15 March 2023
Financial shared services is an effective way to streamline financial operations and achieve operational efficiency.
Financial Shared Services refers to a business model in which a company consolidates its financial operations into a centralized unit that serves multiple business units or entities within the organization. The aim is to achieve economies of scale, reduce costs and streamline financial processes.
In a financial shared services model, activities such as accounts payable, accounts receivable, general ledger accounting, financial reporting, and tax compliance are centralized within a single unit. This unit then provides these financial services to different business units or entities within the organization, typically through a service level agreement (SLA).
Financial shared services can be implemented within a single company, or as a third-party service provider for multiple organizations. The benefits of financial shared services include increased efficiency, improved financial transparency and control, reduced costs, and better risk management.
Benefits of Financial Shared Services
The benefits of financial shared services can be significant for organizations that implement this model. Some of the key benefits include:
Cost savings: By consolidating financial operations into a centralized unit, organizations can achieve economies of scale and reduce costs associated with duplicate processes, technology, and staffing.
Improved efficiency: By standardizing financial processes and utilizing technology to automate routine tasks, financial shared services can improve the speed and accuracy of financial reporting, reduce errors, and increase productivity.
Better risk management: Financial shared services can help organizations to better manage financial risk by establishing consistent policies and procedures across the organization, improving compliance with regulations, and increasing visibility into financial data.
Enhanced financial transparency: Financial shared services can provide better visibility into financial data and make it easier to analyze financial performance across different business units or entities within the organization. This can help organizations to make more informed decisions and improve overall financial performance.
Increased focus on core business activities: By outsourcing non-core financial activities to a shared service center, organizations can free up resources and focus on core business activities that are more closely aligned with their strategic objectives.
Overall, financial shared services can help organizations to improve efficiency, reduce costs, and improve financial transparency and control, allowing them to make better decisions and achieve their strategic objectives more effectively.
Reasons Why Companies Are Still Not Using Financial Shared Services
While financial shared services can provide significant benefits to organizations, there are also several reasons why some companies may not have implemented this model. First of all, organizations may have a lack of understanding of the benefits of financial shared services, or they may be unaware of how this model can be applied to their specific business needs.
Secondly, companies with complex organizational structures may find it difficult to implement financial shared services. This is because the consolidation of financial processes and systems can be challenging, especially if there are multiple business units or entities with different accounting practices and systems.
Organizations may also be resistant to change as implementing financial shared services requires a significant shift in how financial processes are managed and can be disruptive to established workflows. This can result in resistance to change among employees, which can make it difficult to implement the new model.
Businesses may also be concerned with the costs of implementing such systems despite it resulting in cost savings over time. This is because, it is undeniable that there may be initial costs associated with implementing the new model, such as investing in new technology or hiring additional staff. Some organizations may be hesitant to invest in these costs upfront.
Additionally, companies may also experience outsourcing concerns. Outsourcing financial services can be seen as a risk for some organizations and they may be concerned about losing control over financial operations or the quality of service provided by third-party service providers.
While financial shared services can provide significant benefits, it may not be the right fit for every organization. Each company must carefully evaluate the potential benefits and challenges of implementing financial shared services to determine if it is the best approach for their business needs.
Examples Of Financial Shared Services
There are many different types of financial shared services that can be implemented within an organization, depending on the specific needs and goals of the business. Here are a few examples of financial shared services:
- Accounts Payable (AP) shared services: In this model, the accounts payable function is centralized within a shared service center. This center processes invoices, issues payments, and handles vendor inquiries on behalf of multiple business units within the organization.
- Accounts Receivable (AR) shared services: In this model, the accounts receivable function is centralized within a shared service center. This center handles billing, collections, and customer inquiries on behalf of multiple business units within the organization.
- General Ledger (GL) shared services: In this model, the general ledger accounting function is centralized within a shared service center. This center manages the organization’s financial records, including journal entries, reconciliations, and financial statement preparation.
- Financial Reporting shared services: In this model, the financial reporting function is centralized within a shared service center. This center is responsible for producing the organization’s financial statements, analyzing financial performance, and providing insights to senior management.
- Tax shared services: In this model, the tax compliance function is centralized within a shared service center. This center handles tax planning, compliance, and reporting for the organization, including managing relationships with tax authorities.
These are just a few examples of financial shared services. Other possible shared services might include budgeting and forecasting, financial analysis, or treasury operations. The specific services provided will depend on the needs and goals of the organization.
All in all, financial shared services can provide significant benefits to organizations that choose to implement this model. By consolidating financial processes into a centralized unit, organizations can achieve cost savings, improve efficiency, and enhance financial transparency and control. Financial shared services can also help organizations to better manage financial risk and focus on core business activities.
However, there are also potential challenges to implementing financial shared services, such as organizational complexity, resistance to change, and cost concerns. Each organization must carefully evaluate the potential benefits and challenges of implementing financial shared services to determine if it is the right approach for their business needs. Financial shared services can be an effective way to streamline financial operations and achieve operational efficiency, which can lead to improved financial performance and better overall business results.
