Why Businesses Should Outsource Their Accounts Receivable to Max Cash Flow

Businesses that struggle to ensure a steady cash flow rarely survive. One of the best ways to do so is to handle your accounts receivable effectively.

As the term suggests, accounts receivable (AR) represents the outstanding payments that a business is owed by its customers for goods or services provided on credit. Managing AR involves generating invoices, tracking payment due dates, following up on overdue payments, and reconciling accounts.

In this post, we explore why businesses should consider outsourcing their accounts receivable to maximize their cash flow. We also discuss the challenges you may face in handling AR in-house.

Let’s get started.

Reasons Why Businesses Should Use Accounts Receivable Services to Maximize Cash Flow

Here are the key reasons why businesses should outsource their accounts receivable to boost their cash flow.

1. Access to Expertise

Outsourcing your AR means partnering with professionals specializing in accounting and credit management. These experts deeply understand industry best practices, ensuring that each step of the AR process is handled effectively.

2. Cost Savings

Outsourcing your AR eliminates the need to hire and train additional staff; invest in accounting software such as QuickBooks, Sage, and Wave; and maintain relevant infrastructure. By outsourcing their AR tasks, businesses pay only for the services they use.

3. Focus on Core Competencies

Outsourcing non-core functions like AR management allows businesses to redirect their internal resources and energy towards activities directly contributing to revenue generation and business growth. For example, a startup generally has a small staff that shares responsibilities, meaning someone has to look after their finances. But if they would be better served working on product development, outsourcing accounts receivable would give them the time and additional budget to do so. This enables them to launch products more frequently, adapt to market trends more swiftly, and maintain a competitive edge.

4. Improved Efficiency

Outsourcing streamlines accounts receivable processes through automation and standardized workflows. Utilizing advanced accounting software such as QuickBooks, Xero, and Wave reduces the likelihood of errors, enhances accuracy, and accelerates payment collection.

For example, let’s say a shoe manufacturer outsources management of its accounts receivable. The AR outsourcing service implements automated invoicing and payment tracking systems. This leads to faster processing, fewer errors, and smoother payment collection, ultimately improving that company’s cash flow.

5. Maintained Scalability

Outsourced AR services are designed to scale with the needs of a business. Whether transaction volumes increase or decrease, the service provider can adjust resources accordingly, ensuring that collections are effectively managed at any level.

6. Timely Payments

Accounts receivable outsourcing companies dedicate resources specifically to follow up on overdue payments. Their specialized focus increases the likelihood of timely payment collections, which in turn positively impacts the business’s cash flow.

For instance, imagine that an IT company outsources its accounts receivable to a specialized AR service provider. This provider consistently follows up on late payments, resulting in faster settlements. This boosts the IT company’s financial stability and allows them to take advantage of investment opportunities.

7. Enhanced Customer Relationships

Professional AR management uses a customer-centric approach which maintains respectful communication throughout the collection process. Outsourced teams can concentrate on the collection efforts while preserving positive customer relationships.

8. Reduced Risk

AR outsourcing service providers often have experience dealing with various industries and markets. This exposure equips them to manage credit risks more effectively and implement strategies to mitigate potential losses.

Suppose a credit card company outsources its accounts receivable management. The outsourcing partner’s deep understanding of credit assessment helps identify high-risk accounts. By addressing these AR issues, the credit card company reduces the likelihood of bad debts.

9. Compliance and Regulations

Outsourcing firms are well-versed in financial regulations and compliance standards. They ensure that accounts receivable processes align with legal requirements, reducing the risk of penalties and regulatory issues.

Challenges in Managing Accounts Receivable Internally

Let’s check out why managing accounts receivable tasks with the help of in-house staff can be challenging.

1. Resource Drain

Managing accounts receivable internally can be resource-intensive. Businesses need to allocate human resources for tasks such as generating invoices, tracking payment due dates, and following up on payments. Moreover, investing in accounting software and infrastructure adds to the financial burden.

2. Inconsistent Processes

In franchised businesses where different stores handle accounts receivable in different ways, there is potential for inconsistencies in processes. This lack of standardization can lead to confusion, inefficiencies, and increased chances of errors.

Imagine a medium-sized retail chain, where each branch handles its accounts receivable without standardized procedures. Some branches may follow up on overdue payments rigorously, while others may be more lenient. This inconsistency may lead to confusion among customers and uneven cash flow. Moreover, errors in data entry may be more likely to occur due to differing practices, causing discrepancies in financial records and affecting the accuracy of financial reports. As a result, the retail business may need help in predicting cash flow, allocating resources, and maintaining reliable financial information for decision-making.

 

Managing accounts receivable effectively is crucial to maintaining a healthy cash flow. Outsourcing accounts receivable processes offer numerous advantages, including access to expertise, cost savings, improved efficiency, and enhanced customer relationships. As businesses face increasing competition and the need for operational agility, outsourcing emerges as a strategic choice to maximize cash flow and allocate resources more efficiently. By partnering with a reliable outsourced accounts receivable service provider, businesses can focus on their core competencies while benefiting from optimized AR management that contributes to long-term financial success. For more information, get in touch with Virtuous Accounting & Bookkeeping. We are a leading online bookkeeping and accounts receivable company helping you to get high-quality service at the most competitive rates.