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Outsourcing Vs Automation Technology - How it is changing life, business and cash flow!

7 September 2016


"Oh yeah, we're gonna bring in some entry-level graduates, farm some work out to Singapore, that's the usual deal" - Bob Slydell - OfficeSpace (1999)

Not sure if you have watched the comedy cult classic called OfficeSpace, which was set at the turn of the century when technology was disrupting the employability of man-kind. Using dark and awkward comedy we got a taste of what was to come in the 21st century - Automation & Outsourcing!

Automation technology is revolutionising how we live our lives but also how we do business. It de-skilling labour, creating new markets and challenging industries that have been around for centuries. And it is not expected to slow! All the apps that are driving this movement in the space are getting smarter quicker. This is all a catalyst of exponential growth in computing power since 1965 as defined by Moores Law.

Outsourcing is certainly not a new practice but as globalisation has accelerated from improved connectivity through technology, many businesses have the vision of working by the principals of the 4-hour work week  - "If it is not core to the business, outsource it!"

According to Pay Scale the average pay for an accounts receivable clerk is A$44,945 per year and can go as high as A$57,000. This amount seems reasonable when you consider the accounts recievable clerk typically performs a range of tasks including invoicing clients, chasing clients for payment, daily bank reconciliations and preparing reports. However, each of these tasks can be completed externally or performed by an app at a significantly lower cost. For example the average annual cost of an accounts receivable clerk in Manila is around A$9,000 and the cost of some apps that helps manage your bills and invoices more efficiently is around $6,000

Cash flow is king when it comes to SME, so how is outsourcing and automation changing how a business manages their cash flow?

Outsourcing 

Managing cash flow is being revolutionised by outsourcing. Business processes have been going offshore for years in search of lower costs. However moving a business process offshore is not without risks. The biggest risk is loss of control. For example, can you rely on the offshore partner to handle payment collection with the same care you would? Going offshore brings cost savings, but the risks can result in unanticipated costs such as loss of a client because they didn’t like the way payment collection was handled. 

Outsourcing

Outsourcing of collection of accounts receivable has traditionally been done using a factoring company. The factoring company performs many of the tasks of the accounts recievable clerk with one key difference – they also purchase the accounts receivables and in doing so provide funding to the business to boost cash flow. However, with factoring a business runs into the same problem as offshoring – loss of control.

Factoring companies have been known to chase invoice payments at the expense of the customer relationships. Unanticipated fees is another risk when using a factoring company. While the headline rates for a factoring company may seem reasonable, there are often a whole host of other fees buried deep within the factoring contract. Here is a list of fees we found in a factoring contract:

Discount Fee Non-Notification Fee
Redirection Fee Pre-Completion Fee
Late Fee Notification of Offsetting Fee
Unused Facility Fee Reconciliation Error Fee
Sign-up Fee Non Notified Receivable Fee

Trying to understand what these fees actually mean and when they apply can make your head hurt. We cover these nuances and comment on the future of factoring here.

What if instead of the business owner outsourcing these business processes, they could automate them for a fraction of the cost and still maintain control? 

Automation

We are now live in a data-driven economy where technology is helping structure data for us. Life and business moves quickly and the need to have financial oversight at your finger tips is becoming pre-requisite. Web and mobile apps are collecting, structuring, storing and disseminating data so informed decisions can be made in seconds.

Focussing on cash flow, there are now apps that cover each step in the purchase order-to-payment cycle. This evolution has brought significant change in accounting & bookkeeping space as cloud based accounting software platforms foster innovation via their own app eco-systems. Often this raises a popular question, is the role of accountant or bookkeeper being automated? We think not but they need to Keep Calm and Collaborate to keep ahead. 

So what are some of the apps that are redefining how the purchase order-to-payment cycle is managed in a business?


Cash Flow Control with Skippr


Bookkeeping Automation

No longer do piles of receipts and invoices need to be manually input by humans. Great apps like Receipt Bank, HubDoc, WebExpenses and Expensifyhave automated the input process through scanning, structuring and accounting technology. Bookkeepers internal or external to a busines, now can spend time on upskilling into business advisory and other higher value services.

Credit Control

Payables and receivables although now held electronically still move between the stakeholders in a dis-jointed manner causing huge supply chain inefficiency and hence extended payment terms. This is further exacerbated by a long-payment culture in Australia. Fortunately there are great apps like Debtor Daddy, Ezy CollectIODM and Chaser who are now automating the collection process using smart behavioural technology.

Reporting and Management

90% of the world's data has been created in the last 2 years. It becoming more structured, enables smart apps to disseminate and report on data far more easily and cheaply. No longer does sophisticated reporting come at a huge enterprise cost. SME data information assymetry is being removed with strong adoption of online accounting. A business owner, accountant or bookkeeper can leverage apps that connect to these platforms and extrapolate data into visual and dynamic reports within a couple of clicks. Skippr is one such platform which reports cash flow health to the user in minutes via simple insights and visual reports. No longer does the cash flow cycle need to be a guessing game. Users can now leverage the data within their business instantly to get not only peace of mind but more importantly, control.

Outsourcing and automation can be used in many parts of a business. Technology continues to challenge this paradigm as it influences how much control we have over our jobs and businesses. Peter Gibbons, although a fictional character from the movie OfficeSpace, was onto a good thing when he rebelled against his boring career as a software engineer at an outdated software company.

- "Human beings were not meant to sit in little cubicles staring at computer screens all day, filling out useless forms and listening to eight different bosses drone on about about mission statements" 

Peter Gibbons was a catalyst to change in how we should work and live. Technology is not here to de-skill and take peoples job. It's here to enable humans to focus on more productive tasks and opportunities. I leave you with an interesting article that covers this conundrum in the ridesharing industry.

 

Alistair Lamond

Written by Alistair Lamond

Active entrepreneur passionate about fintech and SME innovation. Loves all things outdoors - surfing, rugby, cycling, skiing & bocce. Director at Skippr - A Cash Flow Company. Co-Founder of @alemfoundation.

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