How Does Outsourcing Accounts Receivable Help Beat AR Challenges?

Most companies follow an accounts receivable (AR) policy for their customers to have a record of how much to bill and when to collect the amount due. But, according to research, the average small or midsize business has 24% of its monthly revenue tied up in overdue invoices. These outstanding accounts receivable can negatively impact your cash flow and drain capital you could have otherwise invested – in new projects, equipment, staff, or other growth opportunities.

There are several problems with your accounts receivable. These include invoicing errors, customers who don’t pay on time, and discrepancies between billed and received amounts.

To avoid this problem, it’s essential to have an expert system that can keep track of it and manage your AR. That’s why, in this post, we will discuss some of the key AR challenges and how an outsourced accounts receivable service can help solve them.

Accounts Receivable Challenges and How Outsourcing Experts Can Help

To resolve any problem, you first need to identify it. That’s why this post will guide you through some of the key accounts receivable challenges and discuss how, with expert help, you can solve them and strengthen your working capital.

1. High-Risk Customers and Above-Average Days Sales Outstanding

In some instances, businesses give credit to customers to gain their loyalty and establish a good customer base. But offering this payment option without a proper payment policy can lead to cash flow deficiencies.

That’s why it is important to check the customer’s credit to ensure that they will be able to pay in. Otherwise, it can lead to bad debts. Customers with bad credit are a big risk to any business.

In addition, you should also check the DSO (days sales outstanding). This measure is taken by a firm to collect payment from their customers after the completion of a sale. A high DSO means your client is creating too many delays when it comes to clearing their payments. Make sure that the credit plans you are offering are not more than you can afford.

To avoid these high-risk customers, create a new protocol and financial plan. Hiring AR experts can help you in this situation so you don’t end up with a loss but maintain a good customer relationship. They can help you in many ways, such as by:

• Establishing proper policy guidelines to determine a customer’s creditworthiness. before extending this process to avoid any unwanted risk. These guidelines will also specify deadlines, minimum payments, and how and when credit must be repaid.
• Creating a proper debt collection strategy to ensure every invoice gets sent on time with clear payment terms.
• Using expert tools and technologies. For example, instead of mailing invoices, they use electronic invoicing processes. This not only speeds up the billing and collection process but saves time by having customers set up autopay or recurring payments.
• Offering multiple ways to pay a bill. Research shows that more people tend to make payments with this option. Not only do you get paid on time, but chances increase that the client will become a repeat customer.

In addition, you can provide incentives to clients who pay early and penalize those who pay late. Can you offer incentives to customers who choose annual payment plans? Think about this when setting up your new payment strategy. This can help you avoid high DSOs and more effectively manage your accounts receivable process.

2. Data Inaccuracy and Poor Reporting 

Inaccurate data is another significant challenge that can delay payments by weeks. It can be caused by many reasons, including errors in recording, missing invoices, incorrect payment terms, incorrect tax rates, and more.

So, if you notice that your clients are not paying on time, then we recommend re-evaluating your ‘master data’. Otherwise, inaccurate data or missing invoices can lead to incorrect cash flow and other financial statements. That can result in poor reporting, analysis, budgeting, and, ultimately, bad decision-making.

Data entry outsourcing and remote bookkeeping services can help you save money in this situation. A dedicated team with an expert approach can keep track of your books, which you can access from anywhere through a cloud bookkeeping service. They can meet your company’s data entry needs with speed, accuracy, and cost efficiency. By using the latest tools, software, and telecommunication technology, they can handle a large volume of data.

To avoid discrepancies, experts will conduct regular audits of master data to identify customers with abnormal credit limits, payment terms, and discount rates. Furthermore, the dedicated team can handle everything from bills and payments to invoices, cash management, budgeting, forecasting, and generating financial statements to provide you with accurate data.

3. Time and Error Management

Time management can be a major challenge when it comes to keeping up to date with the workload, especially if you have a small team. Among hundreds of other essential tasks, it’s not unnatural to make mistakes. But a simple error can lead to big trouble, besides wasting your time, money, and resources.

So, it is better to hand off these tasks to the experts. For example, Virtuous Bookkeeping follows a technology-driven workflow approach to help businesses optimize their AR process and gain operational efficiencies. The advantages include:

• Automation of receivable transactions to reduce time.
• Digital processing to reduce the chances of errors which are much higher in human resources.
• Using secure software to accurately track and complete the process from sales to payment.
• Reducing costs by cutting down on unnecessary equipment and personnel via the automation process.
• The utilization of software to help standardize the entire AR process and enhance the reliability of your financial statements.

By outsourcing your business’s accounts receivable services, you can beat some major challenges and enhance your AR management. From keeping real-time records to making accurate financial statements, Virtuous Bookkeeping can provide you with end-to-end bookkeeping and accounting services. Contact us to discuss your accounts receivable strategy.