For most small to medium-sized businesses, accounts receivable is managed internally — by the business owner, an office manager, or an accounts staff member who also handles other functions. This works adequately when the volume of invoices is manageable and the customer base is compliant. It breaks down when volumes grow, when the customer base includes chronic late payers, or when internal staff lack the skills or persistence to manage the collection cycle effectively.
Signs that internal AR management is not working
- DSO (days sales outstanding) is more than 15 days above your payment terms and has been for two or more quarters.
- The same accounts appear in your 60+ day bucket month after month without resolution.
- Collection follow-up is inconsistent — reminders are sent when staff have time, not on a systematic schedule.
- Staff are uncomfortable making collection calls and avoid escalation.
- Bad debt write-offs are rising without a clear reason in the quality of your customer base.
What outsourcing involves
Outsourcing accounts receivable can take different forms. Full outsourcing involves the external provider managing the entire AR function — issuing invoices, sending reminders, making collection calls, negotiating payment arrangements, and managing escalations. Partial outsourcing involves the provider taking over a specific subset of accounts — typically those that are overdue and have not responded to internal follow-up.
Most businesses that outsource AR use a hybrid model: internal staff manage current accounts and routine reminders, while the external provider handles the escalated queue. This concentrates external provider cost where it adds most value.
The cost consideration
Outsourcing AR is not free, and the appropriate cost model depends on the type of accounts being managed. For routine overdue accounts where most customers will pay once chased, a fixed-fee or time-based model may be appropriate. For genuinely difficult accounts where recovery is uncertain, a contingency (no-recovery-no-fee) model is more appropriate — aligning the provider's incentives with the creditor's outcome.
When assessing the cost, compare it to: the internal staff time currently spent on collection, the cost of current bad debt write-offs, and the working capital impact of the current DSO. For many businesses, the external cost is modest relative to the improvement in these indicators.
What to look for in a provider
An outsourced AR provider should: hold an appropriate licence for the debt collection activity they perform; have experience in your industry or sector; use documented, compliant communication processes; provide regular reporting; and operate in a way that is consistent with your brand — particularly for businesses where the debtor is also an ongoing customer.
Speak to Merion about whether outsourcing part or all of your AR function is appropriate for your business — we can provide an assessment based on your current ledger and team.