Really Outsourcing Accounts Receivable (AR) beneficial to Small Business ?

Account receivable is one of the accounting activities which is highly required for small business. With AR efficiency can be increase with less cost thus productivity can be increased. Accounts receivable outsourcing is thus a fast emerging trend among small business today.

Accounts Receivables Matters a lot in Small Business

Today world has created credit based business environment. It reflects on cash flow. Timely collection of accounts receivables is an extremely important source of cash inflows. If this management is bad, small business may not have sufficient liquidity to meet its own expenses. By and large, accounts receivable portfolios can amount to 21 percent to 34 percent of a small business company's assets. Traditional day-to-day management of accounts receivables is time consuming and expensive. Invoices, payments, purchase orders, and statements are often received via mail, fax, or email. It is always not feasible for small business operators to implement Enterprise Resource Planning (ERP) and Line of Business (LOB) applications for data management because of high investment cost. Ultimately, management and collection costs of accounts receivables far outweigh the collection putting the small businesses in financial jeopardy.

Advantages of Accounts Receivable Outsourcing

Recovering past due accounts without spending more in staffing and training than stands to be collected is one of the greatest challenges for a small business. Most often, companies write off this receivable amount as loss because the cost to train and hire a qualified in-house staff to manage them outweighs the cost of collecting the debt. This has come to an end. By outsourcing accounts receivable, small business can avail a less expensive - and often higher quality solution and achieve significantly higher collection efficiency, thereby improving liquidity and company bottom lines. According to statistics, once an account becomes 90 days overdue, your business is likely to receive only 73 cents for every dollar owed. After 6 months, the amount drops to 50 cents on every dollar and down to 25 cents after one year. Bringing a collection agency on to handle accounts receivable addresses delinquent accounts within the first 90 days, before they get out of hand.

AR Outsourcing - Small Business Advantage

Small business operates with less manpower and resources. Again, no-credit business is absolutely unthinkable in today’s perspective. Just by outsourcing small business accounts receivable to an offshore destination like India small business can leverage best resources to attend a critical business domain that is very much relevant to its sustainability and viability. According to IDC review, outsourcing business processes from US is expected grow with a compound annual growth rate of 7.1 percent through 2009, when the market is expected to reach $355 billion. Of the total spending on account of outsourcing, small and medium businesses would have a share of 29% by 2009.

The progress of small business accounts receivable outsourcing can be fairly mapped on the company’s Daily Sales Outstanding (DSO) figures and reduction in bad debt. Number of outstanding invoices drops sharply, the impact being felt more in case of very old outstanding invoices as somebody in the offshore destination handling the accounts receivable portfolio is consistently following the invoices on a day-to-day basis. Due to increased fluidity and availability of time for concentrating on more core activities, small business witness significant growth and their overall turnover improve noticeably. On the whole, this better functioning and cash flow consistently improves their bottom lines. Offshore companies deploy cutting-edge technology to carry out their accounts receivable functions without any investment impact on the outsourcing company. This technology integration adds speed and efficiency and improves customer service for the outsourcing small business.