The task of stacking clients’ invoices on top of each other and managing accounts receivable cash flow pipelines is a common time-consuming bottleneck. There is a very simple solution to this: outsourcing accounts receivable. By outsourcing portions of the accounting pipeline, accounting practices can establish a strategic, long-term, and efficient approach to accelerating cash flow.
To achieve this efficiency and realise the benefits of outsourcing accounts receivable. Accounting practices must understand how AR outsourcing improves cash flow and what to expect.
This blog lays out how to improve cash flow with AR outsourcing, including what accounting practices can expect from it.
How Does Outsourcing Accounts Receivable Improve Cash Flow?
Outsourcing accounts receivable services allow for improvement in cash flow due to its more hands-on deck approach. This allows for additional resources to be invested, leading to the resolution of certain bottlenecks that are otherwise common during the reconciliation process. This section lists how outsourcing accounts receivable leads to improvement in cash flow for businesses:
Faster Invoicing and Collections Through Dedicated Resource Utilisation
Outsourcing your accounts receivable will improve your cash flow because it allows more efficiency in billing and delivering goods to your customers. An outsourced vendor will focus on collections (the act of getting the customers to pay their bills) rather than relying on using their own full-time employees in-house to collect on accounts receivable. As a result, an outsourcer will be able to give their employees (thereby have less time for thorough collection efforts on older accounts). Inaccurate invoicing can result in non-payment due to a billing error. Replacing that error with accurate invoices enables quicker collection of cash from your customers, thus improving your accounts receivable cash flow.
Reduction in DSO (Days Sales Outstanding)
Outsourcing accounts receivable functions can increase a company’s cash flow significantly by allowing access to a much larger team that specializes in collecting on delinquent invoices, which results in better and more persistent collections. Typically this outsourced team would have the specialized skills and resources necessary for quicker identification of delinquent accounts, and more effective collection processes.
In assistance with a well-organised collections process, outsourcing the handling of accounts receivable allows organisations to expedite the collection of accounts receivable and reduce the time it takes to receive cash from customers. The faster an organisation receives payment for the sale of goods and/or services, the less cash will be tied up in Accounts Receivable, and more cash will be available for other operational activities and/or strategic investments. By improving the cash flow from Accounts Receivable, the company’s liquidity increases and financial flexibility for planning, growth, etc. is improved. Therefore, outsourcing accounts receivable functions represents a competitive advantage in maximizing cash flow and maintaining long-term financial viability.
Reduced Overdue Accounts
With Accounts Receivable Outsourcing, businesses can significantly enhance cash flow by allowing specialists to deal with overdue debts before they become uncollectable. A proactive approach will prevent older aged and potentially uncollectable accounts from affecting the financial stability of your business. In addition, improved communication with your customers will help build better business relationships and assist with resolving any payment issues while preserving goodwill.
Professionals who have developed their skills will be able to manage these disputes without damaging the relationship between the customer and your organisation and will provide your organisation with the tools required to effectively and timely collect funds from customers, which will contribute to the overall financial well-being of your organisation.
Enhanced Cost-Reductions
A company can get many benefits from outsourcing accounts receivable which can assist with its overall cash flow management. By working with an expert company providing accounts receivable services, your business would have access to high technology like artificial intelligence, machine learning, automation systems, etc. This type of cutting-edge technology allows for better streamlining of the way your company collects data, reduces the number of errors made, and decreases the time it takes to process invoices so that payments occur more quickly.
Real-time visibility and dynamic dashboards provide your company with up-to-date information on the status of your cash flow so that your team has a summary of all open invoices and accounts receivable. The increased level of visibility with your cash flow allows you to better track the financial performance of your company and identify possible issues sooner so that you can react quickly to unexpected events which helps increase the financial stability and efficiency of your company.
Access to Technology and Automation
The main advantage of outsourcing accounts receivable is greatly improving cash flow. Outsourcing accounts receivable also provides access to modern technologies, including artificial intelligence, machine learning, and automated systems, to enable faster data capture and invoice processing. Real-time insight platforms provide visual overviews of cash flow status through dashboard reports, enabling companies to better track outstanding invoices.
Greater visibility will enable improved cash flow forecasting, as current outstanding receivables can be used to more accurately predict future cash inflows. Additionally, these technologies enable the identification of discrepancies in invoices, minimising errors and saving time and resources to resolve issues, thereby improving cash flow efficiency.
Real-Time Strategic Insights
When you outsource your accounts receivable functions, you’ll have access to advanced analytics that will help you track your customers’ payment patterns, identify at-risk accounts and measure the effectiveness of your collections strategies based on the data provided. This deeper understanding of how AR outsourcing improves cash flow to manage your customers’ payment behaviours will help you better manage your cash flow and anticipate future cash inflows. This will ultimately enable you to make more informed financial decisions than you could without this information.
Another benefit of developing a partnership with an outsourced provider is that it will give you access to real-time compliance with all of the regulations that must be adhered to within each jurisdiction, and this is because there are qualified accounting professionals who are knowledgeable about and experienced with assuring that the regulations within their jurisdictions are met.
Improved Risk Management
One of the major benefits of outsourcing accounts receivable is the access to specialized expert oversight. AR professionals are highly trained individuals who offer their clients additional resources to ensure the accuracy of transactions and to identify and correct any errors before the transactions proceed to reconciliation. This proactive approach helps businesses avoid the significant risk of bad debt by catching issues early. Additionally, outsourcing AR processes saves valuable resources that would otherwise be spent on correcting mistakes and managing collections, leading to more efficient and reliable cash flow management for the company.
Conclusion
Outsourcing your accounts receivable (AR) is both a strategic move and helps turn a manual, reactive process into one of discipline and automation. As such, it enables you to see your cash flow with clarity while freeing your internal personnel to focus on their core activities and add value, rather than spend time collecting invoices. The first step in realising the full benefits of outsourcing your AR is to find a suitable outsourcing partner; then, it will help to improve cash flow with AR outsourcing and expedite the service exchange.
Outsourcing AR can also streamline your financial operations by providing your organisation with greater flexibility to adapt to changing market conditions, reduce the risk of error (and thus improve cash flow), and begin to realise the cost-saving benefits of the service sooner rather than later.
Allowing experts to oversee your receivables allows you to focus on revenue-generating activities, create the foundation for long-term sustainable growth, improve your overall financial health, and enhance your relationships with customers through more reliable and professional communication.
