Benefits of Contracting for Accounts Receivables

Has the pandemic had an impact on your company's revenue and margins? Outsourcing your accounts receivables may be the solution to your cash flow problems.

Even in a booming economy, running a profitable business is difficult. Businesses with a strategic approach to accounts receivables (AR) management are more likely to have weathered the pandemic-induced market conditions.

 

What does the term "accounts receivables" mean? (AR)

The fundamental goal of an organization's accounts receivable department is to track payments against invoiced invoices and recover those payments as quickly as feasible. An AR team can handle customer invoicing, refunds, and AR account reconciliation, among other things.

A good strategy for AR management gives another degree of protection against potential non-payment. For many businesses, credit is a key tool for retaining customers. Some customers may be waiting for AR collections before paying their bills. The major task of the AR team is to assess which consumers are creditworthy.

 

The Importance of Accounts Receivable Outsourcing

If the epidemic has taught us anything, it's that having a consistent invoice collection strategy that prioritises cash flow is essential. Missed customer payments, problems in accounts reconciliation, negative cash flows, delays in funding expansion plans, and defaults on corporate debt are all consequences of failing to develop a professionally managed AR function.

Accounts receivables outsourcing is a viable option for firms that lack the experience or resources to build a strong, full-time AR team. Outsourcing your accounts receivables will help you enhance your working capital management, invoice collections, and client relationships. Furthermore, the outsourced accounts receivables partner will collaborate with you to strategically integrate AR processes and technologies to automate and accelerate the collection process.

 

Outsourcing Accounts Receivables Has Its Advantages

Businesses that were able to realign their service delivery and payment collection processes to the new normal have survived and even thrived throughout the pandemic. Although many businesses have shown signs of recovery by the second half of 2021, a return to economic shutdown does not appear to be far off. In order to get paid faster and more efficiently, businesses must continue to develop their accounts receivables strategy.

 

Even improving the AR operations of a medium-sized company necessitates a significant commitment of time and money (technology, staffing, and training). Given the fragile situation of the US and worldwide economies, most CFOs and CEOs are unwilling to take such a risk. Outsourcing accounts receivables is one of the most realistic and effective techniques for lowering Day Sales Outstanding (DSO) metrics and getting payments sooner in such a situation. AR providers have the resources, talents, and technologies to improve the current AR flow and add new features to streamline the entire billing and collections process.

 

The following are five significant benefits of outsourcing your company's receivables:

 

1. An increase in the speed with which payments are collected

Raising invoices and sending automatic reminders aren't the only ways to be paid in business. Consistent, courteous touch with clients will aid in the prioritization of your invoices for payment. Most credit departments, on the other hand, lack the resources necessary for efficient follow-up. Accounts receivable outsourcing companies ensure that late clients are approached for payments on a regular basis. If a customer has a question regarding an invoice, getting in touch with them as soon as possible and resolving the issue will increase the odds of receiving payment on time. In summary, by outsourcing your accounts receivables, you dramatically enhance the likelihood that all of your invoices will be paid sooner.

AR specialists know how to deal with late-paying consumers without affecting the connection.

Customer communication that is consistent will increase the customer's comprehension of your billing and payment collection processes, as well as the possibility of future timely payments.

 

2. Best AR practices can be found here.

There is no such thing as a one-size-fits-all AR workflow. However, a company of your size and sector can use AR best practices to free up working cash. A professional AR partner may be extremely beneficial by detecting gaps in your AR workflow when compared to industry peers and providing you with the data you need to make better decisions. Here are some of the quick advantages you can take advantage of:

 

Get an unbiased opinion on your current AR procedures. How often, for example, does the sales team deviate from typical contract terms?

Improve the reconciliation of account inconsistencies.

 

Create financial reports to forecast revenue and liquidity in the future.

Improve the accuracy of your credit policies for customers. Is it taking you too long to process credit applications, are you assessing client risk properly, and do you need to adjust your credit policies?

 

3. Automate invoicing to save time and money.

Invoicing might include errors and anomalies that harm your cash flow, even if it appears to be a simple process. Delays in invoice production, mistakes in customer data recording, and billing customers outside the system are all problems that can be solved by (a) centralizing AR and (b) automating most AR procedures with electronic billing systems and customer portals. Outsourcing receivables allows you to take advantage of the newest automation advancements without having to invest personally in them.

Structures between company units will be broken down by automating your collection management processes. It will improve financial reporting transparency, allowing you to make more rapid strategic decisions.

 

4. Employment costs are minimized.

Because an outsourced service handles all of your accounts receivables operations and automation needs, having an in-house AR team is reduced or eliminated. As a result, you'll save money on overhead while increasing cash flow. You can also scale your AR collection operations fast as your company grows, without having to worry about hiring and training new employees in time to meet the increased demand.

 

5. Taking a targeted approach to lowering DSO

You can negotiate a reduction of 10, 20, 30+ days of DSO as a business deliverable in the business contract once you've chosen an outsourced accounts receivables partner. Lower DSO means you'll have more cash on hand to fund critical business tasks.

 

As any astute business leader knows, the benefits of accounts receivables outsourcing must be weighed against the dangers involved with AR outsourcing. The most evident is the risk of entrusting such a critical business function to a third party, which will have a direct influence on your company's cash flow. Then there's the possibility of a data leak.

 

Conclusion:

You may prevent these risks by working with a high-quality, experienced outsourcing partner. As a result, look for an AR service provider who can provide the ideal mix of AR technology, skills, certifications, and knowledge to assist your company in achieving its goals.