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.
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. Our Top 5 are listed below:
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.
Conclusion
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.
Check out the other outsourcing articles we have on our website.
For more information about our commercial collection services, contact us at 844.937.3268 today!