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THE BUSINESS CASE FOR ACCOUNTS RECEIVABLE AS A MANAGED SERVICE




CORCENTRIC

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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
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. Many
businesses experienced a significant decline in sales throughout the pandemic
lockdowns yet had to maintain 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 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 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 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
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 the managed service
provider’s ability to support customer credit through guaranteed payments and
non-recourse agreements.

 


FIX YOUR DAYS SALES OUTSTANDING (DSO)

That’s right, fix your DSO to a specific number of days!  All invoices paid
on-time, every time. Corcentric 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 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 Managed AR.

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 Managed AR goes further than simply ensuring receivables due will be
paid on time, the program 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.

 


SAVE COSTS

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 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 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 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. 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
aftereffects of the pandemic lockdowns, businesses may feel the need to improve
liquidity through longer payment terms.

Corcentric Managed AR bridges this gap perfectly. You can still get paid on 15
days, while 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 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 Corcentric Managed Accounts Receivable in our white paper
about How Managed Accounts Receivable Unlocks Working Capital.

Get started today – Contact Us.

 



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