The business arena has become increasingly competitive and businesses more than ever need to find new ways to stay in the game. Managers are compressed to be agile and proactive when making business decisions. At the same time cost pressures are more intense than ever challenging financial departments to keep the cash flow streaming more inwards rather than the other way round.
Improvements in the cash flow can often lead to new opportunities for growth and expansion of the business. But often, businesses find themselves in a situation where most of their money is tied up in working capital stopping them from making growth investments resulting in lost revenue and related profit opportunities. Accounts receivable (AR) are the lifeblood of a business’s cash flow. However, efficient collection of AR has posed as challenging for both start-ups and big established businesses.
Small businesses often lack the time and people for keeping track of accounts receivable. This may lead to misunderstanding between the company and the clients about payed and outstanding bills which affect negatively your customer relations. In addition, you may end up providing your product for free and negatively impact your ability to be profitable. Finally, time is everything! The longer it takes you to send the invoice, the less likely will the payment be made on time. Keeping track of accounts receivable is also a great way to have documentation supporting proof of income at tax time.
Bigger companies, although have dedicated accounting departments, they also face challenges of their own:
- Turnover of skilled and trained staff;
- Customers consistently paying outside terms;
- Reactive, rather than proactive follow-up on past due accounts;
- Limited availability of AR information;
- Demands to improve cash flow;
From one side, bringing efficiency of AR maintenance at higher level imposes significantly higher spending on the business for software and internal stuff. On the other side, AR, although essential for better cash flow, its foundation is a routine-based work and is considered to be a non-core activity of your business. This questions the validity of the additional investment.
The nature of the task together with the increased collaboration between companies in the last two decades has made this task attractive for outsourcing. Companies which operate as business support centers have the experience, knowledge and time to collect and maintain your AR more efficiently. Additionaly, outsourcing companies:
- build better customer relations with your clients because they have dedicated teams for each particular task;
- amid contentious situation;
- collect AR faster by using proven effective methodologies;
- reduce bad debt write-offs;
- lower debt recovery costs;
According to Neal Gold, Corporate Vice President for STA International:
“Companies using accounts receivable outsourcing typically realize improved cash flow by up to 30% on their outsourced receivables resulting in reduced borrowing and lower interest payments.”
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