Magazine article Business Credit

Outsourcing Alternatives: Look Inside, Not Out

Magazine article Business Credit

Outsourcing Alternatives: Look Inside, Not Out

Article excerpt

In today's business world, we hear terms like team concept, reengineering, process improvement, quality management and benchmarking. The application of these business processes often leads to the use of outsourcing. Why? Because credit managers today are trying to accomplish more with fewer employees - and they're trying to save money in the process.

In the 1996 first quarterly issue of The Credit and Financial Management Review, David Schmidt wrote an article entitled "Doing More with Less." In that article, he indicates that cash posting, deduction resolution, marginal account management, collection, and credit checking lend themselves to outsourcing. We have also seen in recent years a number of companies that are willing to handle outsourcing needs.

The Heart of the Matter

Outsourcing is not new to credit management. For years, companies have outsourced delinquent accounts, remittance processing and other redundant jobs. In some ways, factoring could be considered a form of outsourcing an entire credit function. While there are areas that can be outsourced effectively and efficiently, today's trend is to outsource not only the redundant jobs, but those that are the heart of the credit, collection and accounts receivable functions. Outsourcing does have a place in today's business environment. However, if you really believe and understand reengineering, process improvement and TQM, you might be able to achieve the same, if not better, results by reengineering the functions instead of outsourcing them. You might now be questioning how do we do this with fewer people and pressure from upper management to reduce costs. Let's look at two areas where outsourcing is prevalent.

Deduction Management Improvements

The first is in the area of deduction management. This is one of the areas that is not only labor intensive, but also has a large dollar volume, creating an excellent opportunity to reduce costs and increase cash flow. Instead of turning to outsourcing, look at other opportunities inside your organization. To my knowledge, no deduction department has ever created a chargeback or deduction. When you really look at deductions, you might say that they are a measure of efficiency or inefficiency of the distribution and sales functions. To this extent, you might look at improving these functions. By doing this, you can reduce the incoming flow of deductions while creating additional cash flow and freeing up more time for the deduction staff to focus on other issues. You might even create an opportunity to reduce your staffing requirements.

Savings in Technology

Another area you can examine is in the area of technology. With so much focus today on doing more with less, technology offers some excellent opportunities. Look at creating a deduction management system or even buying some of the off-the-shelf models that are available today. By using these systems, you can isolate areas such as shortages, freight and handling, or returned goods. Then, focus your attention on the areas that create the major problems, and work to reduce the incoming deductions. At the same time, you can use these systems for follow-up, tracking and the resolution of outstanding deductions that were not allowed. Also, consider the creation of deduction profiles on your customers. This way you can pinpoint and analyze which customer within your customer base has the largest number of deductions. You could then identify these deductions by type and begin to work with both your customer and your internal departments to correct the problems. …

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