Not so long ago only companies with $1 billion or more in annual sales could outsource their financial business processes. It wasn’t cost effective for outsourcing firms to serve smaller companies. In addition, cost-plus contracts with 10-year terms didn’t make sense for companies that didn’t rank in the Fortune 1000.

Now, thanks to the Internet, small and medium-size firms have an opportunity to take advantage of these services.

The Internet opened the market for new business process outsourcers (BPOs). By using the Web to deliver services, BPOs can operate shared service centers that cater to many clients and offer competitive prices.

The tight labor market has also helped increase the popularity of BPOs with smaller companies. Those businesses that can’t find experienced people to staff finance departments are more open to handing off business processes to an outsider. Also, with the shortage of information technology workers, smaller companies prefer to have the few they could attract focus their attention on creating software for the company’s core competencies instead of back room tasks that don’t add anything to the coffers.

Pricing is attractive for smaller firms. Fixed monthly cost contracts or transaction-based pricing makes it easier for growing businesses to budget their limited resources. More small companies are embracing outsourcing. Many companies use different outsourcers for tax, internal audit, payroll, and other nonfinancial functions. Managers say the biggest advantage to outsourcing is the fixed price. But there are also advantages in trading employees for vendors:

• There are no day-to-day personnel issues.
  
  
• Managers can deal with high-level people on the vendor’s side.
  
  
• Vendors may be easier to deal with than employees.

Because of the proliferation of BPOs, be on your guard for fly-by-night operations. Many BPOs are untried businesses to whom you would be entrusting your financial information. So before signing a contract with a BPO, make sure you have complete trust in the company. Also put yourself in the place of your bank, investors, etc. Will they perceive your BPO as trustworthy, experienced, and capable? After all, the last thing you need is your financial backers questioning your internal controls.