Why Outsourcing Accounts Receivable is a Smart Idea

As a small business owner, time is one of your most precious commodities. In order to maximize the efficiency of your company, you (and your employees) need to be devoting your attention to product development, marketing, and raising capital so you can keep growing. But there are also those day-to-day activities that can be a complete time-suck, taking manpower and focus away from what you NEED to get done. In today’s economy, many businesses are running with a bare bones staff in an attempt to save that other precious commodity—money. With fewer employees carrying a heavier workload, businesses need creative solutions to make the most of their time and resources.

One way to free up time and human resources is by outsourcing your accounts receivable. Forbes.com reports that finance and accounting (F&A) was “one of the first processes that companies outsourced, and the practice continues to boom.” There are quite a few benefits to outsourcing your accounts receivable.

First of all, outsourcing accounts receivable can save you tons of time and money, and we all know that these are two things a startup or small business never has enough of. Your staff has better things to do than create and send statements to clients, let alone take even more time to follow up with past due accounts. When employees are bogged down with these duties, in addition to other daily responsibilities, their focus is on getting these things done, rather than looking at how to continue growing. Letting someone else take over these tasks lets your employees focus on what’s really important to your company’s success.

Many companies outsource their F&A, and it is generally considered good business practice. Outsourcing authorizes a third party to run your receivables in an efficient, timely manner, and provides valuable data that can help streamline your business. Simplifying your accounts receivable processes through outsourcing is a cost-effective way to shorten the time it takes to close your books and help identify processes that work best for your company.

Another benefit of outsourcing your AR is that this is the only job that the company is doing. As you try to juggle all of the demands of owning a business, those in charge of your receivables have only one concern-your money getting into your hands. Some studies have shown that if an account becomes 90 days overdue, your company may receive only 73 cents on every dollar owed. After 6 months of delinquency, that number drops to only 50 cents! You don’t have time to chase down these delinquent payers, but if you outsource, someone else will be handling this for you.

Small businesses need access to the cash that they have coming in from customers, so having bills paid on time can be crucial to their success. For most small businesses, accounts receivable portfolios often make up anywhere from 20-35 percent of the company’s assets. If these are not collected in a timely manner, that can put a business at serious risk, especially when you consider the money lost on late accounts.

For many companies looking to grow, finding capital is a major challenge. Often money is tied up in accounts receivable and isn’t available when you need it. How frustrating to know that the money is there, but can’t be accessed! One way to outsource your accounts receivable AND get faster access those much-needed funds is to sell your invoices. Factoring lets a third-party company “buy” your unpaid invoices, providing a cash advance on these unpaid debts, while taking over the collection on the invoices. You get the money you need without waiting 60-90 days for a bill to come due, plus you don’t have the added stress of keeping up on those unpaid invoices from your clients.

An additional bonus to factoring and outsourcing? Most receivable outsourcing companies and factoring companies will do extensive credit checks on your clients. Though this obviously protects the third party business from risks, it also helps your business, giving you the information of which of your clients is truly credit-worthy, and which may have higher loss potential. Knowing that your clients will pay their debt in a timely manner is comforting when you’re running a small business.

There are numerous reasons for outsourcing accounts receivable. As a business owner, time and money are your most coveted resources. Outsourcing AR frees up both, and if you need quick access to funds, outsourcing to a factoring company can get you the money you need right away, while lightening the workload in your company. To learn more, read up on P2binvestor’s unique crowd-factoring platform and start taking control over your finances!

One Comment on “Why Outsourcing Accounts Receivable is a Smart Idea”

  1. My family and I operated a small business not long ago, and you are absolutely correct in saying that time if one of the most precious commodities. We would try and do some of the accounting and book-keeping tasks on a daily bases, but it really did just suck up way too much time. Should we ever revitalize our business, outsourcing receivables (and other processes as well where necessary) will be a top priority. Thanks for the tips.

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