Business process outsourcing

What it means

BPO, business process outsourcing, means handing entire support processes to an external company. Typical examples are accounting, payroll, invoicing, debt collection, customer support or recruitment, which are not the company's core business.

Unlike a one-off service, the provider takes responsibility for the process as a whole and for agreed results. Quality is measured by indicators set in the SLA, such as processing times or error rates.

BPO can be local, with a provider in the same country, or combined with offshoring to lower-cost countries. For large groups the alternative is an in-house shared services centre.

How it works in practice

For small and medium-sized companies the most common BPO is outsourced accounting and payroll. The company gains experts, cover and up-to-date legal knowledge without building its own department.

When moving to BPO, the process should first be mapped, the interface defined, meaning what the company supplies and what the provider does, and deadlines and formats for inputs agreed. Output quality also depends on input quality.

BPO fees are operating costs, and with a foreign provider the VAT treatment of services received from the EU or a third country must be handled. The contract must also cover personal data processing.

What to watch out for

Responsibility towards the authorities stays with the company. If the provider misses a tax filing deadline, the company is fined and can recover the loss only under the contract.

Handing over a process completely can drain know-how from the company. It helps to have an internal person who understands the numbers, checks outputs and could move the process to another provider if needed.