The business environment has become very competitive, requiring owners and managers to devise new ways to stay ahead. Although cutting costs seems like the best solution, it sometimes leads to quality loss. Improving cash flow reduces the company’s expenses without sacrificing work quality. The most efficient way to do it is by outsourcing accounting-related business processes.
In this blog post, we look at how outsourcing improves business cash flow without sacrificing operational quality. We also explore the most common cash flow management challenges companies face and the benefits of accounts receivable outsourcing.
Read on!
Accounts Receivable and Cash Flow Management
Accounts receivable (AR) are the lifeblood of a business’s cash flow. As such, collecting them efficiently is crucial for ensuring continuous incoming cash flow. However, both small and larger companies often come across challenges when collecting and managing AR.
Accounts Receivable Challenges for Small Companies
Small businesses usually lack the people and time to keep track of accounts receivable. This may lead to misunderstandings between the company and the clients about paid and unpaid bills, negatively affecting customer relations. It may also lead to giving away products/services for free, which harms the company’s profitability.
When it comes to time, having only one accountant (usually for small companies) for all things related to finances means weaker cash flow management since one person can’t take care of invoices, tax, bookkeeping, and other tasks at once. For accounts receivable, this means slower invoice sending. And the longer it takes to send the invoices, the less likely they will be paid on time.
Accounts Receivable Challenges for Larger Companies
While bigger companies have dedicated accounting departments, they also face challenges of their own:
- Turnover of skilled and trained staff
- Customers consistently paying outside terms
- Reactive follow-up on past-due accounts instead of proactive
- Limited AR information availability
- Inconsistent AR processes
- Outdated AR management system
- Cash flow improvement demands
Improve AR Management with Business Process Outsourcing
Improving AR management requires higher investment in software and employees (and their training). Although essential for improving cash flow, it’s usually seen as a non-core business process due to being a routine-based task. That’s why business owners aren’t willing or doubt whether to invest in the latest accounting software, hire new employees, or train them.
The solution?
Outsourcing accounting services for cash flow. Being a repetitive, non-core business process that is done independently, without the need to be on-site, makes accounting perfect for outsourcing.
Businesses can outsource their entire accounting task or specific functions, like AR and cash flow management. Outsourcing companies have experienced staff on disposal and the latest accounting tools.
Delegating accounting services to a remote company saves businesses time and budget on hiring additional accountants and training them. It also allows them to focus on core business processes and invest the savings in expanding their business.
How Can Outsourcing Help Increase Cash Flow for Your Business?
Cash flow management outsourcing can benefit businesses in many ways, from reducing unnecessary expenses and better payment collection to saving time and access to international professionals.
Overall Cost Savings
Reduced costs is one of the biggest benefits outsourced accounting services for cash flow have and the main way they boost your cash flow.
Access to Top Talent Without Additional Expenses
Cash flow outsourcing reduces labour costs as you don’t need to hire and train new employees. Remote companies have experienced people in their team who’ve been there for many years. They know the job and are skilled in the software used, which saves time on training.
Even if you need more professionals, you can easily find them without recruiting since the outsourcing company takes care of it. Not hiring on-site employees saves you money on salary and benefits – you pay a pre-determined fee for the services to the company.
The best thing about working with international experts is that you get the highest work quality at a lower price, especially if you partner with a company from a country with a lower living cost.
No Need for Larger Office Space & Equipment
When you have a remote team, you don’t have to worry about spending a lot of money on renting a bigger office space and buying new desks, chairs, computers, and other office supplies. Your outsourcing partner takes care of all that.
Save on Technology Investment & Automation
Apart from not having to spend money on office space and equipment, you also don’t need to spend money on buying the latest accounting software.
Outsourcing companies have cutting-edge software that automates the workflow to stay competitive in the market. Automated data entry ensures accurate financial data and cash flow numbers and allows scheduling for bill payments and client payment collection.
By automating your accounting tasks, you’ll speed up the AR collection, reduce errors, and improve the overall cash flow.
Faster Invoice Processing & Payment Collection
Having a team taking care of your AR and payment collection streamlines the invoice processing time. The faster invoices are prepared and sent, the bigger the chance that clients pay on time.
If there’s a need, your outsourcing team can also take care of outstanding invoices and handle dispute resolutions to ensure timely payment collection.
Improved Financial Reporting
Apart from speeding up the AR process, outsourced accounting services for cash flow also improve financial reporting. Your remote team utilizes the latest software and methodologies to adapt and refine your financial reports.
They can also conduct audits to ensure the financial forecast is accurate and aligned with your business’s performance. This helps identify financial risks early, allowing for quick interventions.
Better Risk Management
Outsourcing companies have professionals in their teams with knowledge in areas like financial and accounting regulations, tax laws, and international standards, reducing the risk of non-compliance and penalties.
Having the latest tech also allows them to automate compliance tracking, which simplifies your on-site team’s tasks. Furthermore, they have contingency plans and back up all your data to prevent unexpected disruptions.
Key-Performance Indicators (KPIs) Monitoring
With a deep knowledge of the industry, your outsourcing partner can help with KPI monitoring and reporting. They can accurately track KPIs like days sales outstanding (DSO), accounts payable turnover ratio, and accounts payable cost per invoice.
By conducting continuous financial data analysis, your remote team provides you with information on your company’s financial health, opportunities for improvement, and errors and supports more strategic data-driven decision-making.
Increased Efficiency
Outsourcing companies take over part of a company’s business processes, which means they can focus better on their tasks. By having fewer tasks to take care of, they can complete them faster and more accurately than an in-house team.
The increased efficiency of your remote team saves you time and money, ultimately improving your cash flow.
Focus on Core Business Processes
By delegating certain, not-so-essential tasks to a remote team, outsourcing allows you to focus on core business processes. With more free time and budget, you can direct your attention to key processes that facilitate business growth, such as reaching out to new potential clients, developing new products/services, and building meaningful client relationships.
Having more time to focus on core business processes helps improve your productivity, generate more profits, and improve your cash flow.
With Outsourced Accounting to Improved Cash Flow Management
Outsourcing certain business processes like accounting, or more specifically accounts receivable, can improve cash flow over time. From reducing costs on hiring and training new employees to improved financial reporting and KPI tracking, working with a reliable remote partner can ease your work and automate some tasks, like collecting client payments and compliance tracking, to reduce errors.
By taking over time-consuming, repetitive processes, outsourcing companies allow business owners to use their time to find new customers, build client relations, and PR. It also allows them to reallocate their funds to processes that can help them grow, like investing in new machines, developing a new product/service, and sponsoring a popular event that can boost brand awareness.
Frequently Asked Questions (FAQs)
Which accounting functions can be outsourced?
You can outsource your entire accounting process or choose to delegate certain tasks, such as bookkeeping, accounts receivable, accounts payable, payroll processing, financial analysis and reporting, and more. Which ones you choose to outsource depends on your needs and the in-house team’s capacity.
What are the benefits of outsourcing accounting services for cash flow?
Outsourcing accounts receivable helps streamline accounting processes, reduce operational costs, and improve cash flow by ensuring fast invoice processing, timely client payments, and accurate financial analysis and reporting.
Can outsourcing improve cash flow in the long term?
Yes! Outsourcing accounting services reduces operational costs, improves financial accuracy, facilitates timely client payments, reduces the chance of penalties by assuring compliance with financial laws, and frees up resources which can be invested in growth opportunities, thus ensuring steady cash flow in the long run.
