Accounts receivable management is a fact of life for every business; getting paid is part and parcel for any business. You probably won’t be in business long if you don’t get paid!
But this is also a time-consuming task, and for many firms, it eats up a lot of valuable time for key players who should be looking after other things. After all, it’s not necessarily a good use of time for your CEO to send out invoices or for the marketing manager to follow up on unpaid invoices.
Outsourcing often enters the equation when business owners realize their time and effort is best spent elsewhere. Outsourcing can also drive working capital improvements—which is good news for small businesses and those who operate in industries with razor-thin profit margins.
Accelerating Account Collection
Small businesses feel the crunch of small workforces. As a result, accounts receivable tasks could slide: Invoicing might not get sent on time, and you might not send follow-up messages or reminders. When an account becomes overdue, it might take you a few days to realize the due date has passed and that you need to get in touch with the customer. Add in complications on the customer’s end, and you’re not getting paid on time.
In a business with limited cash flow, not getting paid on time is a huge problem. It can lead to you relying on credit, overdrawing accounts, or failing to pay your own bills and bouncing checks.
When you outsource, however, you can accelerate your account collections. Since you now have a dedicated team working solely on accounts receivable, there’s no need to worry about ensuring the invoicing is done on time—it will be. And the team will be monitoring accounts more closely (with the help of technology) to ensure they’re following up and reminding customers when due dates are approaching or when bills become overdue.
More Cash in Hand
Obviously, accelerating account collections means you get paid sooner—which means your cash flow will improve. You’ll have more liquidity, allowing you to more easily and predictably manage your own finances.
As working capital improves, you’ll rely less on credit to get you from day to day or month to month—and you’ll be able to focus on the bigger picture. Once you can stop worrying about the short term, you can start focusing on long-term strategies.
Cutting Costs and Saving Money
Outsourcing accounts receivable has another benefit for your working capital: It saves money. While some people argue outsourcing can be more expensive in the long run, if you choose your partner provider wisely, you’ll save money. In fact, that’s the main reason businesses opt to outsource.
As you cut costs, you’ll see overall savings, but you might even see improvements on a monthly basis; there might be a little bit more to go around at the end of the month. Again, this improves your working capital. It may not be a lot, but in some industries, the margin between profit and loss is razor-thin, so any improvement is welcome.
Getting Back to Business
There’s another advantage to outsourcing accounts receivable: It allows you to get back to your core activities. The CEO doesn’t need to chase after overdue accounts, and your sales reps aren’t generating invoices when they could be working on closing customers.
This contributes to the long-term health of your business. When you can focus on the big picture, you can implement a strategy and steer the business where you want to go. The overall result will be improved cash flow as your business grows and generates more revenue.