Things to Consider While Preparing a Service Agreement in an Accounting Outsourcing Process
Once you have selected and chosen a suitable accounting outsourcing service provider for your accounting needs the next level would be to draft the service agreement and lay down points which are essential: A service agreement should cover the following: 1.
Define the scope of work Clearly define the scope and schedule for your project.
This might seem obvious, but any successful outsourcing engagement always starts with a clear statement of what you are hoping to accomplish.
Define your project requirements up front.
Give vendors as much information as you can about what you need delivered and the way in which you need the work done.
2.
Define the level of quality The level of the quality of services from the vendor should be clearly defined.
The parameters used to define and measure level of service will vary depending on the process.
For transaction processing, it should be measured on accuracy or processing speed.
For example, in accounts payable processing, a popular metric is the accuracy % of the invoices processed correctly.
Turn-around time is another popular measure.
Ensure regular error tracking and reporting with periodic submission of quality reports 3.
Process Specification There are usually two ways: The offshore staff would be performing the process by remotely accessing the accounting software hosted on your server using a remote access software or working on the backup copies of the accounting file.
A third and increasing popular way is to use a web-based version of the accounting software.
A clear specification of the process and document flow in the agreement is important the processing speed and other performance parameters can vary based on the method chosen for processing.
Source Documents can be faxed or uploaded on to the service providers' server, or they may be accessed remotely by the service-provider's staff.
This is the slowest method in terms of processing.
4.
Pricing There are several factors to be considered while negotiating the price of the contract.
The type of pricing- hourly, fixed fee or transaction based.
Hourly pricing works well where you have small projects that need to be completed on as and when needed basis.
Fixed fee works well when you have regular monthly accounting requirements.
The most often used fixed fee model is the FTE (Full-Time Employee) model where service providers charge a fee per full-time employee working on the client projects.
Transaction pricing is the toughest for a service provider to provide as the risk of non-performance gets directly built into the pricing.
However this pricing is not suitable where transaction volume is not high, or where a 'transaction' cannot be clearly defined in processes such as year-end finalization.
The most used approach is a fixed-price contract.
Also clearly define the scope of work covered under a given pricing.
Confirm from the service-provider any additional charges that could be applicable apart processing or service charges.
5.
Payment terms.
You should pay your vendor as you do your staff or other vendors.
Don't accept demands for payment before the work is complete.
6.
Length of the contract.
Usually it's a yearly contract that renews automatically unless notified otherwise by either service provider or client.
You could negotiate for easier terms in the first few months, when the process is new.
7.
Define termination procedures.
Any termination of services from either party is usually by a prior written notice of thirty (30) days to the other party of its intention to terminate.
Insist that your vendor agree to transfer all files back to you and provide reasonable assistance to a new vendor.
Also you could get a lower termination period (15 days) in the pilot phase of the contract (usually first one -two months).
8.
Data Security.
Ensure that the data with the service provider is completely safe.
Always sign up a Nondisclosure Agreement with the service provider which is punishable under the law if broken.
9.
Build flexibility into the contract.
As your business needs change, you will want to change the scope of the contract.
Build in a process to resolve these issues as they arise.
While the outsourcer shouldn't charge you for every little change, recognize that changes cost money and you may need to pay for such changes as they arise.
Define the scope of work Clearly define the scope and schedule for your project.
This might seem obvious, but any successful outsourcing engagement always starts with a clear statement of what you are hoping to accomplish.
Define your project requirements up front.
Give vendors as much information as you can about what you need delivered and the way in which you need the work done.
2.
Define the level of quality The level of the quality of services from the vendor should be clearly defined.
The parameters used to define and measure level of service will vary depending on the process.
For transaction processing, it should be measured on accuracy or processing speed.
For example, in accounts payable processing, a popular metric is the accuracy % of the invoices processed correctly.
Turn-around time is another popular measure.
Ensure regular error tracking and reporting with periodic submission of quality reports 3.
Process Specification There are usually two ways: The offshore staff would be performing the process by remotely accessing the accounting software hosted on your server using a remote access software or working on the backup copies of the accounting file.
A third and increasing popular way is to use a web-based version of the accounting software.
A clear specification of the process and document flow in the agreement is important the processing speed and other performance parameters can vary based on the method chosen for processing.
Source Documents can be faxed or uploaded on to the service providers' server, or they may be accessed remotely by the service-provider's staff.
This is the slowest method in terms of processing.
4.
Pricing There are several factors to be considered while negotiating the price of the contract.
The type of pricing- hourly, fixed fee or transaction based.
Hourly pricing works well where you have small projects that need to be completed on as and when needed basis.
Fixed fee works well when you have regular monthly accounting requirements.
The most often used fixed fee model is the FTE (Full-Time Employee) model where service providers charge a fee per full-time employee working on the client projects.
Transaction pricing is the toughest for a service provider to provide as the risk of non-performance gets directly built into the pricing.
However this pricing is not suitable where transaction volume is not high, or where a 'transaction' cannot be clearly defined in processes such as year-end finalization.
The most used approach is a fixed-price contract.
Also clearly define the scope of work covered under a given pricing.
Confirm from the service-provider any additional charges that could be applicable apart processing or service charges.
5.
Payment terms.
You should pay your vendor as you do your staff or other vendors.
Don't accept demands for payment before the work is complete.
6.
Length of the contract.
Usually it's a yearly contract that renews automatically unless notified otherwise by either service provider or client.
You could negotiate for easier terms in the first few months, when the process is new.
7.
Define termination procedures.
Any termination of services from either party is usually by a prior written notice of thirty (30) days to the other party of its intention to terminate.
Insist that your vendor agree to transfer all files back to you and provide reasonable assistance to a new vendor.
Also you could get a lower termination period (15 days) in the pilot phase of the contract (usually first one -two months).
8.
Data Security.
Ensure that the data with the service provider is completely safe.
Always sign up a Nondisclosure Agreement with the service provider which is punishable under the law if broken.
9.
Build flexibility into the contract.
As your business needs change, you will want to change the scope of the contract.
Build in a process to resolve these issues as they arise.
While the outsourcer shouldn't charge you for every little change, recognize that changes cost money and you may need to pay for such changes as they arise.
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