Using Targeted Outsourcing to Increase Cash Flow

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.

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.