If managing accounts receivable is your responsibility, then you’re most likely facing many of these challenges:

• Downsized departments
• Turnover of skilled and trained staff
• Customers consistently paying outside terms
• Reactive, rather than a proactive follow-up on past due accounts
• Limited availability of A/R information
• Demands to improve cash flow

If you’re nodding your head to any of the above, you might want to take another look at outsourcing your accounts receivable management.

How A/R Outsourcing as a Focused Tool Can Expand Working Capital for Your Business

Credit and financial managers are not always comfortable with the idea of putting customer contact into the hands of a third party, even if the hand-off remains totally transparent to their customers. Clearly, your customers are your company’s most valuable asset – without them, you wouldn’t exist. Will you lose control by relinquishing A/R management to an outside party? Are you risking the loss of customers by letting a third party talk to them about their payment habits?

Another common concern has to do with your second most valuable asset – your staff. Will outsourcing mean they will lose their jobs? You’ve spent a lot of time training and growing their capabilities. Do the potential benefits of outsourcing really justify losing hardworking, loyal people?

These are all legitimate concerns. However, outsourcing doesn’t have to be an “all or nothing” proposition. While it may make sense for some companies to outsource their entire back office A/R department, most companies aren’t going to be comfortable doing that – and they don’t need to. You can have it both ways. In fact, there is a growing segment of companies that are using A/R outsourcing as a sharply focused, precision tool.

A2Z Company’s Strategic Decision:

Consider this real-life case study: A large subsidiary of a $40 billion multinational conglomerate (we’ll call them the A2Z Company) used outsourcing to help manage the challenges of a major consolidation of its financial operations in the United States. Their strategic decision is to consolidate financial operations into a single finance center, closing 4 other centers throughout the U.S.

A2Z’s CHALLENGES

• Immediate influx of 6,700 receivable accounts (valued around $2.7 million) that required handling and resolution, with an average age of >270 days past due
• Inability to add staff

A2Z’s GOALS

• Clean up the one-time influx of past due accounts quickly and cost-effectively
• Manage future receivables with in-house resources
• Maintain a consistent message to customers when accounts are rolled to third party collections (The third party team needs to know what the 1st party team said and did.)

A2Z’s SOLUTION

The subsidiary approached a reputable and experienced U.S. accounts receivable management firm with these challenges. The A/R firm recommended a 3-month clean-up project. It provided a cost-effective treatment program that included:

• 8 FTEs (full time equivalents) including trained and experienced customer service representatives, a team leader and clerical support
• A dedicated 800 number for inbound calls
• Direct, client portal access for A2Z staff to view their portfolio, including notes on the handling of each and every account
• Weekly escalation and status reports
• Statistical reports including aggregate data on disputes and account status by age bucket, emailed weekly to A2Z
• Weekly conference calls to discuss progress and suggested treatment modifications
• Ability to turn select accounts, along with all notes, over to the third-party collection division should more aggressive treatment be advised

Company A2Z gave the firm direct access into their ERP system to access and email copies of invoices to the delinquent customers.

A2Z’s TARGETS AND RESULTS

Due to the age of these accounts, A2Z anticipated that there might be legitimate unresolved disputes involved, along with the need to forward a good portion to “hard” collections. These are the targets they set for the project and the results achieved by the outsourcing firm:

The outsourcing provider converted past due receivables to $1.5 million in cash and resolved 82% of the dollars held in these receivables.

The cost? Just 48% of what A2Z would have paid in contingent fees for the same results in third party collections. A saving of $117,000! And, best of all, the first-party treatment helped strengthen the relationship with their customers. Happy customers, mean more sales and a very happy A2Z CFO.

Results like this are not unusual, if you’ve found the right outsourcing partner — one with specific expertise in accounts receivable management.

And you don’t necessarily have to have thousands of accounts that require attention. A2Z’s provider also handles projects as small as 200 or 300 accounts per month, all with no long-term commitment required.

Facing any of these issues?

SMALL-DOLLAR ACCOUNTS FALLING THROUGH THE CRACKS

Your internal staff needs to focus on key customers and larger balances. But that leaves small-dollar accounts at the bottom of the pile and often they just don’t get called. Altogether, these accounts can represent thousands of dollars of potential cash flow.  Outsourcing just the small-dollar portion of your A/R ensures that smaller customers get the attention they require to pay on time. It also frees your staff to focus on the 20% of your customers that create 80% of your revenue.

ONE-TIME INFLUXES OF A/R ACCOUNTS, SUCH AS CREDIT SALES FROM A NEWLY ACQUIRED COMPANY

With acquisitions, there is often a short-term influx of unpaid balances that need to be reconciled. You may not know if the accounts were called, or what the possible reasons for late payment might be.  A short-term outsourcing project can clean up the newly acquired portfolio, so you can collect or write-off the old accounts and then start fresh with new business.

PERIODIC INCREASES IN CREDIT SALES, FOR INSTANCE, FROM SEASONAL BUSINESS UPSWINGS

If your industry makes a large portion of seasonal sales, it wouldn’t make sense for you to hire and train extra collection staff that you won’t need the rest of the year. Outsourcing providers are able to easily prepare their trained staff to work special projects. You won’t have the added expense of down-time while you’re finding staff and training them, and you won’t have to worry about turnover.

Targeted outsourcing can help you manage these issues and more, reaping tremendous benefits in improved cash flow, lower costs, enhanced customer satisfaction and less staff burnout.

Staying in the game is the primary focus of most companies today. Issues like cutting costs, downsizing, reducing debt, and continuing to navigate through a global pandemic are at the top of every CEO’s “to-do” list.

Improve A/R Management Processes Without Investing in Working Capital

No question about it, in one way or another, we’re all facing significant challenges. Many companies are meeting those challenges head-on by implementing strategies that will help them continue to operate now, and strengthen their position in the future. Outsourcing A/R is especially effective in this regard.

Cash Flow is the Key

Lack of operating cash was the primary factor leading to many U.S. “dot-coms” going out of business in the early 2000s, and a lack of liquid assets resulted in the demise of banks, financial companies, and weak organizations in the 2008 recession. Today, start-up companies have their own set of growing pains, like adding staff and meeting demand, without having to become credit and collections experts.

A company’s receivables represent as much as 50% of their assets. As a result, aging receivables have a huge impact on cash flow. Managing your company’s assets more efficiently, now, will help ensure you are prepared for sustained success in the future.

Overcoming Weaknesses

Working with a first-party receivables management company, or a collections outsourcing firm, allows you to focus on your company’s core business offerings without the distraction of recruiting, training and managing an in-house A/R team. In addition to improving cash flow and controlling your revenue cycle, outsourcing can strengthen your company in many other ways. 

5 Ways Receivables Outsourcing Can Make Your Company Stronger

1. IMPROVED CASH FLOW

If receivables represent 40-50% of a company’s assets, then turning those receivables into cash – as quickly as possible – will immediately improve the financial position of that company. Many companies, unfortunately, find it’s becoming increasingly difficult for the Credit Department to focus resources needed to effectively follow-up on all past due accounts.

It is an accepted fact that consistent, friendly contact with your customers will bring your invoices to the top of their payment pile. But most credit departments simply don’t have the personnel to follow-up with every single customer.

Outsourcing collection of even a part of your delinquent receivables portfolio (say, the 80% of your customers that are non-strategic), ensures they will each receive regular contact. This will remind them to pay now, or at least keep your invoices on the top of the stack. Where there may be a valid dispute, early contact will facilitate faster resolution and shorter delay of payment – ultimately getting all invoices paid more quickly.

In addition to improving immediate cash flow, outsourcing offers long-term benefits. The consistent customer contact provided by the best first-party collections providers improves customer satisfaction, increases repeat business, and trains your customers to pay on time going forward.

2. IMPROVED CONTROL OF PAYMENT CYCLE 

Outsourcing first-party collections to an experienced firm will provide your organization access to:

Specialized collection management software. With collections as its core competency, the A/R outsourcing provider is able to focus on implementing the best in collection software applications. You will have access to these systems without incurring the substantial cost of maintenance, upgrades, and personnel training.

Consistent, effective and efficient collection processes. Through its automated file management, scheduling, and recording capabilities, the provider can standardize, and add consistency and discipline to the collection process. This drives improved quality, increased customer satisfaction, accelerated collections, and a shortened payment cycle.

Robust, insightful reporting. The outsourcing provider’s software can accurately assess collection performance, and even identify weaknesses up and down your revenue cycle. Having this information allows to make better receivable management decisions.

Access to best practices. Well-documented processes, and accurate, insightful reporting increases your current control over the function, and provides the information you need for improvements in the future.

3. SCALABLE STAFFING 

Outsourcing provides a scalable staffing model since you only incur cost for additional staff “as needed.” The costs of acquiring, training and managing qualified personnel remain the responsibility of the provider. Thus, the fixed cost of taking on new personnel turns into variable costs, depending upon your company’s unique needs.

If existing A/R staff is used to address urgent cash flow issues now, little time remains for them to perform the value-add projects critical to future strategic growth. Outsourcing eliminates this juggling of priorities and helps your company to keep moving forward.

Many firms rely on temporary staffing when in need of more FTEs (full-time equivalents) for collection. While temp firms are good at providing headcount, they fall short in duplicating the specific collection and customer service skills receivables outsourcing firms consistently develop in their employees. Temp staff also lack the knowledge of your internal processes and culture, which is quickly learned by the outsourcing firm in the course of their engagement with you.

4. COST SAVINGS

A scalable staffing model saves cash. No need to hire more permanent or temporary employees that will require training and managing, not to mention benefits.  Other costs such as equipment, software licensing and telephony are typically included in the service. Outsourcing also ensures your current staff can stay focused on strategic concerns. And, when business turns around, you will be able to quickly ramp up to handle new customers.

5. IMPROVES OVERALL BUSINESS PERFORMANCE

Receivable collections outsourcing empowers credit department staff to move beyond managing day-to-day activities to affecting business outcomes.

This shift from tactical to strategic management boosts performance and accountability. It does so by allowing managers, and other internal personnel, to focus on monitoring and adjusting processes in order to remove impediments to payment, thus improving results.

Consistent, documented customer contact by the outsourcing partner can improve corporate accountability by identifying problems in the payment cycle (like consistently late mailing of invoices or billing errors), giving your staff the information needed for setting in motion timely resolution.

Financial transparency is also improved as a result of accurate reporting available through the outsourcing firm’s collection management systems.

As a vital component of the revenue cycle, efficient receivables collection brings in cash, quickly-improving cash flow and working capital. Outsourcing can boost your collection effectiveness, as well as improve profitability by decreasing process and administrative costs, headcount, DSO, and cost per transaction.

While outsourcing first-party collection functions might seem daunting, partnering with the right firm to handle it professionally can allow you to shift your focus back towards key objectives at your company. It has the power to drive immediate returns on your company’s A/R and provide peace of mind with future planning and the growth of your company.