Accounts Receivable is not only a business process, it is a way of ensuring steady cash flow within a business. Across all industries, the need to ensure that you keep track of the money you are about to receive and receive in due time is key to the success of the business.
So what is included in the Accounts Receivable process?
- Billing and invoice
- Payment processing
- Client communication
- Internal communication and process
- Collection process
- Credit policies
Late payments can be a nightmare for your accounting firm if there are a lot of clients facing this issue. Chasing them can distract you from the important tasks you need to focus on and unnecessarily delay all payment cycles. For small accounting firms devoting the time and resources to manage these debts can be challenging. Delayed payments and inefficient collections can lead to cash flow disruptions, making it difficult to meet operational expenses, pay the vendors, and keep investing in new tools and technologies needed for growth.
One of the great techniques to save time, energy, and resources in efficient accounts receivable is through outsourcing. Before we get into the details of how outsourcing can benefit your accounting firm, let us understand the key challenges that firms face:
Challenges faced in Accounts Receivable
Delay in invoice processing:
Such delays can happen due to multiple reasons – manual data entry errors, inefficient and multi-layered approval processes, or the use of outdated systems. When an accounting firm falls prey to any of these systems, it can hinder the timely delivery of invoices to clients, which leads to disruption of cash flow and a severe blow to the financial health of the businesses. As invoice processing times continue to increase, the relationship with clients gets strained, leading to further delays in payments and potential disputes.
Increased Days of Sales:
An increase in Days Sales Outstanding (DSO) can pose severe challenges for businesses. A high DSO is indicative of the longer duration taken to collect payments from clients. It restricts valuable working capital from being used for business purposes. Despite the efforts to improve accounts receivables, businesses can struggle to reduce the DSO due to many other factors – economic uncertainty, the creditworthiness of the clients, or ineffective collection strategies. The long payment cycle can cause cash flow issues and hinder business growth.
Increased Risk of Fraud:
Fraud not only poses a risk to accounts receivable processes but to the entire business. Fraudulent activities, such as manipulation, unauthorized transactions, or identity theft can lead to financial losses and damage to the organization’s reputation. Detecting and preventing fraud in accounts receivable can be challenging, especially if the firm has manual processes or inadequate internal controls. With proper, and new-age fraud detection methods, accounting firms might find it hard to mitigate this risk effectively.
Low chances of scalability:
Disrupted accounts receivable processes often constrain business growth. Traditional manual processes or legacy systems may lack the flexibility to support business expansions or handle transactional fluctuation. As businesses continue to grow, these challenges can blow out of proportion. Factors like increased workload, resource constraints, and low capital can hinder scalability and accounts receivable operations effectively.
How can outsourcing help in Accounts Receivable?
Helps save costs:
When you outsource your accounts receivables, you do not need to hire internal, dedicated resources to fulfill your business needs. The expenses related to infrastructure, software adaptability, training, and equipment can be minimized. Outsourcing providers have trained resources who can handle cash receivables problems effectively while ensuring you can scale to the optimum potential.
Improves cash flow:
One of the key reasons why you should have an effective accounts receivable process in place is to ensure steady cash flow. Outsourcing service providers help leverage advanced tools and techniques to enable businesses to speed up the payment processes. From automated payment reminders to direct debit options – there are quite a few ways. Businesses can benefit from effective and timely collections of outstanding debts with an expert in the field.
Helps improve efficiency:
Outsourcing your accounts receivables allows accounting firms to get rid of the time-consuming tasks to experts who are acquainted with the multiple processes and tools to manage these tasks effectively. This team of professionals also utilizes the best technology to ensure that you can offer the best services. By outsourcing your accounts receivable, you can free yourself and the team to focus on core competencies and grow the operations. When you choose the right outsourcing services, you can process invoices faster than your in-house teams and help improve efficiency.
When should you opt for outsourcing your Accounts Receivable?
The first step here is to acknowledge that you are not an expert in all aspects of your business. And sometimes it is wise to get the available help. Look for signs that indicate you need help. They include:
You have a restricted budget:
The longer you let the debt pass, the less money you will be able to get back. Statistically speaking, businesses write off 1.5% of their receivables as bad debt and 93% of businesses face late payments To combat these statistics, the best option is to outsource your accounts receivable management. By outsourcing, you can automate the services and ensure continuous communication with the clients. It can help balance the books sooner, save money, and time and avoid stress.
You need to improve customer relationships:
Do you have customers who are unhappy with you? Is that one of the reasons for delayed payments? Losing a customer to a rival is the worst thing that can happen to your business. Customers do want to pay their bills. However, there could be several factors that led to non-payment. By outsourcing, you can provide automated reminders in a specific timeframe, allowing you to be on top of your clients’ minds. Your relationships with clients will improve when you outsource. Outsourcing partners not only have the means to communicate with clients without being nagging, but they also provide holistic business communication. With client portals that continue to remain transparent to all parties, they most likely do not want to tarnish their reputation due to non-payment.
You have no time for other essential tasks:
To ensure your firm grows, you need to focus on many factors – customer satisfaction, marketing research, development, and more. If you are tied up chasing late payments, it will leave you with no time to focus on what is important. Neglecting your growth-related tasks and being held down by these tiresome ones can cause serious impacts. As an accounting firm leader, you also need to focus on employee morale, which can be impacted badly when they are constantly chasing clients for payments. When you outsource, you can refocus your energy on what matters most – expanding your business.
Outsourcing Your Accounts Receivables – Conclusion
Chasing late payments with clients is an ongoing challenge for businesses in the accounting field. But this doesn’t have to be as stressful as you think. By adapting the goodness of outsourcing, you can streamline operations, improve cash flow, and get back your valuable time and resources. With the right offshoring partner, you can see your business attain the goals you set.
To know how Finsmart Accounting can help with your outsourcing, write to us at connect@finsmartaccounting.com.
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
