The Business Case for Accounts Receivable as a Managed Service
As businesses grapple with recruitment and staff retention in the great resignation, there is a compelling case for leveraging managed services to support core business. Why should businesses get bogged down with recruiting, training, managing and retaining skills that do not directly relate to their specific service, solution or product offering?
As a result of this streamlining, there is a thriving industry of service providers who can offer economies of scale, best-practice expertise and greater flexibility in bandwidth across a range of business services.
This article looks at the business case for accounts receivable (AR) as a managed service.
Accounts receivable management challenges
The accounts receivable process provides cash inflow, the lifeblood of every business. In order to maintain liquidity, this process needs to run as effectively as possible. To this end, the AR management process should be as streamlined as possible, working to address exceptions before late payments have a negative impact on cash flow.
Managing accounts receivable well requires the best possible insight into payment status for all invoices, as well as comprehensive automation of invoice delivery and follow-up to ensure timely and accurate invoice delivery, cutting down on queries and disputes.
Business owners may feel that bookkeeping and, by extension, accounts receivable should be tightly controlled by in-house teams. However, the reality is that this becomes a staffing challenge when demand for AR roles is high (over 2,500 roles advertised on LinkedIn in June 2022) – explored in more detail in this article about outsourcing vs. in-house for accounts receivable.
Recruiting, training, managing and scaling the necessary skillset, as well as licensing software or maintaining print and delivery processes for AR is one headache many financial leaders could do without.
Accounts receivable scalability
With a growing business comes the need to scale accounts receivable processes; more sales equals more invoicing. If you’re lucky enough to have a large and underutilised AR team, then scaling may not pose such a problem. The reality is growth in sales can often lead to a bottleneck in delivering invoices quickly enough and keeping on top of collections.
If the 2020s have taught us one thing, it’s to expect the unexpected. Many businesses experienced a significant decline in sales throughout the pandemic lockdowns, yet had to maintain a AR teams built to service far higher volumes of invoicing. With a managed service, you can scale up or down without delay or extra costs. There is no need to hire or fire or manage associated overheads and management processes.
The need for AR automation
Automation of accounts receivable processes should be a priority for most businesses today. For those who already have automation in place, striving for improved efficiency of the automation is likely the next objective.
AR automation not only improves accuracy and speed of delivery, but it removes the need to manage complex delivery logic and formatting requirements manually. Well automated AR workflows allow AR teams to manage exceptions, rather than wasting time on laborious and repetitive manual invoice delivery and follow-up.
AR automation can also bypass the need to manually upload, or re-key, invoices into customers’ accounts payable portals.
Through AR automation you can get invoices out faster and get paid faster. Follow-up communications and dunnings can also be automated, handled sensitively and professionally, before the need for human involvement with exceptions.
Outsourcing AR to a managed service provider allows you to gain all the value of AR automation, without the need to configure and manage the automation rules in-house. Let a trusted service provider take the strain of setting up and managing automation, whilst you focus on what really matters.
Improve customer experience
When evaluating managed service providers for accounts receivable, it is important to consider the impact of the AR process on customer relationships. Look for a partner who can provider a white glove service equal to, or beyond, your existing customer relationship handling.
A white glove approach ensures your customers receive the care and attention they deserve throughout the invoicing and collections process – working with any invoicing portal, network or delivery requirements they may have.
AR as a managed service should provide a range of payment options to make customer payments as simple as possible. Payment methods such as debit and credit card processing, along with direct bank transfers, should reduce barriers to swift invoice payment.
Customer experience starts the moment new customers are onboarded, evaluated for creditworthiness and allocated customer credit. Leverage managed service providers ability to support customer credit through guaranteed payments and non-recourse agreements.
Fix your Days Sales Outstanding (DSO)
That’s right, literally fix your DSO to a specific number of days! All invoices paid on-time, every time. By combining a technology-enabled managed service and funding, Corcentric provide Managed Accounts Receivable (MAR) to improve liquidity and ensure cash flow, irrespective of the due date on your invoices, or whether your debtors pay on time.
Imagine the impact on your cash management, if you could guarantee all invoices would be paid within a specific number of days.
Furthermore, you can set your preferred payment timeframe to be as short as just 15 days. Given that the average DSO in Western Europe was 98 days in 2020, according to this report by Atradius, reducing this to just 15 days liberates a staggering 83 days of working capital previously tied up in the receivables ledger. That’s cash that can be put to work in more profitable ways, rather than funding your customers’ requirement for longer payment terms.
Improve liquidity and overall financial health, through the knowledge that all invoices will be paid within your requested timeframe. Literally set your own DSO with Corcentric MAR.
You can find out more detail about how this works in our white paper about How Managed Accounts Receivable Unlocks Working Capital.
Improve cash flow certainty and eliminate bad debt
Corcentric MAR goes further than simply ensuring receivables due will be paid on time, the programme enables businesses to eliminate bad debt with a non-recourse agreement. Outsource the risk of payment defaults, without risking responsibility to make up missing payments at a later date. Know that cash in now is cash in permanently.
The certainty of knowing all invoices will be guaranteed paid within a specific timeframe is a huge boost to cash forecasting, allowing CFOs to strategically spend with more confidence.
Outsourcing accounts receivable to a managed service provider can eliminate the need for credit insurance, payments processing, cash allocation and collections costs. There are also no IT overheads, software investments, recruitment or management requirements.
Furthermore, you can fund the managed service through the liberation of working capital achieved by fixing your DSO at a lower level. So, you achieve all of the above savings without any need for capital outlay.
Even associated processes, not covered directly by AR as a managed service, such as cash application, are simplified because you are taking payment from a single source (e.g., Corcentric) rather than individual remittance from each customer.
Resistance to outsourcing AR
Business process outsourcing and leveraging managed services can sit uncomfortably with some members of a management team. Ultimately this comes down to trust in the partner offering the service and understanding of the business outcomes delivered. Without specific, measurable outcomes, outsourcing can seem like a loss of control.
When considering business-critical functions like accounts receivable, it’s not hard to understand the hesitancy some may have when discussing outsourcing this.
It is important to understand that Corcentric’s Managed Accounts Receivable comes with a commitment to deliver a specific business outcome; namely the fixing of DSO to a specific number of days. Furthermore, this is an ongoing partnership, where Corcentric acts as an extension of your business, adhering to the high standards of customer service your customers deserve, communicating with them in a considerate and professional manner that preserves customer relationships for the long term.
With Corcentric MAR you are outsourcing the risk and workload of the AR process, and yet retaining the control and visibility over the process. You can, at any time, see payment status and communications sent to your customers – via a secure online portal. Corcentric works as an extension of your team, reducing management distractions and overheads, but able to provide reporting and insight when you need it.
Support longer payment terms
Maintaining a healthy balance sheet takes a fine balance of DSO and DPO (days payable outstanding). The more outstanding invoices and aged debt you have, the less cash you have on hand to pay liabilities. Late payments compound this challenge, hence the value of ‘fixing your DSO’ mentioned earlier in this article.
However, many customers may want even longer payment terms than you can comfortably support. After all, every day they extend their DPO is more working capital for them to put to more profitable use. Given uncertainty in some markets, due to inflation, supply chain issues, geo-political tensions and the after effects of the pandemic lockdowns, businesses may feel the need to improve liquidity through longer payment terms.
Corcentric MAR bridges this gap perfectly. You can still get paid on 15 days, whilst offering customers 90 day payment terms, or even longer. Corcentric funds this difference between invoice payment and customer remittance.
The way Corcentric approaches the collections process is through a respectful and professional escalation of communication to ensure debt is settled in a reasonable timeframe. Corcentric takes your existing collection policy as a framework to ensure customer relationships are preserved, without resorting to heavy-handed collection policies employed by some collection agencies. If payments are not made by customers, Corcentric absorbs this bad debt, rather than risking damage to customer relationships.
Conclusion: Focus on more profitable activity and let Corcentric Managed Accounts Receivable take the strain
Ultimately, working with a trusted partner to provide accounts receivable as a managed service means you can focus on your core business without the management distractions and financial uncertainty inherent in accounts receivable. Furthermore, Corcentric MAR provides funding to liberate working capital from your receivables ledger that can be put to more profitable use right now. Better still, this is all available without the need for capital outlay – it can be self-funded from a small percentage of the liberated working capital.
Find out more about Corcentric Managed Accounts Receivable in our white paper about How Managed Accounts Receivable Unlocks Working Capital.
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