When small and medium-sized businesses are paid late, they struggle to fulfill payroll and carry out daily operations. Many business owners also report missing out on early buyer discounts because they lack sufficient funds to place orders with suppliers. When credit is extended to customers without proper vetting, it may result in defaulted or delayed payments, leading to cash flow woes. Accounts receivable outsourcing is the second most popular area in accounting outsourcing because it helps counter talent shortage and optimizes business operations.
Globally, small and medium-sized enterprises (SMEs) form the backbone of economies.
They support local economies, sustain rural employment, are resilient during hard times, and keep alive the American dream of making it big in the future – with that one market-winning, transformative product or idea.
A common challenge that SMEs face in running an efficient and profitable business is difficulty in getting paid.
It is estimated that 39% of B2B invoices in the US are paid late.
Why is cash flow a perennial pain for SMEs?
Cash flow struggles are real for small businesses that often lack the financial or operational expertise to optimize their accounts receivable (AR) processes.
Although cash flow is a broad term emphasizing how money comes in and gets spent, it has several deeper-running roots. Data from the U.S. Bureau of Labor Statistics shows that nearly half of all startups fail within the first five years, with cash flow being a top challenge.
Causes of cash flow problems include:
- Insufficient cash reserve
- Delayed payments
- Overinvestment in growth
- Declining sales
- Faulty expense management
- Lack of forecasting and planning capability
- Poor inventory management
- Inadequate funding
When you allow your customers to defer their payments or agree to them paying at a later date for the goods and services availed from you, then the amount owed is termed as AR.
AR or Accounts Receivable is recorded as a current asset on a company’s balance sheet. They are the legal obligation for customers to pay.
Managing AR efficiently is extremely crucial. Otherwise, your revenue gets trapped in overdue invoices, proving to be a cash flow bottleneck and preventing you from growing your business.
You are not alone – the cash flow crisis has global flavors
As per the Ondeck and Ocrolus Small Business Cash Flow Trend Report, in Q1 2025, only 25% of American business owners kept at least one month’s revenue in their checking accounts as a cash flow buffer — a sharp drop from 41% the previous year.
Notably, almost 28% said that covering late payments from customers was the reason they sought business loans.
Many factors, such as global conflicts, market uncertainties, and supply chain disruptions, may be beyond control; however, SMES must adhere to robust financial planning procedures to stay flexible, proactive, and quickly adapt to fast-paced developments.
Do you know that Emma Jones CBE has been appointed as small business commissioner in the UK with the specific goal of helping SMEs tackle late payments?
Not surprising, considering that recent research by Sage revealed that the UK’s smallest businesses are burdened with an average of £42,000 in unpaid invoices—creating a cash flow strain that hampers growth and puts many at financial risk.
Difficulties in optimizing AR processes
SMEs face challenges with cash flow due to multiple reasons. The most important reasons include:
1. Legacy technology
Manual processing stretches lean teams.
With no real-time analytics or updated dashboards, there is poor visibility into pending payments or aging data. This is essential to spot payment trends and resolve potential issues before they adversely affect the cash flow.
When you use manual payment systems, there is no AR transparency, leading to costly errors, poor customer relations, and working capital issues.
When small and medium businesses adopt automation, it provides their suppliers with visibility into cash flow and the much-needed impetus to digitize payment processes.
Automation offers both parties the clarity they need, ultimately enhancing trust.
Adopting new technologies, such as AI and automation, requires upfront investment across multiple aspects, including process changes, team training, and software; however, the long-term benefits are considerable. They include significant cost savings, improved data accuracy and reliability, and stronger customer relationships.
2. Muddled policies
Small businesses often fail to communicate clear and defined credit terms to their customers, thereby increasing the risk of late or non-payment by customers.
Payment terms define when and how customers are expected to pay, shaping both your cash flow timing and your ability to plan finances effectively. They also play a crucial role in setting expectations and maintaining healthy customer relationships.
When there are no clear policies communicated to customers –
- customers do not have a timeline to pay
- you cannot predict cash flow
- you cannot align the cash needs of your business with the customers’ payment capabilities
- forecasting and planning suffers
3. Non-standardized processes and data
Manual AR processes refer to traditional methods of managing accounts receivable, which are payments owed by customers.
Data is maintained across multiple spreadsheets, emails, and basic accounting systems, with tedious, time-consuming, and error-prone manual data entry.
Non-standardized data makes accurate reporting extremely challenging.
Different formats for names, addresses, or account numbers across invoices or systems make it hard to match payments accurately or maintain clean records. Manual invoices vary in format and layout, which can lead to confusion and delayed payments from customers.
With no real-time sync or updates to the data, teams struggle to identify and act on overdue invoices. Inconsistent payment tracking makes reconciliation an uphill task.
Add to these non-uniform credit terms and discounts, and you have the perfect recipe for a confusing and chaotic payment collection process.
How Can Accounts Receivable Outsourcing Help?
Partnering with an accounts receivable outsourcing provider can be the perfect solution for SMEs.
They offer a range of benefits specially tailored to meet the unique needs of small and medium businesses, including:
- Ready access to the latest tech and AI-powered solutions without upfront investment
- Qualified, experienced, and specialized experts – on demand
- Scalability and flexibility – allowing you to have more hands-on board during busy seasons and scale back during lean periods
- Cost savings because you do not have to hire, onboard, train, or pay salaries – you get the best services, on-demand, at a fraction of local cost
- Accurate and error-free invoices every time, resulting in faster payment processing
- Identify discrepancies between customer payments and outstanding invoices
- Upholds the financial precision and cash flow intelligibility of AR processes
The 90-Day Cash Flow Turnaround with Accounts Receivable Outsourcing
An outstanding Accounts Receivable (AR) outsourcing provider can quickly transform an SME’s cash flow health and collections efficiency within 90 days by streamlining the entire receivables process.
Week 1–4: Discovery and Setup
The first step often involves digitizing and centralizing all AR data to create a single source of truth. This enables real-time tracking of outstanding invoices, better visibility into aging reports, and more accurate forecasting.
Your AR outsourcing partner brings skilled professionals and access to the latest integration tools to centralize, clean, and update your data. This unified approach enhances visibility, streamlines collaboration, and greatly improves reporting accuracy.
Accurate aging reports categorize receivables by age, highlight at-risk accounts, and support proactive collections for better working capital management.
Key activities include process mapping, data migration, system integration, and initial cleanup of aging receivables.
Week 5–8: Active Collection and Optimization
Outsourcing also allows you to have dedicated staff for systematic follow-ups on overdue invoices. They prioritize high-value receivables, ensuring improved DSO (Days Sales Outstanding) and faster payments.
With an experienced Accounts Receivable outsourcing team managing day-to-day collections, SMEs can reduce delays caused by internal bandwidth constraints or inconsistent processes. Many providers also offer multilingual and multi-time-zone support to help businesses scale globally and serve diverse customer bases more efficiently.
Week 9–12: Cash Flow Visibility and Control
By the 90-day mark, the SME typically sees tangible improvements in cash flow predictability, reduced Days Sales Outstanding (DSO), and fewer disputes or write-offs. Importantly, the SME’s internal teams are freed up to focus on core business growth activities rather than chasing payments.
In 90 days, with accounts receivable outsourcing, SMEs achieve:Â
- Real-time AR dashboard and reporting
- Predictive cash flow forecasting
- Ongoing process refinement
- Streamlined end-to-end order-to-cash process
- Tailored insights, informed decision-making
The right Accounts Receivable outsourcing partner acts not just as a back-office vendor but as a strategic extension of the finance function—delivering long-term value through speed, scalability, and professionalism.
Conclusion
In just 90 days, SMEs can take control of their cash flow challenges by partnering with the right Accounts Receivable outsourcing provider. With streamlined processes, automated collections, and expert follow-up, businesses not only get paid faster, but also gain the financial clarity and stability needed to grow confidently.
A strategic AR partner doesn’t just improve collections—it transforms the way you manage working capital, paving the way for smarter decisions and sustainable success.
