Magazine article Business Credit

Outsourcing as a Business Strategy

Magazine article Business Credit

Outsourcing as a Business Strategy

Article excerpt

Outsourcing is redefining business. Once viewed as a cost-saving measure reserved for highly specific functions, companies now see outsourcing as a strategic means for ensuring quality in a variety of non-core areas. Many define "non-core" as broadly as "anything that does not appear on a brochure or invoice."

The numbers reflect this. In the 1998 Dun & Bradstreet (D&B) Barometer of Global Outsourcing, executives from companies with more than $50 million in annual revenue predicted $235 billion will be spent on outsourcing services this year - a 27 percent increase over 1997. No wonder the Harvard Business Review called outsourcing "one of the most influential management ideas and practices of the past 75 years."

Outsourcing allows a company to focus on its core competencies and create a network of outside experts for critical - but not core - support skills. These companies bring together the best talents of multiple firms and are rapidly replacing traditional, vertically integrated, self-sufficient organizations.

Outsourcing's impact is being felt across the world. It is an American innovation, and this country remains the stronghold, with 60 percent of all outsourcing expenditures, according to the D&B 1998 Barometer of Global Outsourcing. However outsourcing is growing rapidly in Europe (with a 34 percent increase expected this year) and in the Asian-Pacific region as well. Outside the United States, the greatest growth is in the United Kingdom, France, Italy, Germany, China, Hong Kong, Japan and Australia.

Information technology continues to be the area most likely to be outsourced, representing about 28 percent of all outsourcing expenditures. But outsourcing of financial services, including accounts receivable management, is on the rise. At Dun & Bradstreet Receivable Management Services (RMS), we've seen a 60 percent increase in outsourcing contracts over the last year. Since 1993, our outsourcing portfolio has grown from $200 million to $5 billion in accounts managed.

Accounts Receivable Outsourcing

Unlike traditional collections, the "new" accounts receivable outsourcing entails the entire accounts receivable process - from initial invoicing and customer contact to collections and bankruptcy recovery. It starts out as a customer service function, with calls and letters to verify satisfaction, encourage payment and forecast potential problems. This stage is handled in the client's name, in a positive, unobtrusive manner.

If an account becomes delinquent, it is monitored and carefully reviewed before being rolled over to third party collections. At D&B RMS, this is always a joint decision between us and our customers, decided either on a case-by-case basis or through pre-established criteria.

Typically, companies start off by outsourcing a specific customer segment, such as business-to-business or accounts of a certain size. As a company begins to feel more comfortable with the process and to see results, it often expands the contract.

Advantages

What advantages does outsourcing offer for accounts receivable management?

* Bottom Line - Better recoveries, not costs savings, is often the number one reason companies turn to outsourcing. In accounts receivable, this is fairly easy to measure by looking at days sales outstanding (DSO) and bad debt reduction targets. When cost alone is the driver, performance typically suffers.

* Expertis - Partnering with leaders in non-care functions helps companies achieve overall excellence. Accounts are less likely to become delinquent when a staff of professionals handles advance screening and customer contact. As professionals, they are more likely to be familiar with the many different kinds of issues that can arise based upon exposure to "best demonstrated practices" from many applications with other customers.

* Technology - In many fields, and particularly accounts receivable, access to the latest technology determines success. …

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