Many companies are interested in concentrating on core competencies and looking for ways to outsource so-called “non-core functions” including certain credit and collection functions. The simple truth is that any function or department or position is a candidate for outsourcing if the third-party service provider can convince the company that:
1. The work can be outsourced safely,
2. The outsourced work will be done promptly, and done well,
3. The service provider has adequate resources and sufficient experience to perform the work,
4. The cost to outsource the work is ‘reasonable’ compared to the cost to the company of continuing to do the work internally.
Third-party service providers are getting better at addressing each of these four concerns. Some service providers do an exceptionally good job of marketing these services to companies.
In my opinion, the key questions is this: What role should the credit manager play in any discussion about outsourcing certain functions in credit and collection such as cash application, deduction management, or day-to-day debt collection activities.
I think the credit manager needs to be an active participant in evaluating the outsourcing option. Creditor companies who outsource cash application or even debt collection tend to want to perform these processes in house:
• Establishing credit limits,
• Evaluating new accounts,
• Performing pending order review and approval
• Contributing to analysis and reporting in the following areas: cash flow, working capital, risk assessment and customer portfolio optimization (risk/reward analysis) including software solutions.
What is clear to me is that the company will be better off if the credit manager is a willing participant in the decision-making process as it relates to outsourcing some or even all of the credit and collection related activities.
By the way, this is one of the topics that will be covered at the upcoming CreditScape Fall Summit in Las Vegas, Sept. 17-18. For more information on that, visit www.creditscapeconference.com
Does your company outsource its credit and collection functions? What criteria did you use to make that decision? As always, I welcome your feedback.
Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com He can be contacted at 949-584-9685.