your own treasury, acting in the same way as your organization would.

How Do You Ensure a Smooth Working Relationship?

After choosing your partner, you need to have a clear and shared understanding of what functions are being outsourced and the specific arrangements. Both you and your partner must establish expectations, responsibilities and deliverables right from the start. These details should be spelled out thoroughly in proposals, service level agreements and service contracts.

You must feel comfortable with your partner’s capabilities and infrastructure, including people, systems, internal controls, and security. But no matter what, ensure that your financial assets and funds are protected under all agreements and contracts. And lastly, have a process in place for managing the outsourced services.

What about Security?

If you’re like most treasurers, your overriding concern with outsourcing is transmitting financial data via web-enabled technologies. That’s why it’s imperative your partner incorporate security into the infrastructure of the treasury management platform. Most outsourcing suppliers have the technology in place to guarantee database security, database segregation, the transmission of transaction data across the internet, authentication, and access to the system/data.

You’ll want to pay special attention to data confidentiality, as well as application database and operating systems security. Most systems offer several password control features and provide functions to segregate treasury staff duties. Look for outsourcing partners who secure data on hard disk and provide security during data transmission through the use of digital signatures or data encryption.

Check into the background of your service provider, including its financial strength and staff experience. Get references from other companies. And, be sure to include the level of security you require in the service level agreement with your outsourcing provider. To ensure that this level of security continues, you may consider requesting a third party statement on security from your outsourcer.

Will You Be Giving up Control by Outsourcing?

Surprisingly, most treasurers who decide to outsource have found the exact opposite to be true. They actually discover they have more control because they can:

  • Focus on the critical and strategic aspects of treasury rather than on day-to-day transaction processing and other operations.
  • Avoid the expensive, time-consuming and problematic dimensions of treasury.
  • Reduce the time and energy needed for staff recruitment, training and management, all which require much supervision.
  • Have more influence and value in their organization.
  • Position themselves and the treasury component more prominently in the corporation.
  • Enjoy a greater leadership role.

Of course, the outsourcing partner you choose will have an enormous effect on whether any or all of the above is true. A poor outsourcing provider can cause more problems and headaches for you as treasurer, increasing the amount of time you have to spend resolving crises and getting bogged down in everyday details. That’s why so much time and care should be given to selecting the right outsourcing partner from the start.

To Outsource or Not To Outsource?

Although many news articles overstate the appetite for treasury outsourcing, it is becoming more popular. If you decide to outsource specific treasury functions or increase the number of functions outsourced, it is important to maintain a balanced overview of the issues, challenges and concerns involved. In addition, it is essential to choose a partner who’s right for you.

This article appeared in December 2002. (BA)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.

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