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Why do companies outsource receivables management?

Why do companies outsource receivables management?

The 2008 crash that sparked a surge in Accounts Receivables outsourcing continues 15 years later

The reasons may have changed, but the outcome of outsourcing key functions of day to day operations, such as Accounts Receivables management, has continued to have a positive impact on businesses.  

In 2008 companies were struggling to respond to the market crash by slimming the workforce and trimming as much from their overhead costs as possible.  To a degree, the same applies today, however, the technology and speed at which business operates has increased exponentially. In 2023 we see complicated reports and algorithms delivered within milliseconds, providing near-instant decisioning in risk management.  Portals have become a mainstay in B2B relationships, thereby enhancing communications, relationships and receivables management.  And then there is Amazon, which is a topic we will table for a future post.

The advancements, although fantastic, have overwhelmed internal management.  We see this especially in mid-market companies that do not have the staff or resources to properly analyze and execute receivables management to maximum effect.  This is a known issue both at the company level and investor level.

“By outsourcing key functions to increase efficiency, fund managers can focus on investors, deal sourcing, and portfolio management. Instead of handling fund administration, compliance, and the management company role in-house, firms can hire experts for those specific functions and use internal resources for oversight, not day-to-day execution.” 

– Stacey J. Relton , Middle Market Growth

How do companies benefit from outsorcing Account Receivables?

The AR department is one of the most complex and critical departments in a company as it is responsible for Cash Flow, which impacts nearly every other department and budget.  The top 10 benefits companies see from outsourcing can have an overwhelmingly positive impact across a number of areas.

  1. Cost Efficiency: Outsourcing receivables management can be cost-effective. External service providers often have specialized expertise, technology, and economies of scale, which can lead to lower operational costs compared to in-house management. This can include reduced staffing, software expenses, and infrastructure costs.

  2. Expertise and Focus: Receivables management requires specific knowledge and skills in areas such as credit assessment, debt collection, and risk management. Outsourcing to a specialized agency allows the company to tap into the expertise of professionals who are dedicated to these tasks, leading to more effective and efficient collections.

  3. Improved Cash Flow: Timely and efficient receivables management can accelerate cash flow. Outsourcing agencies often have well-established processes for tracking and collecting outstanding invoices, helping companies recover funds faster and maintain a healthier cash flow.

  4. Risk Mitigation: Receivables management also involves managing credit risk. Outsourcing companies can use advanced tools and data analytics to assess the creditworthiness of customers, reducing the risk of bad debt and financial losses for the company.

  5. Scalability: Outsourcing allows companies to scale their receivables management operations up or down based on business needs. This flexibility is particularly beneficial for companies with fluctuating receivables volumes.

  6. Compliance and Regulations: Managing receivables involves adhering to various legal and regulatory requirements, which can be complex and vary by jurisdiction. Outsourcing companies are often well-versed in compliance matters and can help businesses navigate these intricacies more effectively.

  7. Focus on Core Activities: By outsourcing receivables management, CEOs and their teams can focus on their core competencies and strategic initiatives rather than getting bogged down in day-to-day administrative tasks.

  8. Access to Technology: Outsourcing providers typically invest in advanced receivables management software and tools. Companies can benefit from this technology without having to make their own significant investments.

  9. Improved Customer Relationships: Outsourcing agencies often have a more structured and diplomatic approach to debt collection, helping maintain positive customer relationships even during the collection process.

  10. Performance Metrics and Reporting: Outsourcing companies provide detailed reporting and performance metrics, allowing CEOs to closely monitor receivables management performance and make data-driven decisions.

Your company may have a good handle on several of these functions, however, if you are like most mid-size companies, your cash flow is being hindered by your sub-optimal  credit department.

Since 1993, TCD has pioneered AR outsourcing, through innovation, integration and services that fully optimize cash flow for businesses in over 100 industries.  In many instances, TCD clients see cash flow improvements of up to 50% within 60 days when outsourcing their receivables management to TCD.  Contact us today for a free discovery consultation to determine if your cash flow can be further optimized.

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