Essential Questions to Evaluate Before Outsourcing Your Accounts Receivable

Introduction

The state of your company’s accounts receivable (AR) directly impacts your business’s cash flow. According to a global risk management survey, cash flow remains one of the top risks for UK businesses. As a business, you cannot have vast amounts of invoices that remain unpaid by customers. In such cases, you might be forced to take loans at high-interest rates, which can hugely harm your business; it is estimated that higher interest rates can potentially make thousands of firms insolvent in 2024.

A continuing lack of cash flow limits your business’s growth efforts. You can no longer sustainably invest in cutting-edge technology to improve business processes, scale your workforce, build new products, or speed up product delivery. This scenario will also impact your business’s ability to explore new growth avenues or markets. Therefore, addressing weaknesses in the accounts receivable process is imperative to improve and sustain cash flow.

Problems with Accounts Receivable

One of the most significant barriers to improving accounts receivable is the lack of strategic thinking behind process improvements. Some companies believe all they need to do is add more accountants to their AR team to improve productivity. This is not wrong, but this strategy will only work up to a point; they should also consider accelerating the AR process and improving granular accuracy. For instance, raising invoices on the occurrence and sending for authorisation is a critical AR activity.

While more team members can mean invoices are raised promptly, this can still be a time-consuming exercise rife with inaccuracies due to the lack of automation. This is where strategic thinking enters the picture, wherein businesses need to be able to cut down on the time taken to raise and authorise invoices. Automation can also help reduce errors and customer disputes, which decreases time spent on conflict resolution.

Result – a speedier AR process. Another problem is that both scalability and tech-led process efficiencies must be within budget. With 59% of CFOs focusing on strategic cost reduction, they look at AR process optimisation through the cost prism. Accounts receivable outsourcing services emerge as a credible solution to driving long-term efficiencies in the existing AR framework by leveraging the right talent and advanced technologies while keeping costs in check.

Questions To Ask

But what questions should you ask before deciding to consider outsourcing or not to outsource? You must ask a few pertinent questions to help you make a meaningful case for outsourcing.

What is my customer profile risk profile? Is the business seeing more and more customers defaulting on their invoices?

The answer to this question gives you an idea about your credit control and management process and whether your business has to deal with an increasing number of high-risk customers. Such customers have poor financial health and delay invoice payment or default altogether. If this is the case, your credit check process needs an overhaul, which an accounts receivable outsourcing provider can help with.

Are the invoices generated on time and accurately, and what is the volume of conflict resolution?

Even if you have a list of clients with a financial profile in green, there are times when invoices are either generated late or inaccurately. In both cases, you won’t get paid on time. In the former, late invoices might mean they might not align with the customer’s payment cycle and might be pushed to the next month or the subsequent quarter. With the latter, invoice mistakes will cause problems with the client, impacting client relationships.

Your business might create invoices on time, but you still might not get paid on time because of incorrect details. This might happen because your team is hard-pressed for time and cannot optimally manage the many AR activities. Here, an outsourced team of accounts receivable specialists can help you optimise invoice processing to avoid payment delays and minimise conflicts to build better customer relationships.

Are you getting timely reports?

‘Reports’ in this case means visibility into the performance of your AR process. Reporting includes ageing reports, customer reports, aged trial balances, transaction reports, payment reports, and much more. Such reports help businesses stay on top of outstanding revenue, payments due, customer accounts, paid invoices, financial transactions, etc. Manual reporting will consume time, is error-prone, and, more importantly, will limit a business’s access to critical information, as all reports might not be built on time. If you have a reporting problem, an accounts receivable outsourcing services provider can help deliver improved visibility with reports customised to suit all your needs, allowing your team to focus on other critical tasks.

Are you able to scale your finance and accounting team quickly?

The talent shortage in the accounting industry in the UK means you will find it difficult to hire qualified accounting professionals. And even if you see them, the churn rate is so high that you might be caught up in a vicious cycle of continuously searching for the right people to manage your accounting tasks, including accounts receivable. If you have a scalability problem, then outsourcing accounts receivable is a good idea. It lets you immediately access the talent you need, ensuring your AR team can scale and address your business’s growing needs effectively.

What is your digital finance transformation ROI, and is it meeting pre-determined objectives?

The problem with digital initiatives in finance transformation is that many stakeholders either do not understand the right technology, are saddled with technology from different vendors, making administration difficult, or approach tech deployment half-heartedly, delivering limited results. So, you must evaluate whether your finance tech ecosystem has met its KPIs, which could include fewer hours spent on repetitive tasks, better analytics and insights, and a future-ready tech stack. If your accounts receivable is still hijacked by legacy processes, you need accounts receivable outsourcing expertise to realise your tech-led finance transformation vision.

QX offers a wide range of accounts receivable outsourcing services backed by a people, process, and platform approach to make AR more efficient, productive, and configured to meet the present and future needs of your F&A function. Whether improving cash allocation, offering transformation support, enhancing visibility, or driving cost savings, QX will deliver value across the AR cycle.

Originally published May 29, 2024 05:05:43, updated Jun 18 2024

Topics: Accounts Receivable Process, Finance and Accounting Outsourcing Services