Accounts Receivable Outsourcing: Pros & Cons

Published on December 3, 2022
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Accounts receivable (A/R) is the lifeblood of any business. After all, it ultimately doesn’t matter how many sales you close, how amazing your product is, or how well your brand is respected in the marketplace. If you’re not getting paid consistently, you will not survive.

Now that we live in the future, A/R processes have grown more nuanced and varied across industries and regions. Bookkeeping doesn’t actually involve a physical book anymore, and many companies have evolved beyond simply mailing checks back and forth. Credit agreements, process automation, automated clearing house (ACH) transfers, AI-driven analytics—there are many options available for your A/R needs.

Of course, we here at Invoiced are quite a fan of automating your accounts receivable, believing it’s one of the best choices available in the market. In fact, we’re so confident that we wrote a white paper that outlines the specific advantages your business can net from choosing an automated A/R platform.

However, whether you’re considering automated A/R software or not, properly understanding the impact that outsourcing can deliver will empower you to make the right choice for your company.

Can You Outsource Your Accounts Receivable?

As with most business scenarios, there is no universal answer. Your organization may find that there are many benefits to outsourcing their accounts receivable, or it might prove to be an unmitigated disaster that undermines your financials and your reputation.

The timing of your business cycle, your overall sales totals, the geographic location of your customers—you should reflect on all of these factors and more when you consider outsourcing your accounts receivable efforts. You should weigh the potential advantages of your decision and the disadvantages as well.

How much could you shorten your day’s sales outstanding (DSO)? How much risk are you taking on board? How established is this vendor? Ultimately, you want to engage in a deliberate, nuanced discussion with all relevant stakeholders regarding how this decision might impact your business.

Pros to Outsourcing Accounts Receivable

1. Lower Costs

Commonly, outsourcing a function will quickly lead to corresponding cost savings. Just as your business is likely very efficient at your core operations, accounts receivable outsourcers will be much more efficient at their core task. These businesses can also employ economies of scale to perform collections and follow-up functions that would likely be out of reach for your business.

Further, shifting to an outsourced solution typically results in a more predictable cost structure for A/R efforts. After all, you’re usually no longer paying for the required hours, instead dealing with a flat rate for the service.

2. Technology Efficiency

Just as these businesses possess the focus and industry knowledge to drive efficiencies, they also likely have access to the latest technology innovations related to accounts receivable. Sharing financial data across platforms and systems can be a major challenge, but these vendors often have already invested in the integration and reporting platforms necessary to gather together and share all of this disparate information.

Depending on your chosen outsourcing company, you might also be granted real-time visibility into your financial processes, empowering your company to make more informed decisions regarding your future operations.

3. Improved Flexibility

It’s more than likely your sales cycle isn’t evenly distributed throughout the twelve months of the year. And most businesses have seasonal peaks or cluster the closing of their deals near the end of the financial quarter. As a result, the corresponding A/R workload is also varied, following behind these cycles and requiring different staffing levels at different times of the year.

While outsourcing can mitigate the struggles of keeping headcount matched to workload, handling these efforts internally can be quite complicated—particularly if there is a steep learning curve for new or temporary staff. Similarly, sudden growth can readily be accommodated with an outsourced service without hiring new employees or incurring increased staffing costs.

4. Shifts Focus Back to Your Business

By outsourcing your non-core business tasks, you can concentrate your internal staff on more productive and lucrative endeavors instead. Put simply, would you rather have your employees make reminder calls to your customers or transition them to generating their own sales?

5. Increased Accuracy

Depending on how far along your A/R processes have evolved, you may still be using manual, spreadsheet-driven tracking methods for your financials. Or if you’ve invested in some type of accounting tools, your workers may not have the skills or knowledge to properly configure or adapt these platforms as your business changes over time. But with an outsourced provider that uses modern software, your A/R data and reporting will likely incur fewer bookkeeping mistakes.

Cons to Outsourcing Accounts Receivable

1. Introduces Third Parties

Nobody cares as much about your customers as you do. And bringing in an outside business to oversee these critical relationships—particularly in matters related to payments—can be risky. The wrong action by someone who isn’t even on your payroll can quickly sour a long-standing relationship and directly impact your company’s bottom line.

2. Costly Contract Lock-Ins

Depending on how the outsourcing relationship is structured, you might find the service too inflexible for your needs. If your company falls victim to an economic downturn and has to scale back these outsourced contracts—often reflecting multi-year deals—might represent a large outstanding cost that you can’t easily accommodate.

3. Reduction of Customer Privacy

While outsourcing can simplify your A/R processing, it will burden your business more by protecting the privacy and security of your customer information and other internal data. Now that these records are being accessed and handled by workers outside your office, you’ll need to dedicate oversight resources to ensure that your outsourcer is following sound data security practices and not exposing private data.

4. Distance from Customers

With your staff no longer overseeing the entire relationship cycle with your customers, unforeseen problems can begin to show up. You may not realize that a consumer is upset because they only share their complaints during the payment process. Or if an issue arises, it might take longer to resolve since your employees likely won’t be intimately familiar with what has or has not been paid. And delaying a refund for even a handful of hours while you reach out to your outsourcer can worsen a tense situation.

5. Consistency & Dependability Issues

With this critical business function now outside of your direct control, your organization is risking a good deal of your ongoing success against the ongoing success of your outsourcing partner. Not only is your private customer data now reliant on your vendor’s cybersecurity efforts, but if there is a data breach—depending on the scope of the intrusion or if it’s a ransomware attack—you may lose access to this critical information for some time.

Similarly, if the outsourcing company is struggling and unexpectedly files for bankruptcy, you can find your A/R process interrupted, forcing your business to scramble to devise a viable backup plan. And if your vendor operates outside of the country, a major natural disaster or international conflict can also suddenly leave you without support.

Automated Accounts Receivable Offers the Best of Both Worlds

Either approach—keeping your accounts receivable in-house or shifting it to an outside vendor—offers distinct benefits that can drive value for your business. But as mentioned earlier, we here at Invoiced believe that there’s a better option that can capture the advantages of both methods without also drawing in their weaknesses: automating your A/R.

With an automation strategy, your company still retains direct control over your accounts receivable and customer service processes while streamlining accounts receivable management. There are no third parties that can affect your critical customer relationships. You know exactly who has access to your sales and financial data and can more easily and efficiently scale your accounts receivable efforts as your business grows. And of course, you have direct visibility into your day-to-day financial operations.

Choosing an automation platform can also net your business the same cost benefits as choosing an outsourced option, establishing a flat rate for your accounts receivable efforts. Similarly, you also gain access to some of the newest A/R technologies and best practices developed by accounting professionals.

Invoiced: Automated A/R Software that Meets your Needs

At Invoiced, we are dedicated to simplifying and streamlining the B2B payments processes. And with thousands of customers and over $40 billion in receivables handled, we must be doing something right.

Automation is our specialty. So no matter what type of business you run, be it an agency, insurance provider, utility company, healthcare facility, law firm, or any other type of unique business, we offer a suite of applications within our customizable automated accounts receivable product that to help you more easily and effectively navigate your billing efforts.

Schedule a demo of any of these offerings today and see how our automated tools can empower you to drive new efficiencies and strengthen your overall financial standing.

Published on December 3, 2022
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