Accounts receivable is an essential pillar of the O2C cycle and a critical activity that has a bearing on a business’s financial health. You might think this function should be managed in-house and not by a third party. But you will be surprised at the sheer number of companies outsourcing accounts receivable, irrespective of the size, scale, and scope of the company.

Newly minted businesses want to limit overheads as much as possible and see outsourcing as a great way of cutting down costs, which gives them the flexibility to scale their accounting department up or down as per their needs. On the other hand, established businesses and enterprise-scale organizations might want to go on the path of cost optimization and outsource tasks that they see as resource-intensive but not delivering any long-term strategic value to their business.

What is Account Receivable (AR)?

Accounts receivable is essentially money that is owed to a business by customers for products and services bought on credit. The balance sheet lists the total value of accounts receivable as current assets. This function includes sub-functions such as raising invoices, invoice chasing, maintenance of sales ledger, invoice discounting, and more. It could also involve revenue tracking based on the invoicing.

Is Accounts Receivable an Asset?

It is an asset on the company balance sheet as it is the money owed to a company by its customers who have bought goods or services on credit. Considering the cash owed will be paid to the company in the future, it is viewed as an asset. The accounts receivable is categorized as an asset because it has monetary value and will become part of the company’s cash flow when received.

Why does Accounts Receivable Outsource Make so Much Sense?

The answer lies in the slew of benefits it brings to the table:

1. Cost Savings

Outsourcing has become popular because it helps do the job cost-effectively. You benefit from labor arbitrage when you partner with an accounts receivable outsourcing service provider. Essentially, you are paying less to handle accounts receivable by a third party than the costs you would incur if this function were managed in-house. While cost optimization is the crucial historical benefit of outsourcing, it has become even more significant today, considering the macroeconomic scenario is not looking very positive post-COVID.

Also, increasing living costs and a skills shortage mean accountants’ fees are increasing all the time. Attrition rates in accounting are also rising as companies struggle to battle a candidate-driven market. Taken together, the costs of managing AR are rising, and all indications are that they will continue to grow. Working with an accounts receivable outsourcing partner seems to be a much more sustainably affordable option in such a scenario.

2. Focused Expertise

Your company harnesses the skillsets of professional accountants well-versed in the accounting domain and who have experience working on companies’ accounts receivables across domains in the UK. Let’s say you are in the process of growing your accounts team to manage the growing AR needs of your business. In that case, you get a readymade team of accountants with the required expertise and experience who can immediately start invoicing customers, updating ledgers, and chasing invoices. They can work as an extension of your in-house accounts receivable team or work independently and as per the accounts department’s needs.

3. Leverage Advanced Accounting Technology

One of the key advantages of outsourcing accounts receivable management is that AR is managed using an advanced accounting tech stack. You must know the constant tug-of-war between accounting and IT regarding accounting technology budgets. In this case, you benefit from new accounting technology without investing in it and make a case for investing in newer and more strategic accounting technologies in-house (considering you have saved money while outsourcing).

An experienced AR outsourcing partner can bring immense tech value to the table as their reputation is built on their expertise in working with all significant and advanced accounting and collection software systems. They keep informed about the latest accounting technology updates and update their tech stack quickly if needed.

Typically, they are comfortable with accounting software such as QuickBooks, FreshBooks, FreeAgent, Sage, and Xero. More importantly, they set store by automation, and you can leverage their expertise to deploy automated workflows for different AR activities.

RELATED CASE STUDY: Optimising O2C Process for a Leading Recruitment Giant through Bank Download Automation

4. Focus on Strategic Aspects of Finance and Accounting

Outsourcing helps you free up your team of accountants who now have the time to look at some of the other strategic financial aspects of the business. Whether analyzing available accounting data for more outcomes-focused financial decision-making or keeping a better tab on the company’s financial health, accounts receivable outsourcing UK helps you get more out of your in-house team of expert accountants. The whole idea is for your in-house team of accountants to become profit generators instead of just a set of people who perform a designated slate of tasks.

Also, there is another element to asking in-house accountants not to get caught up in mundane tasks. The UK has a shortage of accountants, pushing the salaries up. Therefore you need to ensure you can maximize their output and make the best use of their skills. You don’t want AR to cannibalize a large share of available man-hours.

5. Driving Improvement in AR Processes

We are increasingly witnessing companies implementing digital transformation initiatives to facilitate business transformation. A key aspect here is figuring out how they will transform their finance and accounts department to optimize operational efficiency.

Let us see from the purview of accounts receivable. Some key metrics that can help companies evaluate the performance of their AR department are daily cash collection, monthly DSO, managing unallocated cash vs. target, and more. This can become difficult if you lack the time and resources to monitor AR activities.

But, if you outsource accounts receivable, the provider will share a range of reports that track different metrics and offer visibility into the activities that make AR. Therefore, you can make informed improvements to existing processes and follow their performance to check whether the process has improved and how it delivers value.

Choose the Right Accounts Receivable Outsourcing Services

Benefits are linked to your choice of an outsourcing partner. Choosing the right partner ensures you work with an experienced accounting outsourcing services provider who helps optimize the AR function and reduce unallocated cash to the lowest possible figures. This strengthens your business’s cash flow. The problem with searching for the right outsourcing provider is not that there aren’t a lot of players in this niche, but there are a whole lot of them.

Picking the right provider helps you maximize outsourcing ROI.  In order to choose the right outsourcing partner, list providers who are a reputed name in the market. You can bring references from respected clients, pick partners with the certifications you want, and the technological processes in place to deliver the necessary AR outcomes seamlessly and consistently.

QX offers accounts receivable outsourcing services delivered by a team of professionals with a solid accounting background and a reputation for delivering services with a rare degree of excellence.

Originally published Sep 01, 2023 09:09:09, updated Mar 26 2024

Topics: Accounts Receivable Process, Back-office Outsourcing Services, Benefits of Outsourcing, Business Process Outsourcing, Finance & Accounting Outsourcing / Finance & Accounting BPO


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