The Business Case for Accounts Receivable as a Managed Service
Bridger
As businesses deal with lower economic growth and increased cash flow stuck in receivables; there is a compelling case for leveraging managed services to support core business.
Why should entrepreneurs grapple with increased headcounts that don't directly relate to their specific service, or product offering?
There's a thriving industry of service providers that can offer economies of scale, best practice expertise, and greater flexibility 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. 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 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 account receivable should be tightly controlled by in-house teams.
However, with staffing challenges with recruiting, and getting results which is reducing cash flow and unpaid invoices...Automation and managed services provide these services for a fraction of the cost.
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 underutilized 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.
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 also 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 dunning 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, while you focus on what 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 provide 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 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 the managed service provider’s ability to support customer credit through guaranteed payments and Invoice financing.
Fix your Days Sales Outstanding (DSO)
That’s right, fix your DSO to a specific number of days! All invoices are paid on time, every time. Bridger Managed Accounts Receivable improves liquidity and ensures 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 and 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 Africa was 78 days, according to this report by global small business platform Xero, 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’ requirements for longer payment terms.
Improve liquidity and overall financial health, through the knowledge that all invoices will be paid within your requested timeframe. Set your own DSO with Bridger Managed AR.
Improve cash flow certainty and eliminate bad debt
Bridger Managed AR goes further than simply ensuring receivables due will be paid on time, the program enables businesses to eliminate bad debt with invoice financing. 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.
Save Costs
Outsourcing accounts receivable to a managed service provider can eliminate the need for credit insurance, payment 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.
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.
It is important to understand that Bridger Managed AR 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 Bridger 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 Bridger Managed AR 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. Bridger works as an extension of your team, reducing management distractions and overheads, but can 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 the uncertainty in some markets, due to inflation, supply chain issues, geo-political tensions, and the aftereffects of the pandemic lockdowns, businesses may feel the need to improve liquidity through longer payment terms.
Bridger Managed AR bridges this gap perfectly. You can still get paid in 15 days while offering customers 90-day payment terms, or even longer. Bridger funds this difference between invoice payment and customer remittance.
The way Bridger approaches the collections process is through a respectful and professional escalation of communication to ensure the debt is settled in a reasonable timeframe. Bridger 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.
Conclusion: Focus on more profitable activity and let Bridger 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, Bridger Managed AR 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 Bridger Managed Accounts Receivable.
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