Back office

What Is Back Office?

A back office is the portion of a company made up of administration and support personnel who are not client-facing. Back-office functions include settlements, clearances, record maintenance, regulatory compliance, accounting, and IT services. For example, a financial services firm is segmented into three parts: the front office (e.g., sales, marketing, and customer support), the middle office (risk management), and the back office (administrative and support services).

A back office is the supporting department of the company that carries out administrative functions that assist client-facing positions in performing their responsibilities.

A back office is the part of a business company that is concerned with running the company and that does not deal directly with customers or the public

What Does Back Office Mean?

A back office in most corporations is where work that supports front office work is done. The front office is the “face” of the company and is all the resources of the company that are used to make sales and interact with customers and clients. The back office is all the resources of the company that are devoted to actually producing a product or service and all the other labor that isn’t seen by customers, such as administration or logistics. Broadly speaking, back office work includes roles that affect the costs side of a business’ trading statement and front office work includes roles that affect the income side of a business’ trading statement.

Although the operations of a back office are seldom prominent, they are a major contributor to a business’ success. They can include functions such as accounting, planning, inventory management, supply-chain management, human resources and logistics.

Back offices are often located somewhere other than company headquarters. Many are in areas and countries with cheaper rent and lower labor costs. Some office parks provide back offices for tenants whose front offices are in more expensive neighborhoods. Back office functions can be outsourced to consultants and contractors, including ones in other countries.

In general, the backoffice provides the required documentation and technical support to the front office to facilitate the course of work and the business transactions. People in the backoffice perform processing and data management tasks on projects handled by the front office such as keeping accounts, maintaining records, and checking regulatory compliance.

In some companies, the backoffice is also specialized to the offering of accounting and finance services as well as settlements, clearances and IT services. Although the backoffice is not facing the customers, it is the backbone of the company as it handles several functions that are important for the best representation of the organization to the customers by the front office.

In general, the backoffice provides the required documentation and technical support to the front office to facilitate the course of work and the business transactions. People in the backoffice perform processing and data management tasks on projects handled by the front office such as keeping accounts, maintaining records, and checking regulatory compliance.

In some companies, the backoffice is also specialized to the offering of accounting and finance services as well as settlements, clearances and IT services. Although the backoffice is not facing the customers, it is the backbone of the company as it handles several functions that are important for the best representation of the organization to the customers by the front office.

Example of Back-Office

Today, most back-office positions are located away from the company headquarters. Many are located in cities where commercial leases are inexpensive, labor costs are low, and an adequate labor pool is available.

Alternatively, many companies have chosen to outsource and/or offshore back-office roles to further reduce costs. Technology has afforded many companies the opportunity to allow remote-work arrangements, in which associates work from home. Benefits include rent savings and increased productivity. Additionally, remotely employing back-office staff allows companies to access talent in various areas and attract a diverse pool of applicants.

Some firms offer incentives to employees and applicants who accept remote positions. For example, a financial services firm that requires high-level accounting could offer a $500-per-month housing subsidy to experienced CPAs to work from home. If it costs $1,000 per month to secure office space per individual, a housing subsidy of $500 per month would result in an overall savings of $6,000 per year. The cost savings can be significant when employing many remote professionals.

Though this saves money for the company, the employee may also have to accept a lower salary if they are moving from a Front Office position in a central location to a more remote location or even a work-at-home arrangement.

Special Considerations

Although back-office staff members do not interact with customers, they tend to actively interact with front-office staff. For example, a manufacturing equipment salesperson may enlist the help of back-office staff to provide accurate information on inventory and pricing structures. Real estate marketing professionals frequently interact with sales agents to create attractive and relevant marketing materials, and IT professionals regularly interact with all divisions within the company to ensure proper functioning systems.

Many business school students from non-target colleges and universities see Back Office work as a way to gain experience within a firm and potentially network up into the Front Office roles. Though it varies from one firm to another, the work in the Back Office roles is significantly different from the Front Office and, with the exception of corporate credit risk roles, may not provide a Front Office hopeful with the needed experience to make such a transition.

Why are Back-office Roles Important?

Back office roles are important because they are essentially the backbone of a company. When back-office operations run smoothly, it sets the company up for success. It also boosts productivity and helps keep costs low. Back office roles are also important because they ensure that all company data and information is secure and maintained. This is helpful to the overall business process, operations and to business owners who want to see how their company is performing. Lastly, back-office roles help to see where improvements can be made for the organization as a whole. This includes being mindful of the allocation of company resources.

It’s easy to see why the back office is so important when it’s functioning poorly. The business may not be tracking expenses, paying bills, managing taxes, and collecting invoices regularly. The business owner or office manager could be responsible but just doesn’t make it a priority, so back-office tasks are viewed as a time-suck with no benefit. When cash flow problems arise, they’re an emergency. Everything feels out of control and there’s no financial visibility.

When businesses prioritize back-office functions and stay ahead of the workload, they have opportunities to be proactive. By staying up-to-date on incoming and outgoing cash in any form, they can step back and view the wealth of data available to make improvements. That means taking the time to look at vendor contracts to negotiate discounts, analyzing customer invoices to incent faster payment, and even looking at ways to decrease the company’s taxes.

That data visibility isn’t just for internal stakeholders either. External parties like potential and current investors and even board members will be better able to gauge the health of the business—and make more informed decisions as a result.

Though back-office functions were historically viewed as cost centers, businesses now have the opportunity to use their most powerful asset—data—to decrease costs, make more informed decisions, and have greater control.

Summary

  • The back office is the portion of a company made up of administration and support personnel, who are not client-facing.
  • Back-office functions include settlements, clearances, record maintenance, regulatory compliance, accounting, and IT services.
  • The term “back office” originated when early companies designed their offices so that the front portion contained the associates who interact with customers, and the back portion of the office contained associates who have no interaction with customers, such as accounting clerks.

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