Receivable/Accounts - Information for Credit and Collection Issues

Tuesday, September 29, 2020

Level Up With Credit Management

Work smarter. Not harder.

It’s a familiar truism that certainly applies to credit management. After all – if you could have 30 calls made in a day or 100 calls, which would you choose? It’s a bit of a no-brainer, right?

Outsourcing credit management tasks can free up time and energy and allow you to focus on your core solutions, instead of playing bill collector. (I’m fairly certain there isn’t a single business owner, executive or office manager out there who has extra time they want to spend on credit cycle tasks. Correct me if I’m wrong!)

Here’s a look at what you can gain through outsourcing credit management, or elements of the credit cycle:

Costs savings

Let me be honest - the internal costs associated with credit management can seem hidden, but do add up. Think labor, software, training, compliance, etc. The fringed cost alone per call of an in-house accounting manager working 40-hours per week making, at best, 30 calls per day is theoretically in the range of $9.61 in staff time for a single call. Sending an account notice or collection letter can cost $2.00-3.00 in postage and time, Typing an account notice or collection email can cost $2.50 in time. Analyzing an A/R aging sheet or recovery patterns might cost $30.00 in time.

That’s a pretty significant cost. It’s usually buried in with your credit manager’s other tasks such as credit adjudication, interacting with your sales department, other accounting functions, and so on, so it’s not as if you keep a hard track of the cost of recoveries.

Now consider this. A collection agent with focused attention on calls and contact management tools at their disposal is positioned to make roughly 3-3.5x more calls than the in-house accounting manager each day. If you assume that that collection agent makes 100 calls in a day, the numbers work out to be approximately $2.30 for a single call. A letter might cost $1.20 in postage and time, and account notice or collection email might cost $0.05 in time. These incremental costs are driven down by economy of scale, specialized staff, and dedication collection tools like software, phone systems, mailing departments, and such.

The takeaway? Outsourcing allows you to remove the ongoing expenses mentioned above and save money over the course of the relationship.

Improved productivity and ROI

Unlike when you take on the burden of collections in-house, when you outsource credit management, there’s no learning curve to worry about. This isn't uncharted territory for the credit management service company. They are already familiar with the processes and policies needed to get the job done – after all, it is their core area of competency. In fact, they can often take lessons learned from other clientele in the same industry and find ways to improve the management of accounts in your portfolio, at no additional cost.

Credit management service companies have the benefit of a wider view and can compare best practices representing similar industry clients or specialize credit staff with experience in that industry for maximum effect.

Now, what’s the difference between a credit management company and a collection agency? A credit management company will assist with upstream credit cycle processes, through feedback and retrospective on collections or credit reporting, or will provide A/R services outside of collecting on doubtful accounts.

It’s All About the Relationship

Ask any savvy customer relations manager and they’ll tell you that relationships are at the heart of retaining current and acquiring new customers. Asking clients for past-due payment can sometimes cause tension for a company, and impact current and future relationships. Because the creditor has acted in a customer service role, switching to an authoritarian role with consequences can be hard on both sides of the telephone.

In contrast, when you look to an outsourced credit management partner for help, they can act as a neutral buffer. Not only can they see receivables patterns and analyze data, they also have the advantage of an arm’s length relationship to the consumer – it’s easier to establish authority and consequences when the client-customer connection is removed … you don’t have to be the bad guy or authoritarian figure. And ideally, if it’s handled properly, the customer can be returned to good standing and redirected back to the creditor to rejoin their customer base.

I’m always happy to answer your questions about what it really means to have a credit management partner, or share examples of what has worked and what hasn’t in our experience. Please contact me anytime.

KINGSTON Data & Credit
Cambridge, Ontario
888-908-3151 ext 3003