Outsourcing Your Receivables

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When we speak of outsourcing many people immediately think “India” or “Philippines” and are put off straight away.  Nothing wrong with those places of course but not everyone’s preference when dealing with an Accounts issue unless you live in those countries.  Local outsourcing has however been a business tool for over a century and continues to be attractive to forward thinking businesses.

So right from the outset let’s get one thing straight: 

Early forms of outsourcing were staff recruitment and insurance broking.  Employment agencies, brokers, advertising agencies and market research firms are so well established they are no longer even regarded as outsource providers, yet, simply, they are just that.

Administration outsourcing is growing too.  Activities such as payroll which is used by 54% of US firms and by an estimated 25% of Australian businesses is now outsourced.

Credit control began to be outsourced in USA and then spread to UK in the early nineties. It was originally factoring companies that had the lion’s share of the market.   Now smaller firms benefit from professional outsource credit control and debtor management, so if looking after debtors is too hard for your Company – maybe not having the staff or the time – then you should seriously look at outsourcing it.

At the 2001 Outsourcing World Summit, the top three reasons for outsourcing work were:

  1.  To allow businesses to concentrate on their core business – 36%
  2.  To reduce costs – 36%
  3.  To improve the quality of the work outsourced – 13%

Why You Should Outsource

Outsourcing is ideal for tightly run, short staffed businesses and can be cheaper than managing debtors in-house. Good outsourcers act like staff, yet without being on the payroll. Apart from paying you sooner, your debtors would not even know an outsource specialist is involved because everything can be done in your name.  At Accounts Receivable Solutions we announce ourselves as the Credit Controller for [Your Company] and have an electronic signature for Your Company which are used on emails.

And importantly at Accounts Receivable Solutions we don’t have debtor payments coming to us.  It all goes directly to you.

If you are a small businesses or professional firm, debtor management outsourcing can put you at the top of payment queues, which means getting paid before others, rather than getting paid late – often after all the rest. But getting paid promptly is today essential and is likely to remain so for a long time, so businesses are looking closely at outsourcing their credit control.

There are of course alternatives for businesses that are short-staffed, such as asking spouses or friends to do credit control. But this is not a good idea as they will be far less experienced and effective as a full-time Receivables specialist.  Plus the fact that many find the task of asking for money stressful.  So should inexperienced staff who probably dislike doing it be forced to do so?

Being so ‘raw’ at the job means they will take longer to perform the task on a regular basis and their time is probably costlier to you than the actual charge-out rate to an outsource company.  By using their time to grow your business instead of asking for customers for money they are ridding themselves of a non-earning task.

Whatever course of action you decide upon you should never go easy on asking customers to pay. Looking after debtors is of vital importance because doing so can go as long way to saving a business from going broke.

Credit Risks

Posted Leave a commentPosted in Credit
Credit Risks Covered

Most businesses need to sell at least some goods or services on credit. The risk of a bad debt begins immediately your goods are delivered or your professional services are provided to your customer. Good credit control and sound debtor management are vital to reduce bad debt risk. The risk of loss increases rapidly with time…

Bad debtors are rarely classed as criminals but they have the same effect. For every $5,000 lost through bad debts, most businesses have to increase their sales by $30,000 to $50,000 just to recover that loss.Lack of effective credit control substantially increases the risk of not being paid and costs you money every day that accounts are allowed to continue unpaid.

The Risk of Bad Debt

At 60 days (about the Australian payment time). Risk = 15%
At 90 days risk of losing your money is around 25%
After 180 days the chance of you never getting paid exceeds 50%
After that, the prospects of seeing your money are slim and get worse with every passing week.

Do you have specific and effective credit management processes?

  • Do you issue invoices and statements on time?
  • Is someone in your business responsible for following up overdue accounts?
  • Are the right people talking to your customers about unpaid accounts?

If you answer “No” to any of these questions then you need to consider outsourcing your accounts receivable

What about Factoring?

The selling of your debtor ledger to a financial organisation will certainly get you paid but at a much lesser rate than the face value of the invoices outstanding. You may have to sign over all future invoices too so that you may not receive the full worth for your products or services.

Before you even consider factoring your debts you should be looking at a sound credit management system such as offered by Accounts Receivable Solutions. After all you’ve performed your service or sold the product at a given price, surely you deserve to receive the full amount rightfully owing to you.