Over the past few decades, and the last ten years in particular, American businesses have been reaping the benefits of outsourcing. Small businesses have done away with internal departments for things like payroll and IT. They hire outside accounting firms and use personnel agencies instead of having full-time accountants or human resource representatives. Essentially, American businesses are outsourcing those tasks least relevant to their business’ purposes, and they’re saving money doing it.
While there is certainly a balance to be struck between in-house work and outsourcing, it does make sense to have employees work primarily on those tasks most related to a business’ core competencies. This frees employees up to focus on work that actually benefits the company financially while still ensuring that the behind-the-scenes work gets done properly. For many American companies, accounts receivable management is excessively time consuming and costly, and yet few consider it something that can be outsourced. While the task is obviously essential to the operation of any business, it’s not necessarily one that needs to be done in-house. Accounts receivable factoring services provide an option for outsourcing collections and accounts receivable management.
Why Use Accounts Receivable Factoring?
In accounts receivable factoring, small businesses sell their invoices (accounts receivable) to an invoice factoring company at a discount. The factoring company then pays the small business in just days. The obvious benefit here is that the small business has its money right away instead of waiting 30 to 90 days for a customer’s payment. However, fast payments are really only part of the story.
The secondary benefits of outsourcing accounts receivable by using invoice factoring can also have a tremendously positive impact on a small business’ finances. Invoice factoring companies help manage accounts receivable and collect on invoices for their clients. They work with their clients to keep and maintain records, limit risk, communicate with debtors, and manage billing. The end result is a massive reduction in the number of hours, employees, and resources needed for in-house accounts receivable work.
Additionally, invoice factoring companies have extensive resources not available to most small businesses, enabling them to do more than run simple credit checks. They use their access to not only determine the creditworthiness of potential customers, but to help their clients make more informed decisions about terms and limits when extending credit. Additionally, factoring companies have the skills and tools to analyze what they find when researching those potential customers and when managing clients’ accounts receivable.
Outsourcing accounts receivable by employing an invoice factoring company is an effective, cost-efficient method of small business financing. It allows companies to focus on their main business objectives while getting more out of their accounts receivable with fewer staff using fewer resources in fewer hours. The end result is a healthier bottom line and a more focused, streamlined accounts receivable process.
Disclaimer: The information presented above is general and intended for educational purposes only. It is not a substitute for practical legal or accounting advice on any specific situation.
