BPO and KPO – What are they?
Business process outsourcing (BPO) is the process of hiring another company to handle business activities for you.
Outsourcing has been around as long as work specialization has existed. In recent history, companies began using outsourcing to carry out narrow functions, such as payroll and billing. Those processes could be done more efficiently and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel. It is now common for companies to outsource financial and administration processes, human resources functions, customer service activities, payroll, accounting and credit functions.
Knowledge process outsourcing (KPO) is an offshoot of BPO. KPO includes those activities that require a greater skill level, knowledge, education and expertise. BPO and KPO deals often involve multi-year contracts that can run into hundreds of millions of dollars. BPO and KPO contract durations need to strike a balance. They must be long enough to make a difference, and short enough to allow a measure of flexibility to the relationship. BPO and KPO contracts normally last from three to five years. Some companies still enter into 10 year deals but a better approach would be a shorter contract so that periodic reviews can be made.
BPO and KPO promises cost savings, the use of shared resources and greater efficiencies. However, only by using an appropriate set of metrics will you ensure that your organization fully realizes the benefits of outsourcing.
Many AR outsourcing services are available. They include order management, credit risk and analysis, billing, invoice collection, cash application, exception management, and bad debt collection. Some of the benefits of AR outsourcing include reduced AR costs, improved performance, speed of cash recovery, and conversion of fixed costs to variable cost.
Outsourcing, in the earlier days was used by larger companies which farmed out many low-end business processes. Since then, outsourcing has become more of a norm than an option. In addition to the cost savings, outsourcing is seen as a strategic move that can allow businesses to gain a competitive advantage. Outsourcing has opened up opportunities for companies to utilize skill sets and expertise that they normally would not be able to access without large investments.
Finding skilled resources is one of the biggest challenges faced by companies today, not to mention the investment required to train employees and the attendant infrastructure required, which can rapidly drain funds. Outsourcing frees companies from these hassles by providing access to skilled resources at lower costs, with the additional benefit of not having the burden of managing them directly.
Outsourcing not only brings cost advantages but it can also improve the efficiency of business operations. If your business goals are properly aligned with the deliverables in outsourcing, productivity and efficiency are bound to increase. Outsourcing providers with the right expertise and experience can actually help streamline business processes and contribute to the bottom-line.
Cost cutting is not the only reason to outsource, although it is certainly a major factor. Outsourcing converts fixed costs into variable costs, releases capital for investment elsewhere in your business, and allows you to avoid large expenditures in the early stages of your business. Outsourcing can also make your company more attractive to investors, since you are able to pump more capital directly into revenue producing activities.
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