Firms offering Business Processing Outsourcing (BPO) are now using leading-edge software to provide a range of innovative solutions for the financial services sector, says Jim Muir, Director at AutoRek.

As manpower costs for Business Processing Outsourcing (BPO) providers continue to rise and further erode margins, companies in this area are increasingly looking for new ways to reduce manpower without compromising service levels. The first step in achieving this goal, however, is for BPOs to look at how much manpower they are actually using at the moment.

This activity is often expressed by a metric known as ‘full-time equivalent (FTE)’, which is an easy way to measure a worker's involvement in a particular project. The most common way of determining an FTE for any given activity is to count up the number of people working in this area on a full time basis, as ‘one FTE’ relates to a single employee working full time. As a result, the more full-time employees that a BPO has working on a task, the higher its overall FTE will be.

So why does this matter? Because this FTE figure can help to identify the amount of manpower that BPOs are using for a particular task, and – if it is too high – this figure can often be reduced by implementing more streamlined systems and/or automated IT solutions. For example, automated financial reconciliation software can reduce reconciliation FTEs by 75% compared to manual processing, and can completely eliminate additional FTEs in ancillary processes such as collections, stopped payments and banking and cashiering.

As a result, it is now possible for BPOs to use software solutions like these to generate nine-month breakeven paybacks – and a total return on investment of 500% (recurring) – for an investment that will cost them less than employing five UK workers for a year.

With benefits like these on offer, many BPOs have decided to take this route, and to use sophisticated sales ledger cash allocation software to analyse cash receipts and then automatically post the entries to sales ledgers in real-time. With this approach, the manpower savings can be over 50% of the sales ledger cash team and, more importantly, this same software can also be used to automatically create and send emails to payers in order to query any unfulfilled promises to pay and/or to highlight other settlement discrepancies.

At the same time, this solution will allow BPOs to automate the escalation of these issues internally to stakeholders, in order to drive even greater savings in terms of FTE, interest and bad debt expense. As such, the latest software in this area is already making it possible for BPOs to reduce manpower significantly – and easily – without compromising on service levels.

Although many of these same BPOs may have relied upon ‘low-salary territories’ to deliver savings to their financial services clients in the past, wage inflation in some of these locations (including India) has now risen into double digits, which means that the cost per head in some locations is simply no longer competitive.

This approach has therefore become untenable and – with many of these providers on a cost-plus deal or in the process of renegotiation – a new model is definitely required. Unfortunately, very few companies have adopted the approach that Aegon has taken in India, for example, which was to build excellent processes at the time of the initial ‘lift and shift’.

As a result, the cost per person for some companies operating in these regions has risen from £3k to £18k in a very short space of time, which is clearly not ideal. Along with the cost, many UK businesses have also been disappointed by the lack of visibility and accountability provided by their BPO, and have therefore opted to bring much of this work back in-house, which could have a serious long-term impact on the BPO industry as a whole.

For all of these reasons, many BPO providers are now looking for scalability and automation (as opposed to endlessly chasing the end of the low-salary rainbow), by leveraging new software tools that provide automated reconciliations, settlements and cash allocation. Automated transaction matching reconciliation software, in particular, can dramatically reduce the time spent reconciling data from virtually any internal and/or external source, so that the BPO’s resources can be freed up to resolve problematic transactions, manage risk effectively, and provide up-to-date management information.

What BPOs need to look for here, however, is a purpose-built, high performance-matching engine that uses user-definable matching rules to compare and match data from any imported files. Applied sequentially, these rules can then facilitate the matching of data with incredible speed, whilst also exposing any exceptions. As a result, 99% of data can be reconciled automatically by using tools like these.

BPOs serving the financial services sector will often need to reconcile high volume trading environments, as well, and many are therefore using innovative software that has been specially designed for confirmations, settlements and custody reconciliations. The latest tools in this area now offer fully integrated case management, workflow and management information tools, as well as robust exception management solutions that work with industry standard feeds and interfaces in order to minimise the cost and time required for deployment.

By automating these processes, BPOs will be able to reduce manpower, and yet still escalate any ‘breaks’ to interested parties and other stakeholders very quickly. In addition, stakeholders benefit from immediate access to all of this vital data and other key management information (MI), so that they can track and monitor matching behaviours and performance easily.

Any data related to collections and credit control is also very important for BPOs, especially in the financial services sector, as they need to be made aware of any problems in these areas immediately. Again, the latest reconciliation software can help here too, as it can provide BPOs with instant alerts for any problem accounts, leading to faster allocation of cash and better client relations.

This last point is important, as cash allocation can be another time-consuming process, especially when it’s hampered by poor quality, late or missing remittance advices. As a result, the timeliness of sales ledger information can often be weak (and laborious to interpret) when it comes to implementing robust and effective credit control. Clearly, as cash becomes tighter in today’s challenging economy, organisations will need to address these issues at the earliest opportunity, and in the most cost effective way possible.

It’s no wonder that modern BPOs are looking for a more innovative way of handling all of these processes. Innovative software solutions can significantly reduce the costs associated with sales ledger and credit control personnel, and can also help to provide a cleaner sales ledger, faster cash allocation, cleaner recoveries, a reduction in bad debts, and an overall improvement in customer relations. Even more importantly, all of these factors can lead to increased sales, as confidence in the good payers increases.

For all of these reasons, the latest reconciliation technology doesn’t just help to reduce headcount, but actually helps to enhance the BPO’s overall productivity instead. With access to powerful, easy-to-use tools that makes their work easier and more accurate, employees often find that their work is a lot more rewarding and fulfilling. Meanwhile, for the BPOs themselves, this increased satisfaction can often lead to a reduction in staff turnover and better continuity of service – in addition to all of the productivity, cost and risk management benefits that automation can provide.