Receivable/Accounts - Information for Credit and Collection Issues

Friday, January 19, 2018

The Cost Of Doing Business Today

So, the Ontario minimum wage hike came and went, and now there is wailing and gnashing of teeth as companies try to adjust to their new reality.  Some are coping well, others aren’t and getting news coverage.  What I don’t get is how companies can harm their employees, which are I would assume a critical component of their business.  It would be the same as throwing a bucket of water at their computer servers, or supergluing their filing cabinets shut – it will harm the flow of service, which will harm the flow of revenue.

So HERE is a news article about a Tim Horton’s franchisee making the employees pay for their own benefits and removing paid breaks.  By my accounting, that will save them about $50 a month per employee for benefits, and $150 a month per employee for paid breaks.  But how does this affect morale, staff turnover and overall revenue?

Things Aren’t Like They Were In The Good Old Days?

Looking at the collection agency industry, the primary overhead are the employees – it wasn’t always that way, but long distance costs have all but disappeared, payment processing can often be automated or self-managed by the consumer, and new technologies are becoming cheaper and cheaper. 

In 1990, a collector in Ontario might have had a starting salary of $1000-$1200 – about half of the cost today.  That being said, a desktop computer was $2000, yellow pages advertising was a necessary cost, a phone system PBX was $12,000, long distance was $14,000 a month, and the banks might have charged $0.25 per cheque to deposit (and in those days, the mail was the primary method of payment).  So have things increased in cost?  Sure, but other things have dropped immensely.  The business owner shouldn’t panic when costs go up, but come up with a way to adapt.  Certainly, when desktop computers dropped from $2000 to $200, businesses adapted – they reaped greater profits, or reinvested the saved capital in other technologies.  Adaptation needs to work both ways.

The Cost Of Staff

In a collection agency, 80% or more of overhead is manpower – hopefully skilled manpower, that can directly generate revenue for the company.  An increase in manpower costs is not a bad thing, as we should all be paying our team members as much as humanly possible – to make them want to engage with their workplace, make them want to stay, and incentivize them to make the company better.

If you had a staff member paid $2200 and they generated $5000, that’s a return of 227% of salary (which is probably close to breaking even with other overheads associated with the staff member).  If you had another staff member paid $3000 and they generated $12,000, that’s a return of 400% of salary, which mean’s you probably are giving another $1,000 in commissions or bonuses to that staff member, which still returns 300% of salary, which is infinitely more beneficial to the company, the employee, and the client who you represent.  So a higher cost is certainly better.

If you are a service based company, it behooves you to pay your staff as much as you possibly can, while still maintaining a reasonable profit margin.  The service provided is from your employees, not computers or a warehouse of widgets.

The Right Way To Adapt

Looking at the Tim Horton’s example, there are all sorts of ways they could have improved the situation and how they dealt with it – assuming there’s a high turnover of staff, they could have said new staff members will have to pay for their benefits, or changed the benefit implementation from 3 months employment to 6, and not touched the existing staff members.  Instead of cutting paid breaks (which appears and in fact is incredibly miserly) they could have looked an improving the efficiency of the staff, or eliminated shift supervisor positions over time by giving staff members a chance to improve their skills and self-manage their tasks.  They could look at taking a page out of the local sushi restaurants and install self-serve tablets at tables and the service counter to let people place their own orders and reduce the demand on service personnel.

Even if none of these options were valid, they could have sat down with their team, explained the challenges of the increased cost, and asked for staff suggestions, and if they were going to implement a change, do it with as much advance notice as possible, not making a snap decision while they were vacationing at their Florida home.

Looking To The Future

Every company, and collection agencies in particular, need to adapt to increased costs – when gas goes up, shipping goes up, when postage goes up (like another $0.02 as of January 15), mailings go up.  But that being said, the Ontario Ministry of Consumer services just announced that licensing no longer requires a surety bond for agencies, which is probably a saving of $300-500 a year, and no longer requires licensing individual staff, which is a savings of $100 a year per employee. 

In the last month, I’ve shared with competitors an open source phone system that costs $0, and an online payment card system that has increased our revenue by 10%. It’s not all doom and gloom, it’s just rolling with the punches and being critical of what you spend money on, and what the return on investment is.

We live in interesting times – I think there is enough business out there for everyone, and we are in this together.  If you are a competitor, a colleague, a client, or a credit industry professional and you want to chat about rewarding staff, controlling costs, or riding the waves of business in the 21st century, by all means give me a call or drop me an email.


Blair DeMarco-Wettlaufer
KINGSTON Data & Credit

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