I have never met a credit manager who is not inundated with work 90 percent of the time. It is a fact that credit professionals must deal with throughout their careers. By it's very nature, commercial credit and collections involves constantly playing catch up because the business models evolved over the last half century ensure that a corporation's daily sales will create a constant stream of payment problems in addition to the credit risks inherent in the marketplace.
Unfortunately, senior management in many companies consider credit and accounts receivable merely back office operations that add to overhead. As a result, the majority of credit departments are understaffed. Corporations expect senior credit executives to utilize their staffs to address critical issues. It is of course inevitable that no matter how well the credit executive prioritizes it will be the situations not addressed that will develop into serious receivable problems.
Ten or 15 years ago, there were very few places a credit manager could turn for help, but as the number and type of outsourcing services have increased, there are now third party options available to address the whole scope of credit, collections and receivables management. This article outlines nine situations that credit managers often face and how they can be readily solved by outsourcing, as well as the key factors that need to be considered in such cases when outsourcing is used as a tactical tool to boost receivables performance.
The dilemma facing seasonal businesses is how much staff to carry through the year. Because setting headcount based on the busy season means unproductive employees the rest of the year, most companies go to the other extreme. The typical credit manager working for a seasonal company gets overwhelmed during the busy season and then spends the rest of he year playing catch up. In reality the residual problems accumulated during busy times transcend the traditional seasonal industry. Many companies have dramatic peaks and valleys in sales. The peaks are often associated with the end of fiscal periods, resulting in a very heavy receivable workload in the following period. Bringing in temporary employees works in some cases, but training costs and the time needed to fully acclimate temporary hires deflate their productivity. Additionally, many companies require their managers to use a temp agency that as no expertise placing experienced credit and collections staff. As a result you get clerical employees who need extensive training before achieving any effectiveness. In contrast, teaming up with an outsourcing partner to get you through your busy season will ensure maximum return on your investment. For one thing, you can get by with minimal staff during the off-season knowing your outsourcing partner is waiting in the wings. Moreover, depending on the transaction volume during your busy season, your outsourcing partner can add or subtract staff from your project so that the resources used are in line with your needs. A long term outsourcing relationship ensures your cash flow is protected during both slow and heavy seasons without sacrificing customer relationships.
Credit departments are disproportionately affected by downsizing initiatives, especially when staff reductions are applied evenly across all departments. This is because transaction volumes tend not to go down and in many cases will continue to rise, regardless of headcount. There is only so much a limited staff can do in terms of credit and collections, and if transaction volumes exceed their capabilities, receivable balances will rise. In most cases, the higher a receivable balance, the greater the proportion of customer disputes, deductions and reconciliation issues. And, when a receivable portfolio gets clogged with disputes, it becomes much harder to collect. When the credit and collection department is understaffed, an outsourcing partner can effectively handle either specified tasks (such as deduction management) or portfolio segments (such as small balance customers), thereby enabling the in-house staff to engage in higher value added activities. …