A number of factors handicap credit managers from being able to increase their employers return on investment of the extension of credit to its customers. In many cases budget controls, designed to increase margins, actually prevent credit managers from implementing corrective solutions.
There are four significant roadblocks that most organizations cannot navigate in a cost effective manner.
They are:
1) Inadequate Reporting Capabilities: Most accounts receivables management professionals cannot generate an accurate, meaningful report, which makes it almost impossible to evaluate a company’s receivable portfolio. This inability to generate accurate reports may reduce the company’s ability to be seen as transparent and accountable. Poor reporting also hinders a credit manager’s ability to identify and correct process inefficiencies.
2) Ineffective Processes: In many companies, accounts receivable management functions are carried out at a branch level, which creates an issue when attempting to get consistent results. Even when the A/R function is centralized in a head office, poorly documented processes create and perpetuate ongoing problems. This lack of a well-defined process results in: increased DSO, decreased value of cash collection, increased customer service complaints, higher write-offs and interest expense; increased staffing costs, and; increased cost of collections.
3) Poor Software Systems: old legacy software and even state-of-art ERP (Enterprise Resource Planning) software does not provide the functionality that credit and collection staffs need to properly manage the receivable asset. In most instances credit managers must work with multiple non-connected systems, further reducing productivity and staff morale.
4) Inflexible Staffing: Staffing levels that are not in sync with demand are a significant drain on profitability. Wages and benefits are fixed costs and when full-time staffing exceeds a company’s immediate demand, many dollars are wasted. Conversely, if demand exceeds your staff count, companies suffer significant production inefficiencies. Circumstances such as seasonal demand, competitive staffing environments, merger, acquisitions and high growth situations can all cause accounts receivable to suffer.
The use of temporary staffing options actually exacerbates the burden on credit managers who must train and then supervise transient help.
Accounts Receivable Management Outsourcing Can Increase Profitability
Faced with an ever-increasing workload, and combined with the four issues mentioned earlier, partnering with a firm that specializes in accounts receivable management provides the most effective method to attain sustained improvement.
By providing a consistent, efficient and technologically current system, outsourcing A/R collections offers opportunities to alleviate the many challenges credit managers and CFO’s face.
How are these efficiencies achieved? The answer lies in a basic understanding of the receivable recovery process. A highly efficient receivable management process staffed with trained professionals, brings cash in quickly, improves cash flow and working capital. Outsourcing the collection process further enhances profitability by decreasing processes and administrative costs, staffing FTE, DSO, and cost per transaction.
We Don’t Want To Lose Control of Our Customer
As the “face” to the company’s customers, an effective collection process has the potential to heighten customer service, which maintains customer loyalty and increasing sales. The work is conducted using your company name. All service related issues are uncovered quickly and your sales staff can be engaged faster to fix problems.
Receivable Collection Outsourcing Improves Performance.
Outsourcing the A/R function solves the four major productivity issues mentioned earlier.
1) Gain leverage through access to specialized collection management software. With collections as its core competency, an A/R outsourcing firm can afford to implement and maintain industry leading software designed especially for A/R collections. The company that hires an A/R outsourcing firm gains access to these systems and processes without the capital expense, not to mention the added cost of maintenance, training, and upgrades. The Credit manager has increased control through access to better systems and centralized access to company-wide data.
2) Consistent, effective collection processes. A/R outsource providers have access to automated work flows, customized letter campaigns, scheduling options, and recording capabilities. An outsourced A/P process provides the creditor with a standardized, consistent and disciplined process to the collection process. The benefits of standardized treatment of accounts receivable is improved quality, increased customer satisfaction, faster collections, and increased rate of cash flow.
3) Cost Effective & Flexible Staffing. Another benefit of outsourcing accounts receivable collections is that of scalable staffing. All costs associated with human resources; including advertising, training, wages, benefits, and ongoing professional development and career planning becomes the responsibility of the provider. A creditor can “add” or “delete” staff as required. CFO’s appreciate being able to switch staffing from a fixed cost to a variable cost.
A major point of difference between an outsourcing provider and a temporary staffing agency is that relying on temporary staff when managing an A/R portfolio is largely ineffective. Temp firms are great at placing headcount but simply cannot provide the expertise and ongoing management that is required for temp staff to have an immediate positive impact in your business. Also, internal processes and culture may be disrupted using temporary staff as they do not have the time nor inclination to integrate seamlessly like an outsource vendor.
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