Outsource Your Accounts Receivable Management With Factoring

Tracy Eden

One of the biggest business trends of the past 20 to 30 years has been the move toward outsourcing.

There was a time not so many years ago when most companies handled almost all business functions internally themselves: payroll, hiring, human resources, financials, accounting, IT, etc. Well, do the names ADP, Paychex, Randstad, or Tatum ring a bell? Each has become a leader in providing specialized business services for companies on an outsourced basis.

Companies usually decide to outsource functions that aren’t part of their core competencies—or in other words, those that don’t lie at the heart of their ability to manufacture a product or deliver a service. Doing so enables them to focus more of their time, attention and resources on doing things that help differentiate themselves from their competitors and make a real difference for their customers.

It stands to reason that if your company wants to get the most useful productivity out of your employees possible, you should try to ensure that most, if not all, employees are working on tasks related to your core competencies, not on peripheral activities that don’t contribute directly to the bottom line.

Gaining Back Hours

One particularly time-consuming task that gobbles up untold hours of many employees’ time is the management and collection of accounts receivable (A/R). Few companies would say that this task contributes directly to their ability to create products or deliver services. But there’s no denying the importance of A/R management and collections to the success of any company.

You might not realize it, but there’s a way to outsource A/R management and collections in the same way that you may be outsourcing your payroll, HR or IT functions. It’s called factoring.

With factoring, businesses sell their outstanding receivables to a commercial finance company at a discount. But what many owners don’t realize is that when they factor their receivables, the finance company steps in and assists with A/R management and collections, essentially performing all the services of a full-fledged A/R department.

These services include such tasks as backing up documents for accuracy and scanning, follow-up communication on invoices, documenting invoices and payments in a ledgering system, and ongoing evaluation of your customers’ credit. The cost of performing these activities can really add up over time. The result for your business is not only immediate cost savings, but also the establishment of a foundation for sound business management practices in the future.

Why Credit and Collections Are Vital

The fact is, many small business owners don’t have access to the resources necessary to run and manage a credit and collections department. However, day-to-day credit and collection activities are vitally important to the growth and success of any business.

Commercial finance companies focus primarily on the creditworthiness of your customers, so they will perform direct credit checks on them and utilize expensive, computerized databases that you probably cannot afford to access. They will then analyze these credit reports, uncover bad credit risks and set appropriate credit limits, essentially becoming your full-time credit manager. These thorough, detailed credit checks will minimize serious payment problems and help you build a roster of strong, creditworthy customers over time.

Many commercial finance companies will also maintain detailed, up-to-date accounts receivable records that are web-accessible and searchable. The benefits are extensive: accurate noting of aging accounts, reliable tracking of payment information and addresses, accessible data for follow-up tasks, and development of sound business fundamentals.

Focus On Your Core Competencies

The bottom line is that outsourcing your A/R management and collections to a commercial finance company will liberate you to spend more time focusing on your core competencies: product creation, marketing and management. Because every hour you spend performing tasks that do not relate to increased sales or production is costing you real dollars.

With the stress of short-term cash flow and financial obstacles removed, you can focus on your primary business and not waste time trying to be an accountant, credit manager or collector. The result will be a stronger company that can thrive and manage rapid growth.

Tracy Eden is the National Marketing Director for Commercial Finance Group in Atlanta, GA
Copyright 2010 Author retains ownership. All Rights Reserved.

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