While some recent signs point to a rebounding economy, many businesses haven’t experienced much of a change, and efforts to trim staff continue. One way businesses are running leaner is by outsourcing lower priority business processes so they can focus more on more mission-critical activities like marketing, research and product development.
According to Forbes, accounts receivable (AR) was one of the first business processes to be outsourced, and one which continues to dominate outsourced activities. There are good reasons why this is the case. Primarily, the process of collecting AR is among the more serious drags on human resources and, as it turns out, on net revenues.
The Benefits of Outsourcing
Developing a strategy to outsource your company’s AR is a smart move saving both time and money for any business, but especially for startups and small businesses. Here are 5 benefits you can realize by outsourcing your accounts receivable services:
- Refocused Priorities: Businesses need to grow to survive, and growth requires a heavy focus on customer service, marketing, research and development. Handling AR in-house is time-consuming and tends to pull key staff away from these more critical growth activities. Also, given the challenging nature of debt collections, handling it in-house tends to lower employee morale. Outsourcing AR allows staff to focus on growth, contributing to thriving businesses and improving morale.
- Greater Efficiency: The companies to which you outsource AR have a degree of finance and accounting expertise that in-house staffs typically lack. As such, they can achieve greater efficiency and perform your AR activities with improved accuracy and in a timelier manner.
- Saved money on labor costs: Companies historically underestimate the cost of invoicing, factoring the expense of paper and postage and not the labor that goes into it. Studies show that it costs companies an average of $9.38 to send an invoice — up to 90% of which is devoted to labor costs. Assuming that an outside company can best the cost of $9.38 to invoice, outsourcing that job function saves not only money, but ensures that the job will be done quickly and accurately.
- Saved money from faster collections: The longer it takes to collect on overdue accounts, the less money your business will be able to recover. Studies have demonstrated, for example, that you’ll collect 73 cents on the dollar on accounts which are 90 days overdue. When those accounts become 6 months overdue, you’ll collect about 50 cents on the dollar. After a year, your accounts receivable are barely worth the paper they are printed on. Working with a company that can automate AR to ensure early and continual communication with clients and has the expertise to close the books on your accounts sooner will save you money.
- Screening Your Clients: Companies for whom AR is a principal focus are able to establish clear credit policies and check your clients’ credit-worthiness in a way you most likely can’t afford to do. In this way, they can tell you which clients have strong credit histories and will therefore pay sooner, again, saving you money over the long term.
Businesses which are reluctant to try outsourcing accounts receivable often attribute their hesitation to a need to maintain control over home-grown processes which, they believe, an outsider won’t be able to manage effectively. This is a legitimate concern, and one Kinum addressed in 6 Keys to Choosing the Best Collection Agency for your Business. However, the best collection agencies will take time to understand your business model, and customize a collection approach to your industries. Before making the leap to an outsourced A/R company, do some due diligence to find a partner with a customer-service mindset and a willingness to adapt to your industry. With this kind of relationship, Accounts Receivable Outsourcing can be one of the easiest ways to save time and money, and to refocus on your most critical priorities.