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Outsourcing means the transfer of a business process to a vendor that specializes in that service or activity. You already may be outsourcing your payroll, legal and tax work.

The details of accounting outsourcing arrangements may differ. However, usually they entail the transfer of some or all of the following functions from the client company to the outsourcer: financial reporting, financial statement preparing, accounts payable processing, sales report processing, payroll processing and returns, bank reconciling and cash balance reporting.

The outsourcer also owns and maintains the accounting software and information systems used in the above processes. While the outsourcer performs those functions and activities, the client company remains in complete control of the cash accounts and makes all financial decisions, such as payments and transfers.

Cost reduction is a major reason why companies consider outsourcing. The savings come from the need for fewer corporate employees -- especially expensive accounting and IT specialists -- less office space and no accounting software, servers, phones and more.

On the other end, outsourcers can leverage economies of scale to realize savings. Restaurant accounting, which is a "back office" function to an operator, is a "front office" function to the outsourcer. To be successful, the outsourcer must become extremely efficient and proficient at receiving, handling and processing accounting transactions and meeting client expectations.

Outsourcing clients often gain access to better technology than they could afford to develop or purchase on their own. For example, small independent operators today are using outsourcers to gain immediate access to their sales, purchases, payroll, P&Ls and other key operating information over the Internet. Their daily transactions are integrated directly into the outsourcer's accounting system without having to be manually keyed.