10.25.2024 | Posted by Erik
Uncovering the Value of Outsourced Receivables Management
You know your business needs to effectively manage accounts receivables (AR) to maintain cash flow and preserve the financial health of your business. But you don’t necessarily need in-house AR employees to keep your accounts receivable management running smoothly. In fact, an outsourced receivables management solution can offer much more value for your firm.
In this article, we’re exploring the cost differences between outsourced AR solutions compared to managing AR in-house—and why outsourcing could be the smarter choice for your business.
The True Cost of In-House AR
Hiring a full-time accounts receivable staff member can be an expensive proposition. It’s important to account for numerous cost factors beyond their salary, including:
- Benefits
- Training
- Overhead expenses like taxes and office space
- Potential losses from employee turnover
Based on our calculations, it’s actually 50% cheaper on average to outsource your receivables management than to hire a dedicated AR employee. This is a significant cost savings in an uncertain market where every cent counts.
In addition to the direct costs, there are also hidden expenses associated with managing AR in-house. If you’re the business owner or CFO handling AR personally or you’re an employee who wears multiple hats struggling to juggle all your responsibilities, you’re taking your own valuable time away from critical revenue-generating activities. When you remove AR administration from your plate and give yourself time to focus on growing revenue and customer relationships, you’ll be able to build momentum for your business growth.
The Value of Time and Focus
Outsourced receivables management hands AR responsibilities over to a team that is solely dedicated to collecting on your invoices to improve cash flow. At Axim, for example, each client is assigned a team that’s focused only on managing your AR, which helps ensure timely follow-ups and accurate record-keeping.
This primary focus on AR is critical—and it’s often difficult to replicate with an internal AR team. In-house employees’ attention is often split between multiple responsibilities through no fault of their own. This makes it all too easy to fall behind on follow-ups or for past-due invoices to slip through the cracks unintentionally.
At Axim, we’ve developed a structured system with consistent customer touchpoints built in to secure payments. Based on years of data, we’ve found that, on average, 40% of customers need to be contacted at least three times before they make a payment, and some may need up to six follow-ups. Without this level of consistent communication, you could be leaving significant amounts of money on the table and notably restricting your cash flow.
Improving Cash Flow and Reducing Bad Debt
One of the biggest challenges of in-house accounts receivable management is the risk of bad debt. As invoices age past 90 days, they become increasingly harder to collect. Axim’s system is designed to help businesses collect on invoices before they reach this concerning stage, which can significantly reduce bad debt and improve overall cash flow.
Many business leaders don’t think twice about using collection agencies when their AR falls behind, but these agencies typically take a large percentage of the invoice amount as their fee. In contrast, outsourced receivables management firms like Axim usually operate on a flat monthly fee, making their services much more cost-effective. By getting involved earlier in the process, outsourced AR experts can help you avoid the need for collections altogether.
The Flexibility of Outsourced Receivables Management
Another compelling reason to consider outsourcing receivables management is the flexibility it provides. Hiring an in-house employee is a long-term commitment, involving training, employee benefits, and the administrative burden of managing staff. And if things don’t work out, it can be difficult and expensive to part ways with an employee.
In contrast, there’s no long-term commitment with Axim, which means engaging our services comes with minimal risk. Considering that the average client stays with our firm for over seven years, this demonstrates the clear value of our outsourced AR solutions.
Building a Better Accounts Receivable Management System with Axim
One of the common misconceptions business owners have when they’re handling AR on their own is believing that they’re doing it well. The few calls or handful of follow-up emails they send each week seem sufficient to collect on outstanding invoices. But the reality is, without a consistent system in place, it’s impossible to contact every customer in a timely manner that effectively encourages on-time payments.
At Axim, we’ve designed our system for efficiency. Our designated AR specialists touch all customers with outstanding invoices every week, ensuring that nothing falls through the cracks. This type of systematized approach means fewer late payments and faster collections, which directly contributes to better cash flow for your business.
Is Outsourcing AR a Good Fit for Your Business?
The decision to outsource AR or manage it in-house comes down to two main factors: cost and efficiency. Outsourcing your accounts receivable management allows you to save money, reduce the burden on your team, and improve your cash flow—all while providing flexibility without a long-term financial commitment.