How Can Outsourcing Your Accounts Receivable Improve Cash Flow and Efficiency?


A Guest Blog by Gary Brooks, Business Partner at Hitachi Europe

It somehow feels counter-intuitive that moving tasks and processes out of reach geographically, entrusting them to people who are not your direct employees, can enhance efficiency and generate cash flow benefits. Surely, having all activities under your gaze and control, being executed by people with your delegated objectives, is the most efficient model? Not necessarily. Let’s look at some opportunities.

“Accounts receivable is often the biggest asset on the balance sheet.”

You could be a complex organization, with multiple locations, processes, and ERPs. All companies and subsidiaries bear the same (or similar) name, but the credit processes vary from company to company. Indeed, some companies entrust the credit and collections work to accountants or administration staff, as part of their job; or they may not have the budget or expertise to collect cash in a structured way. It’s an after-thought rather than a mainstream activity, despite the fact that accounts receivable is often the biggest asset on the balance sheet and, usually, very liquid.

AR Best Practice

Outsourcing provides the company with the opportunity to standardize and centralize small- to medium-size pockets of activity into a team offering scalability and cost efficiency. Cost savings should accrue from centralization and standardization, given the critical mass created. Best practice can be achieved, as several (or many more) different ways of doing the same thing are consolidated en route towards best practice, with standard policies. This upscaling also provides the opportunity to rationalize the number of locations and ERPs that are deployed, with potentially significant savings in cost.

Moreover, this new scale brings the opportunity to deploy the best available specialist credit and collections software, to leverage the maximum efficiency from the new processes. Indeed, the specialist tools can provide the foundation and blueprint for best practice. I would go so far as to say that standardization and automation are the precursors, or enablers, of outsourcing.

Business Opportunities

Outsourcing provides the opportunity to tap in to specialist labor pools, potentially in low-cost environments, and to remove the worry around recruitment, holiday cover and keeping the team managed and motivated on a daily basis. A strong contract, with effective SLAs and strong governance and monitoring, provide an effective framework for ensuring you get the best out of the outsourced team. The outsourced staff, assuming they have the appropriate credit and collections experience and skills, and allied with the standard best practice and tools, can optimize the cash flow of the client company.

The outsourcing of the higher volume / lower added-value activities (think cash application, collections, customer master) also provides the opportunity to upskill retained staff to focus on credit management, ensuring the right customers are on-boarded at the appropriate level of risk and exposure. A higher quality customer portfolio enhances collectability of cash and reduces the risk of bad debts.

“Outsourcing provides the opportunity to upskill retained staff to focus on credit management.”

In short, outsourcing, allied to standardization and automation can optimize cash flow, can reduce process costs and provide enhanced career opportunities to retained staff. The right outsourcing partner, supported by a strong contract, puts the client in the driving seat, monitoring and directing an extended team that can be flexed as the business grows and contracts.

By Gary Brooks, Business Partner at Hitachi Europe