Maximizing Efficiency: The Benefits of Outsourcing Accounts Receivable Management

Introduction 

In today’s fast-paced business environment, companies constantly strive for efficiency and optimization. Amidst this relentless pursuit, one crucial aspect that demands attention is accounts receivable (AR) management. Today, AR has become the lifeblood of any business. After all, it ultimately doesn’t matter how amazing your product or service is or how many sales you close. If you do not get paid consistently, your survival is in question. Therefore, recognizing the pivotal role of AR management in sustaining business operations, it’s imperative to understand the intricacies of AR management.   

Understanding AR Management 

AR management involves meticulously tracking all outstanding payments owed to a business. An in-house AR management team ensures the timely issuance of invoices and collection of payments from customers. The AR department monitors anticipated revenue within any organization and actively pursues its collection.  

Understanding the Accounts Receivable (AR) Process 

A compelling accounts receivable collection process enables your business to collect revenue ahead of invoice due dates, bringing down the Days Sales Outstanding number of days. In turn, your cash flow remains healthy, which boosts business profitability and growth. The four steps mainly included in an AR process are as follows: 

1. Establishing a credit policy 
2. Invoicing customers on a timely basis 
3. Tracking and monitoring accounts receivable 
4. Managing Collections 

Establishing a Credit Policy 

As part of this policy, we assist you in determining the following: 

1. Which customers can qualify for credit 
2. Amount of credit that you want to extend to customers 
3. Payment period 
4. Any early payment discounts 
5. Any late payment fees 
6. Conditions of credit that are specific to your business 
7. Run a credit check to ensure they are credit-worthy 

Invoicing Customers 

This step involves invoicing the customer for the goods or services they purchase from you and agreeing to send them an invoice per the invoicing schedule. We assist in creating a robust invoicing schedule and sending out these invoices on a timely basis, as it is the most critical function of the AR process: 

1. Preparing a robust invoicing schedule 
2. Compiling time sheets for invoices that are on a timesheet basis 
3. Preparing invoices as per the schedule 
4. Taking relevant approvals from the team 
5. Sending out the invoices to the customers as per the schedule 

Tracking and Monitoring Accounts Receivable 

This process involves tracking and monitoring your AR from each customer who owes you. We assist with daily reporting, including accounts receivable aging analysis, days sales outstanding reporting, etc. Based on this reporting, we can send periodic follow-ups to the customers and ensure our invoices are processed promptly. It is critical to periodically follow up with customers to keep the days sales outstanding under check. 

Managing Collections 

This step involves a critical process to ensure accurate recording and tracking of accounts receivable (AR) in your books. First, we record AR transactions, including invoices issued and the subsequent payments that we receive. We then record each incoming payment and make necessary adjustments for bad debts and unpaid invoices. We establish recurring follow-up processes to ensure that customers who are not paying us don’t go dark on us. With our robust credit control process, we ensure that we bring the number of days sales outstanding down significantly. 

Why Businesses Tend to Outsource the AR Function: 

Due to several pressing reasons, numerous enterprises outsource their accounts receivable management for various reasons, such as reducing expenses, enhancing operational effectiveness, and gaining access to specialized skills. When businesses outsource their AR function, they can reallocate internal resources towards core competencies and strategic initiatives by entrusting AR responsibilities to specialized partners. This helps leverage industry best practices to enhance operational efficiency and drive growth. 

Some Benefits of Outsourcing your Accounts Receivable: 

Accounts receivable outsourcing services can lead to immense benefits. Although initially, outsourcing may be seen as a loss of control, as you may question the benefits of outsourced accounts receivable.   Nonetheless, it is essential to acknowledge the benefits of outsourcing accounts receivable as several businesses collaborate with outsourcing companies to collect payments more effectively. This strategic partnership enhances financial efficiency and allows businesses to focus more on core operations. 

• Accelerated Cash Flow: When a dedicated team manages your receivables, the natural outcome is that payments are processed efficiently and the entire process of collecting payments is streamlined. Outsourced accounts receivable services lead to improved cash flow, so your company can receive cash on time, reducing payment delays. 

• Expertise and Experience:  A reputed outsourced AR company will have the knowledge, skills, and experience to manage the AR process effectively. They will have dedicated staff who are trained in handling accounts receivable. This can lead to faster collection and better workflow.  

• Improved Metrics: Outsourcing the AR function helps companies speed up the invoicing and payment process. This improves the cash flow and helps businesses achieve AR targets such as average time to collect, days sales outstanding (DSO), and AR turnover ratio. 

• Costs Savings: Outsourcing the AR process can be more cost-effective than hiring an in-house team. This means better economies of scale since services can be offered at lower costs. Outsourcing removes the necessity of recruiting, training, and dealing with overhead expenses. Also, improved cash flow and reduced bad debt contribute to lower costs. Thus, you can focus on growth initiatives and allocate limited resources more efficiently than investing in an internal team. 

• Ability to Focus on Core Business Activities:  When outsourcing the AR function, you free up time and other resources for other business functions. These business functions include revenue-driving activities and other customer relationship management tasks.  

• Flexible Time Zone Advantage: If your business operates in a global market, delegating your accounts receivable tasks to a provider in a different time zone can benefit your operations. For example, a company in the USA can outsource its AR to an Indian provider and take advantage of the time zone. In this case, business elements such as payment processing and customer service can continue after business hours have ceased.  

Boost your bottom line with efficient AR management. Book your consultation now!

Final Thoughts: 

In this blog, we have presented just a basic rundown of accounts receivable outsourcing. However, the points represented here are just the tip of the iceberg. Companies like yours can realize even more benefits when they outsource accounts receivable services and leverage the opportunities presented to maximize the solutions further.  

Several aspects, such as accelerated cash flow, enhanced customer service, reduced cost savings, and lesser administrative burden, can positively impact the financial health of a business. A reliable outsourcing partner such as KMK Ventures can help optimize financial processes and drive growth, enabling your business to stay ahead in today’s competitive landscape. Why not embrace the power of outsourcing and benefit from the power of the proper accounts receivable management solutions today?