Accounts Receivable Outsourcing: Avoid These Mistakes When Choosing a Service

Outsourcing your business’s accounts receivable (AR) is a good option if you’re looking to streamline your operations and focus on key activities. 

When businesses onboard new clients, the resources needed to follow up on unsettled accounts (including time) can be stretched thin. 

Here lies the importance of outsourcing your accounts receivable to a reliable service provider. 

In this post, we discuss mistakes to avoid when choosing a trusted accounts receivable outsourcing service.

Let’s get started.

Common Mistakes to Avoid When Selecting an Accounts Receivable Outsourcing Service

Below are a few mistakes you should avoid to hire reliable AR outsourcing services.

1. Failing to Define Clear Objectives

One of the drawbacks businesses face when considering accounts receivable outsourcing is a lack of well-defined objectives. Without clear goals and expectations, it becomes difficult to evaluate potential outsourcing partners effectively. 

So, before making this selection, you must outline your objectives, whether that is accelerating cash collection, reducing days sales outstanding (DSO), enhancing customer relationships, or improving operational efficiency. (‘Days Sales Outstanding’ is an accounting metric used to calculate the average number of days a business takes to receive payment for goods or services purchased on credit.) These well-defined objectives will serve as a compass in the selection process.

2. Neglecting to Assess Industry Expertise

Every industry has unique regulations and intricacies that influence accounts receivable processes. A common mistake is failing to evaluate the outsourcing service provider’s industry expertise. 

That’s why it is vital to partner with an AR service that understands the nitty-gritty of your industry. This knowledge directly impacts the effectiveness of debt collection strategies, compliance with industry regulations, and customer interactions. A company well-versed in your industry will be better equipped to tailor their approach to your business’s needs.

3. Overlooking Technological Capabilities

Modern accounts receivable management relies on technology, and outsourcing companies are equipped with advanced software and tools. Overlooking the technological capabilities of a potential AR service is a mistake. 

So, businesses should evaluate the AR outsourcing service provider’s technological infrastructure, including their use of automation, data analytics, and integration capabilities with their existing systems. This evaluation ensures that the accounts receivable outsourcing service can deliver results using up-to-date methods.

4. Ignoring the AR Outsourcing Service Provider’s Reputation 

Ignoring reputation when choosing an AR outsourcing service can lead to disastrous consequences. Before making your choice, be sure to conduct thorough research on each provider’s reputation, read client testimonials on their website, and seek references from their current or previous clients. This provides insights into the outsourcing provider’s track record, reliability, and ability to meet expectations.

5. Underestimating Communication Channels

Effective communication is necessary to build good outsourcing relationships. Underestimating the importance of communication channels is a mistake that can lead to misunderstandings, delays, and frustrations. Be sure to inquire about the outsourcing provider’s communication protocols, escalation procedures, and points of contact.

6. Disregarding Data Security and Compliance

Outsourcing your company’s accounts receivable involves sharing sensitive financial data. Disregarding data security and compliance measures is a grave error that can result in breaches, legal repercussions, and reputational damage. 

That’s why it is imperative to assess your AR outsourcing partner’s data security protocols, compliance with relevant regulations, and the measures put in place to safeguard your confidential information. 

One such regulation is the Personal Information Protection and Electronic Documents Act (PIPEDA), a federal privacy law for private sector organizations. It determines the rules on how businesses should manage personal data during commercial activities. 

7. Opting Solely for Cost Savings

While cost savings are a compelling reason to outsource, focusing solely on the lowest price can lead to compromised quality and unsatisfactory results. Businesses should view outsourcing as an investment in long-term benefits rather than simply a short-term cost-cutting measure. Quality, expertise, and value-added services should be given equal weight alongside cost considerations.

8. Neglecting Flexibility and Scalability

Business environments are dynamic, and your accounts receivable needs may change. Neglecting to consider the outsourcing provider’s flexibility and scalability can hinder your ability to adapt to evolving circumstances. Ensure that the chosen AR service can accommodate fluctuations in your accounts receivable collection as well as adjust their services accordingly.

 

Accounts receivable outsourcing is an excellent option for businesses seeking to optimize their financial processes. However, avoiding the mistakes outlined here is crucial for making an informed and successful outsourcing decision. By doing so, companies can forge strong partnerships with their AR outsourcing service providers that drive growth, efficiency, and enhanced cash flow management. To learn more, contact Virtuous Accounting & Bookkeeping. Our skilled team uses advanced systems to track and monitor the overall progress of our clients’ AR tasks, assuring their precision and successful completion.