Outsourcing Accounts Receivable (AR) - Benefits

In today’s credit linked business environment, Accounts receivable is very relevant & efficiency can be much better harnessed and at a much lower cost. With the offshore service provider taking care of this aspect, the small business has more time and flexibility to attend to other core business areas like procuring orders, improving service delivery and mobilizing resources. Accounts receivable outsourcing is thus a trend among small business today.

Accounts Receivable Outsourcing - Advantage

By outsourcing accounts receivable, small business can avail a less expensive - and often higher quality solution and achieve significantly higher collection efficiency, thereby improving liquidity and company bottom lines.

By accounts receivable outsourcing, companies gain access to top notch collection agency professionals and advanced collection agency resources even if they don't have full time AR management needs. It doesn't take a long roster of past due clients to make a big dent in a company's bottom line. According to statistics, once an account becomes 90 days overdue, your business is likely to receive only 73 cents for every dollar owed. After 6 months, the amount drops to 50 cents on every dollar and down to 25 cents after one year. Bringing a collection agency on to handle accounts receivable addresses delinquent accounts within the first 90 days, before they get out of hand.

Accounts Receivables Matters really

Sales that have not yet been collected as cash reflect Accounts Receivable. In today’s credit based business environment, small businesses sell their merchandise or services in exchange for a customer's promise to pay at a certain time in the future. Timely collection of accounts receivables is an extremely important source of cash inflows. If this management is bad, small business may not have sufficient liquidity to meet its own expenses. Moreover, accounts receivable portfolios can amount to 21 percent to 34 percent of a small business company's assets. Inefficient collection can amount to 25% of the asset base of a small business could put the very existence of the business at stake.

For a small business, like any other enterprise, accounts receivable also represent an investment. The money locked up in accounts receivable is not available for meeting the costs of running or expanding the business. The return from an investment in accounts receivable doesn't occur until the customers clear their invoices.

Day-to-day management of accounts receivables is traditionally paper intensive, time consuming and expensive. Invoices, payments, purchase orders, and statements are often received via mail, fax, or email. It is always not feasible for small business operators to implement Enterprise Resource Planning (ERP) and Line of Business (LOB) applications for data management because of high investment cost. Even if they manage the cost, capturing information from hardcopy documents, routing them to concerned individuals, and providing easy access to the documents in a timely fashion is indeed a very complex task for small business involving deployment of skilled manpower and enabling systems. Ultimately, management and collection costs of accounts receivables far outweigh the collection putting the small businesses in financial jeopardy.

Efficient Accounts Receivable management is thus a key task for a small business enterprise.

AR Outsourcing - Small Business Advantage

Small business operates with less manpower and do not have the ability to deploy highly expensive credit recovery mechanisms in their own country. Partnering with an accounts receivable outsourcing firm has many benefits. These benefits include, but are not limited to, increased cash flow; reduced operating costs; better small business accounts receivable control; efficient management of small business balance sheet accounts, increased sales to slow paying accounts; fewer delinquencies resulting in lower collection costs; and improved customer service. According to IDC review, outsourcing business processes from US is expected grow with a compound annual growth rate of 7.1 percent through 2009, when the market is expected to reach $355 billion. Of the total spending on account of outsourcing, small and medium businesses would have a share of 29% by 2009.

Accounts receivable outsourcing for small business is a trend that has come to stay. By leveraging dedicated and skilled manpower backed with high-end cross cutting technology, small business units can drastically turnaround locked cash to instant liquidity at a minimum process cost and utilize the resource to accelerate growth and higher returns.