Listen to this articleAccounts receivable outsourcing might be more necessary for a business than it looks. Here’s why –
Businesses spend most of their precious time generating leads, finding new customers, and selling their products and services. Most of the employees, including the management and business owners, are engrossed in that. Thus, the most crucial asset in the balance sheet, accounts receivable, takes a back seat. So, what happens to the pending payments in accounts receivable?
However, before we explore that, let us define what accounts receivable is. Accounts receivable is usually reserved for customers that have excellent track records. Therefore, these are listed on the balance sheet as short-term assets. In simple terms, the accounts receivables are the pending payments the company expects the customers or clients to pay shortly. The accounts receivables are expected to be converted into cash in the immediate future.
However, often, the payments get delayed more than once and cannot be collected timely. Can you guess what this leads to?
Impact of Delayed Payments
The receivables, when not collected timely, turn into debts, which then turn into bad debts. Therefore, neglecting accounts receivable not only disrupts the cash flow but also makes the company lose a major portion of its income.
The impacts of late payments aren’t limited to that. Delayed payments deteriorate the quality of accounts receivable. Moreover, this also hampers the company assets and affects your credibility as a borrower.
This is where the accounts receivable outsourcing services come in. The business owners and the management cannot dedicate enough time to collect the payments. Therefore, these services take a systematic approach to managing accounts receivable and ensure the payment is collected timely. Before we go deep into all the different services they provide, let us see what accounts receivable outsourcing is.
What is Accounts Receivable Outsourcing?
Accounts receivable outsourcing is hiring a third-party service provider to take care of accounts receivable procedures. This might include different tasks such as collecting payments, generating invoices, billing customers, etc.
In such a business arrangement, the company management and owner no longer have to manage the operations related to the accounts receivable. They can just delegate these requirements to the outsourced partner. This is the prime reason a company chooses to outsource accounts receivable services.
Why is Accounts Receivable Outsourcing the Best Practice?
Until yours is a large enterprise with a dedicated department for payment collection, you are losing some or a significant portion of your accounts receivable. Although the solution here might seem to hire dedicated accountants to manage accounts receivable, that isn’t viable. Hiring and maintaining an in-house accountant will be pretty expensive and also require management and training.
Although you would like to retain control over the procedure by keeping collection in-house, that’s not feasible. A better option is the accounts receivable outsourcing services. The benefits of outsourcing accounts receivable processes by far outweigh the concern over the loss of control over the operations. Moreover, these firms provide hundred percent security for client’s data and keep it confidential. This is why you don’t need to worry about it.
Here are the reasons why accounts receivable outsourcing is the best practice for businesses.
1. Cost Efficient
Although outsourcing accounts receivable services might seem like an extra investment at a glance, it is cheaper than hiring an in-house accountant. Therefore, businesses save a significant margin on paying and training an employee. This is why outsourcing accounts receivable services is way cheaper and cost-efficient.
Moreover, such firms provide a plethora of accounting services and cater to various financial requirements of the business in cost efficient manner.
2. Professional Approach
Accounts receivable services have years of experience in collecting the payments. Therefore, they take a professional approach to collecting the pending payments, which might be hard to collect normally.
3. Fast Collection
While many businesses start to think it is normal for customers or clients to delay payments, it doesn’t have to be this way. The outsourced accounts receivable services speed up the collection process and clear debts timely.
4. Reduces Burden
With the burden of managing accounts receivable and ensuring the timely collection of payments off their shoulder, the businesses can focus on the core activities. Thus, the business can strive to sell products and services to more customers, and the outsourced partner can continue to collect the payments. This will allow the business to focus on efficiency, profitability, expansion, and growth.
5. Minimum Bad Debts
Bad debts are, in fact, losses, and therefore, a business should avoid them at all costs. When the payments are not collected timely, they turn into debts, and long-term debts subsequently turn into bad debts. Outsourced accounts receivable services operate with one core responsibility – to ensure timely collection of the payments. Thus, they help your business manage payments without letting them become debts.
6. Improved Cash Flow
Timely payments of accounts receivable convert them into revenue and simplify the cash flow. However, if not collected timely, they will stay as pending payments and turn into debts.
Accounts Receivable Outsourcing Services: An Overview
Accounts receivable outsourcing services rid the business of the worries about payment collection. Thus, the business focuses on key operations and enhanced productivity and profitability, while the outsourced accounts receivable service takes care of the payments. Improved cash flow, in turn, provides a better environment for the business to grow and flourish. Thus, accounts receivable services help the companies in a bifocal manner.
Let us see how the outsourced accounts receivable service actually works.
How Do the Accounts Receivable (AR) Services Work?
Accounts receivable services take a systematic approach to collecting payments. The process is distributed in steps like establishing a credit system and practices, invoicing, and billing the customers, monitoring accounts receivable, and finally, recording entries such as bad debts in the journal.
Here is a detailed and step-wise overview of how an accounts receivable outsourcing firm works.
1. Defines Credit Practices
Depending on the business size and customer base, the suitable approach to managing accounts receivable varies. Larger enterprises with high incomes and mid-sized and small businesses with comparably lower incomes have different definitions for credible customers.
Accounts receivable services begin with defining and establishing the credit application process. This includes defining the eligibility criteria for a credit-worthy customer, which is done by assessing their track record for timely payment. Moreover, the organization chooses whether to offer credits to individuals, businesses, or both. The service provider lays down the credit application process that would later be used to grant credit to eligible customers and collect payments.
2. Invoices and Bills for the Customers
When the clients or customers acquire a product or service, they receive a receipt or invoice. The receipt/invoice contains the important data on the model or item code, price and taxes, and the date of payments. Invoices are generated electronically or physically as per the preference of the company and customers. To receive a payment, sharing the invoices with the customers is a must.
Outsourced accounts receivable services generate and send the invoices to the customer for timely payments.
3. Monitors the Accounts Receivable
Let’s say the eligible customers have purchased the products and services, and you’ve sent them the invoices with the guidelines on how to pay. Now, these pending payments need to be watched closely.
Outsourced AR services closely monitor the pending payments with the help of an Accounts Receivables Officer. They send monthly statements to the customers to let them know about the amount they owe. Moreover, they also reconcile the payment ledger and ensure they are properly posted.
4. Records Entry
It is the collection officer who decides the due date for payments for debts. They inspect the debts and communicate with the accounting department so that the latter can record them in the form of journal entries. In the case of bad debts as well, the collection officer finalizes the payment date.
Therefore, the outsourced AR services also take care of the accounting processes involved.
Outsource Accounts Receivable Operations to Us!
Simplify payment collection with the help of our accounts receivable outsourcing services. We provide a fully-fledged AR service to manage your receivables and enhance cash flow.
Our services comprise of:
- Recording Journal Entries
- Invoicing and billing
- Receipt verification and reconciliation
- Dispute / Chargeback management
- Preparing and Processing Debtor Aging Report
- Credit Memo processing
- Payment follow Ups
- Bad Debts/ Delinquency Management
- CST C-forms/ GST Form collection
- Customer Support
Our core values are the pillars that give us strength and ability to support client’s businesses and help them grow. We operate with the principles of integrity, teamwork, professionalism, and sustainability. Our excellent track record and high client satisfaction rates are evidence of our credibility.
Therefore, experience our accounts receivable outsourcing services and save cost, enhance efficiency, manage risks, and take accuracy and compliance to the next level. Dial +1(800) 580-5375 now and speak to our advisor