How A/R ReSourcing Can Improve Overall Business Performance

Originally published: Jul-31-2008

Two Mini-Case Studies Highlighting the Effective Application of Partial Collections Outsourcing

It’s no longer business as usual for credit managers. While many credit professionals struggle under the weight of increased scrutiny, expanded responsibilities, and static resources, increased emphasis is being placed on their ability to contribute to the success of their organizations. Once responsible primarily for credit decisions and collections, the credit manager’s role has expanded to include functions such as contract compliance and customer service. Corporate emphasis on cash and working capital management has also resulted in the need for credit departments to become more proactive and focused on cost containment.

A number of factors, however, prevent the credit function from contributing full value to their organizations. And budgetary constraints linked to cost containment policies make it difficult to implement solutions.

Lack of Capabilities Short-Circuit Credit Department Effectiveness

Among the most significant obstacles faced by credit departments is the lack of important A/R capabilities. Many organizations are handicapped by:

1. Inadequate Software Systems. Antiquated legacy systems, as well as many Enterprise Resource Planning (ERP) software do not provide the A/R functionality required to deliver needed performance. Many credit departments must also deal with multiple, disparate systems across divisions.
2. Ineffective Processes. Lack of standard, consistent, well-documented processes hamper productivity resulting in: increased DSO; drop in dollar value of cash collections; rising customer service complaints; higher write-offs and interest expense; added staffing costs; and, more spending on third-party collections. In many companies, A/R management remains decentralized, creating the problem of attempting to obtain uniform results by integrating multiple methods. Even where control of credit and collection functions is centralized, poorly documented procedures and/or uneven application are ongoing problems.
3. Insufficient Reporting Capabilities. Inability to generate accurate, meaningful reporting makes it all but impossible to deliver a true valuation of the company’s receivable portfolio. Resultant inaccuracies reduce the organization’s ability to meet legislative and public demands for accountability and transparency. Insufficient reporting also hinders the manager’s ability to identify and correct underlying process inefficiencies.
4. Inflexible Staffing Models. Staffing levels out of sync with demand are a drain on profitability and resources. Because wages and benefits are fixed costs, significant dollars are wasted when permanent staff exceeds immediate need. On the other hand, productivity takes a hit when tasks exceed headcount. Companies in high/fast growth mode are particularly vulnerable. Mergers, acquisitions, or accelerated sales can cause A/R to get out of hand, overwhelming understaffed credit departments. Utilizing temporary staffing in these situations actually increases the burden on managers who must train and supervise transient help.

Effective application of A/R ReSourcing™ – a term coined by ABC-Amega to describe partial collections outsourcing – can help beleaguered credit managers overcome the obstacles mentioned above. The following mini-case studies illustrate how.

Venture Capital Firm Faces Serious Cash Flow Problem and Public Relations Nightmare

In 2006, a venture capital firm purchased a large, regional telephone company. When the final cut-over to the new corporation’s billing systems took place, data errors resulted in thousands of incorrect invoices being mailed out to customers. The customer service department was inundated with incoming questions and complaints. Hundreds of callers ended up on hold for hours or dropped altogether, ultimately resulting in a public relations disaster. As customers refused to pay the inaccurate invoices, working capital (cash flow) began to evaporate. The firm faced two immediate challenges:

1. Urgent need to double customer service staff to field the increased load of calls and complaints.
2. Lack of receivable collections software to manage calls and document and categorize issues for efficient resolution.

To manage the rapidly deteriorating situation, the corporation elected to outsource 20+ new customer service positions to an A/R collections outsourcing firm. In addition, they contracted use of the vendor’s collection management software for its internal customer service associates. Within a few months, the backlog of invoicing issues was cleaned up and cash began flowing in. As the dust settled and the corporation took stock of the situation, they found that outsourcing some of the receivables collection responsibilities had:

1. Saved money. The cost to outsource FTEs (full-time equivalents) was less than the cost of maintaining internal customer service staff.
2. Improved productivity. Utilizing the vendor’s software enabled them to benchmark their internal resources against the outsourced FTEs. They found that the productivity of the outsourced associates was more than twice that of their internal staff.
3. Increased customer satisfaction. Incoming calls were being picked up immediately, rather than placed on hold. Customers with delinquent payments were proactively called to discuss and resolve issues.

Lack of Effective Processes Frustrates Employment Agency Dealing with Multiple Problems

A national temporary employment agency was dealing with archaic systems, high turnover and DSO considerably higher than their industry’s average. Its local offices utilized a number of incompatible A/R systems making it impossible to determine the amount of outstanding accounts at each branch. They also lacked any means of monitoring the productivity of their internal collectors.

A newly appointed Director of Accounts Receivable was determined to make an immediate impact on the situation. Through a formal RFP (Request for Proposal) process, a collections outsourcing company was selected for a 2-month test project involving just 5 FTEs handling A/R collection for one division.

The results: Within the two-month time-frame, the outsourcing provider resolved 78% of the delinquent accounts. They also identified a number of problems in the temp firm’s internal processes that were causing delinquencies. And the temporary agency discovered that outsourcing collections was considerably more cost effective than increasing in-house staff.

A/R ReSourcing™ Improves Business Performance and Mitigates Risks of Outsourcing

In the case studies above, ABC-Amega was selected to provide the solution with its A/R ReSourcing™ service product utilizing its SoftCall® 1st-party collection system.

A/R ReSourcing™ provided each company with:

• Access to specialized collection management software, allowing increased control and access to centralized data.
• Automated file management, scheduling and recording capabilities, which drive improved quality, increased customer satisfaction, accelerated collections and a shortened payment cycle.
• Robust, insightful recording, which accurately assessed collection performance and helped to identify weaknesses in each organization’s revenue cycle.
• Scalable, cost effective staffing model, which transformed the fixed costs of additional employees into variable costs based on actual need.

In addition, the companies were able to mitigate the potential risks of a full-blown BPO solution, like loss of control, decline in internal expertise, and potential loss of credibility for the finance executive.

In summary, outsourcing does not have to be an all or nothing proposition. While it may make sense for some companies to outsource their entire A/R collection function, many will not be comfortable doing so. For those, a partial outsourcing solution, like A/R ReSourcing™, offers a low-risk entry into outsourcing’s benefits that allows the organization to determine if it: (1) is comfortable with outsourcing in general; (2) has selected a provider with the right capabilities; and, (3) has the internal capabilities to successfully manage an outsourcing project.

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A/R ReSourcing™ is a service product of ABC-Amega Inc. with the primary purpose of enhancing the organization’s credit department, not replacing it.

Companies that should consider A/R ReSourcing™ are those that: require just a few additional receivable collection staff persons; have occasional need for increased staffing; prefer an onshore solution, or feel their internal processes are ineffective and would like to benchmark them against a professional receivable management firm.

For further information on A/R ReSourcing™ and ABC-Amega’s other receivable management services, email info@abc-amega.com or contact a Relationship Manager at 1-800-732-0206.