Episode 15: Outsourcing vs Automating processes at CFOs Office

Madhurima Gupta:
Hi everybody. Welcome to the CFO Circle podcast powered by RadiusOne by HighRadius. Today I have with me Rey del Valle, who has been working as an interim CFO and a consultant and has over 20 years of experience working at fortune 50 companies, building scalable world-class finance functions. He’s worked across multiple industries, including ticketing, eCommerce, SaaS, digital media, and sponsorships. He has successfully deployed machine learning tools that resulted in the finance department’s analytical headcount savings. And he’s also a prominent member of CFO professional development organizations, including the CFO Leadership Council and Financial Executives International. So on that note, welcome to the show Rey, great to have you here with us today.
Rey del Valle:
Thank you for the invite. I’m looking forward to the discussion.
Madhurima Gupta:
Absolutely. So on CFO circle, we talk to experts like yourself, the idea is to understand the pressing challenges that the office of CFOs face and in general, the, uh, you know, decisions that CFOs have to take on a regular basis. And on that note, you know, we understand that one of the major problems that CFOs face is to understand and choose whether they should be outsourcing versus automating processes at the CFO’s office. So for that reason, and for that topic, I have you with me today to, you know, discuss this at length. And you know, before we get started there’s some information that I’d like to share. So, you know, automation and outsourcing have definitely a common goal, you know, it’s basically cost reduction error reduction, and maybe capacity increase as well. But choosing to pursue one over another is not always a very straightforward decision. And if it comes to accounting, many small businesses are resorting to outsourcing today. However, there are challenges when it comes to that, uh, specifically data security being a top concern. And that’s as per a research that was recently done where, 68% of outsourcing, you know, cases found that moving to cloud technology is a much safer choice than going for, you know, outsourcing solutions. Right? So let’s quickly, you know, delve right into it and understand that given economic uncertainty post-2020, is outsourcing critical works such as let’s say, managing accounts receivable, still a reliable approach according to you.
Rey del Valle:
Outsourcing. It has a lot of challenges, right? Because, and especially when it comes to receivables. There’s some areas which may be more easily outsourced, but receivables are gonna be a lot more challenging because it’s driven by contracts. And so, it involves knowledge of your company’s contracts and business practices. And clearly, some of the other issues that you mentioned too, are, just as you, would have with the internal staff, there’s training issues. So, and a lot of times your outsource partners are sometimes several time zones away, which also raises a lot more challenges in terms of communication and follow-up. So, I don’t necessarily see outsourcing as a go-to strategy, um, much more, um, my personal style and, a lot of other CFOs that I interact with is really more about automating processes and looking for the best tools that will fit with our current enterprise software.
Madhurima Gupta:
Then why do you think the mid-market CFO still choose, you know, managing certain processes by outsourcing them? And would you say that one of the reasons could be building teams that are more difficult, maybe, you know, training them, retaining them eventually as well?
Rey del Valle:
It’s an interesting question. It’s a great question. There’s a lot of challenges, as you’ve alluded to, in terms of hiring. Here in the States and I think elsewhere as well in the world, there’s a lot of issues that we’ve been discussing called the great resignation, right? So a lot of people are just leaving their jobs. And so in those cases, I can see where a CFO needing to make sure that they’re collecting their receivables may tend to outsource because oftentimes automating processes takes a lot of work, right? So there’s a lot of front-end work in terms of scoping the process. Then you have to do the integration, then you have to do the testing. And so there’s a long lead time in order to get to the point that, um, automation works. So there may be a willingness given the alternatives of collecting money or not collecting money to go outsource.
Madhurima Gupta:
Absolutely. You know, if you talk about convenience versus efficiency, according to you, what’s your opinion on whether, what is more convenient, right? Managing finance function, operations in-house, or outsourcing them?
Rey del Valle:
Well, I think just for peace of mind, you’d rather control the process than have it in-house that probably goes without saying. We live in some very challenging times. So what’s really important is to understand what your options are and then try to determine what’s the best possible outcome and strategy. So, as we talked about earlier, in the case where we might be short-staffed, you may need to actually go outsource. And then in the meantime, work on your automation strategy, right? Because one of the things that’s happening right now with businesses, um, is that especially some of the smaller companies, many companies are experiencing some dramatic growth and, you know, one of the things that will be critical to success is to actually try to get ahead of it, right? So not wait till you get to that point where you need the tools and the resources. So some of the more strategic CFOs now are looking at, uh, earlier in the company’s evolution to bring in some automated processes like receivables, like payables, like some accounting practices and things like that, where reconciliations and things like that. And to try to really automate as much as possible, which allows a couple of different things, one of which is, um, will allow the company to scale. But again, in this current environment right now, where it’s so difficult to hire and retain staff, having automation gives you some security and peace of mind knowing that your company’s process will continue to run.
Madhurima Gupta:
And what is your opinion on the customer experience that people or companies end up offering, depending on whether they outsource, uh, you know, the processes or they keep it in-house?
Rey del Valle:
And that’s super important, right? Because if you’re talking about customers, but any kind of constituents, right? The last thing you want is somebody having an interaction with someone who is not, you know, well informed or well understanding of the company’s products. So you really that could be a huge pitfall, right? Because if you have somebody who really doesn’t understand your business, doesn’t understand your client relationships, um, then you could really be in a real problematic area because they’re getting a call from someone and, you know, that may not be well trained, may not be very fluent or other issues that happen. And they’re calling on an important customer and telling them to pay or do whatever they need to do, and it’s gonna be a terrible customer experience. So what we always, and, and this that’s an excellent question where what you really need to be mindful though, is of all the touchpoints with your customers and other constituents in your company, to make sure that they’re as seamless as possible, really.
Madhurima Gupta:
So, you know, that all, you know, kind of points in the direction that if people do opt for outsourcing their financial processes, whether it is receivable, payables, whichever part that they, you know, do. That’s not a long-term solution that will, you know, have all kinds of results that, um, you know, CFOs and, you know, people working at CFO’s office would expect they. Apart from that, what else do you think CFO offices will miss out if they don’t automate their processes?
Rey del Valle:
One of the things that they’ll miss out on is efficiency because to the extent that you still have outsourcing is still a manual process. So what you’re going to be giving up is efficiency because, uh, there’s gonna be a direct correlation between volume and cost. And what you will also have too is more opportunities to introduce errors and glitches. And because the beauty of having systems and automation is if you do have an error or a glitch, you can fix it and it doesn’t repeat. But oftentimes that doesn’t happen with people because people are, um, will make mistakes and there’s um, and then if you bring in somebody new into a process, they can make the same mistake, unwillingly, or unwittingly. So it’s just a matter of, um, automation is really the key to success in terms of scaling up.
Madhurima Gupta:
And, you know, apart from these factors, I think one, other area which suffers when you outsource your processes, is the data strategy that you have in place. Because you are, you know, outsourcing a part of your work. You don’t have access to that data readily. And it becomes, um, it’s very important to, you know, have access to real-time data, to avert risks, and also speed up growth. Right? So what would you say if a company still outsources, they should do to ensure that they’re able to handle the shifts and they’re able to, um, you know, curb out any ill impacts of such, uh, types
Rey del Valle:
There’s a couple of old sayings but there’s still around for a good reason. You can’t manage what you don’t measure. So the only way that you’ll get better at any kind of process is just to measure them. So, you need to have metrics to understand the different factors, which will be, days outstanding. Is that getting better or worse? You’ll have error rates, rework, you know, so you have to monitor all, you know, your key statistics that will help you get better because especially in the receivable side, you wanna make sure that you’re collecting your money as quickly as possible, because now we’re also in an interest rated environment where money isn’t free anymore. So to the extent that, um, now you have to borrow money to cover the gaps right, in your working capital cycle, that will cost you more money. So, you know, again, time is money. So you need to be measuring your effectiveness from your collection efforts.
Madhurima Gupta:
On that note, since we’ve kind of established that outsourcing is not gonna help out the CFO’s office in the long run, what is the best possible alternative for a mid-market CFO office to, uh, cater to let’s say receivables?
Rey del Valle:
Well in general, the most important aspects of this are to make sure that, uh, that’s from the platform up and out. And then you need to make sure that the people that you have are all well versed in the products and understanding, uh, of all the nuances, because every product, whatever automation, um, process that’s out there, they’re gonna have nuances. And we need to make sure that the staff is properly trained and that it is, um, a repeatable process. And so that everyone understands how the whole financial flow is working. So it’s really important to think of it as an ecosystem where, and then your platform, your enterprise system is at the center of it. And then all of these different services, if you will, all plugin smoothly and easily. And again, as we’re talking about it is to make sure that it’s all really thought through so that the processes make sense with the systems that you have and that the systems also work with your processes, right? Because the one thing that you’ll have as you scale up and things start to move really fast is if you have bad processes, then they’ll just get amplified through automation. So it’s going to be critical to ensure that you have really good fundamental processes from the beginning, and then that way, whatever automation and systems that you’ve integrated are going to then just, uh, multiply off of that. It’s a positive multiplier. It’s a virtuous circle.
Madhurima Gupta:
So I was doing some research and while I was doing it, I realized that one of the reasons that companies outsource processes is to save money. Do you, I mean, if I say that outsourcing does help you save money in the long run, would you agree?
Rey del Valle:
I would disagree, I think from what I’ve seen in whether it’s gigantic companies or even smaller and medium-sized companies, I think that the there’s a little bit of confusion, or just maybe like not really understanding the true cost because while your bill might be less than for what you pay for having people inhouse. There’ll be issues with cost, there’ll be issues with missed payments. There’ll be, um, or missed collections. There’s a lot of other costs that have not been figured and there’s time. There’s, um, again, a lot of times you’re outsourcing is overseas different time zones. Then there’s a cost to having to have calls in the middle of the night to work with BPO if you will. So what’s critical is to make sure that all those costs are considered and, in the end, it may not actually save you a lot. It might save you something, but then the headaches may outweigh the savings.
Madhurima Gupta:
And, one of the other reasons of outsourcing is, uh, specifically in accounting, um, and even IT, and that’s because we require proficiency and skills that a lot of times CFOs offices do not possess internally which is why they end up outsourcing these jobs. So, on that note, um, how would you recommend CFO offices to build up their team, such that, you know, a scenario like this does not come up?
Rey del Valle:
The way that it’s worked, at least, um, for a lot of the companies I’ve worked with is to hire an outsourced CFO. Somebody who’s seen what good looks like in big companies. And a lot of that will, you know, naturally work for even the smaller scale company, really. And again, it depends on where you are, but if you’re at a mid-market company small to medium-sized business and you want to grow, then you have to be thoughtful about the process, right? So bring in the folks that know how to do that. So I’m always happy to do that and I’m available. So, and there’s other folks like myself that have been able to do this type of process for a company, but a lot of it is really under you. First of all, you have to understand your business, understand the tools that you wanna find out where the gaps are, and then come up with a plan to fill those gaps. So it’s a thoughtful process, and it really depends on making sure that you have the right planning and then execution because all of the battles are won and lost. So you need to make sure then that you also have the resources to see all the way. So I think that that’s what the question you were asking, but, um, I wanted to make sure that we’re on the same page. But it’s really about, as we were saying, making sure that you have the right people upfront. The last thing you want to do is be, um, behind, and then always trying to catch up to where you should be. So be thoughtful from the beginning and plan out what your corporate processes would be like around finance, accounting, billing, treasury, all of those functions.
Madhurima Gupta:
So on that note, we’ve concluded our episode. Uh, thank you so much for taking the time and doing this with me. But before we part our ways, if I had to ask you for three tips that you’d like to give your peers while they’re deciding between outsourcing versus automating the processes at say,CFO’s office, then what would these three tips be?
Rey del Valle:
Three tips are, and then we just covered it a few moments ago is you really need to understand your business, understand how your business works, the relationships with your customers, the relationships with your vendors. And then once you understand how that works and how the pieces fit together, then make sure that, um, call it the plumbing of your systems works to accommodate your business so that how you do business is in sync with how your system will work, not vice versa. You don’t want to make your systems and processes dictate how you do business. You want to do business and then have everything work. So again, know your business, make sure that you bring in experts early that understand what it takes to, to be able to set up finance process for the company to scale. And thirdly, I would just say you know, know your limitations and then know when you should bring people in to help.
Madhurima Gupta:
Great advice. Thank you so much, Rey. Really appreciate it. And I hope to have you on the podcast sometime soon again. But for now, goodbye to all our listeners stay tuned. We’ll be back with more