The Strategic Foundations of Receivables Outsourcing

Article excerpt

Many companies simply cannot afford the diversion of management talent or commensurate investment in technology and systems to do as effective a job as an outsourcing firm.

As long as any of us can remember, it has been standard practice to turn an account over to a third-party collection agent or a collection attorney if you cannot collect from a customer. Other forms of receivables outsourcing have gained relative acceptance recently. Nonetheless, receivables outsourcing is an industry that has enjoyed accelerating growth over the last decade. Today there are a variety of ways, encompassing every area of receivables management, in which third-party outsourcers are being used. In every case, specialization provides the comparative advantage an outsourcing partner brings to receivables processes.

Supplementing Your Staff

For some companies, outsourcing is a means of dealing with growth. Hiring and training new credit and collection personnel require time and resources, two commodities in short supply in growing companies. These constraints are not a problem for an outsourcing firm because hiring and training order to cash specialists - including credit analysts and collectors - supports their core functions. Outsourcers have to be able to supply highly competent personnel, no matter what the situation is.

By outsourcing activities, companies with strong growth patterns can be assured of matching receivables resources to sales volume. That is a critical task because future growth always depends on cash flow. Companies cannot afford to have cash tied up in receivables, while new credit and collection employees are struggling to get on top of the learning curve. It is not uncommon for a new collector to take as much as three to six months to get up to speed.

Seasonal industries face similar limits to growth. If you staff your credit department to handle the nine slow months, invariably your receivables will get backed up during, and for awhile after, the three busy months. The resulting slow paying receivables not only add to bad debt and interest expenses but also delay investments geared to enhance the following year's product cycle. Bringing in an outsourcing firm during the busy season avoids impediments to corporate growth and profits.

Organizations that have downsized, acquired additional business units but not additional bodies, or are otherwise simply running with a lean credit team, find that outsourcing at least some tasks can make up for the slack. In such situations, it is vital that the permanent staff focus on their company's most important accounts. That is why bringing in outsourcing services ensures your own employees can focus on current issues.

Overcoming System Limitations

Constraints on system resources also create opportunities for taking advantage of outsourcing services. To efficiently support the activities of their expert personnel, outsourcing providers invest heavily in technology. Even those processes that have not been fully automated have at least been streamlined to maximize efficiency.

Many companies simply cannot afford the diversion of management talent or commensurate investment in technology and systems to do as effective a job as an outsourcing firm. Take the collection process, for example. An outsourcer will not only use fully integrated collection software that includes prioritized work queues, computerized contact management utilities, plus automated dialing, faxing and e-mail, but may also add automated remittance processing, imaging capabilities, and call center automation, all to maximize employee productivity. Generally, only the very largest corporations can afford to integrate all this themselves, much less justify the expense. In addition, most manufacturers have limited information technology (IT) resources, so implementing this technology and making the different pieces compatible can be difficult if credit and collections is not recognized as a top priority by upper management. …