Business Process Outsourcing (BPO)

BPO definition

BPO is when a company hires an outside service provider to manage specific business functions. The service provider owns and manages the processes based on specific performance metrics.

Common BPO functions

• Payroll
• Customer service
• Accounting
• Recruitment
• Human resources management
• IT
• Finance

BPO benefits

BPO can improve efficiency and save businesses money. It can also help companies gain competitive advantages and improve their customer experience.
For example, a payments and payroll BPO company can:

1. Streamline payment processes (e.g. automating manual tasks)
2. Help the company cut costs (e.g. optimize FX rates)
3. Enhance payment accuracy (e.g. use built-in checks to flag errors)
4. Enable faster payments (e.g. use same-day processing)
5. Provide flexible payouts (e.g. increase payment methods and currencies)

What Are the Advantages of BPO?

One of the primary advantages of business process outsourcing is that it lowers costs. Hiring internally for a specific job function costs a certain amount.

BPO can reduce these costs by outsourcing the role to an external party—sometimes in a less cost-intensive country—reducing the cost of performing that job function.
Other advantages include allowing a company to focus on core business functions that power its success instead of timely administrative tasks. BPO also helps in global expansion. If a company wants to open an overseas branch, they can hire a BPO company that has experience in the local industry and speaks the language to run initiatives.

Drawbacks of BPOs

Potential data breaches: the BPO must follow proper protocol at all times
Communication gaps: geographical, cultural, and language barriers can impact alignment
Underestimated ongoing costs: hidden costs or scope creep can increase costs
Employee backlash: if the BPO partner takes over payroll, for example, the stakes are high and the company can face backlash from late or missing payments

What Are the Types of BPO Companies?

There are three main types of BPO companies: local outsourcing, offshore outsourcing, and nearshore outsourcing.

Local outsourcing is a company operating in the same country as the main business. Offshore outsourcing is a company that’s in another country, and nearshore outsourcing is a company that’s in a country close to the main business.

What is Financial Process Outsourcing (FPO)?

FPO takes on financial tasks such as accounting, billing, collections, and financial analysis. An FPO provider gives companies specialized insights, into accounts payable, vendor relationships, and financial compliance.

How do I know if I need a BPO or MSP?

Knowing the difference between a BPO and an MSP can help companies narrow down which service they need.

MSP

Used for longer-term solutions or when the business wants to integrate the service or team of experts into their internal team. MSPs can help with IT services, HR, or payments and payroll functions, in the in staffing firms and MSPs industry

BPO

Used for short-term solutions for specific problems. BPO typically means contracting out certain business tasks to a third-party provider.