Outsourcing Your Order to Cash Functions, by Robert Shultz

This is part 1 of a 2-part series on this topic. Read part 2 here.
Part 1: Seven Advantages to Consider

Overview: Many companies consider outsourcing all or part of the order-to-cash process as a cost-effective alternative to retaining internal staff and infrastructure improvements. This is not a decision to be taken lightly. It requires a thorough evaluation of choices.

I like to look at the entire process from beginning to the end. Start with the development of a price and terms quote. Understand how the decision will impact all the steps leading to good funds sitting in your company’s bank account. All the steps in between are interconnected. In short you have to consider the quote to cash process in total. Ensure all the stakeholders are working in concert to provide your company with efficient support and your customers excellent service.

Any decision to outsource should consider the impact on all elements of the quote-to-cash process. The project leader must take in to account how the decision affects the other stakeholders involved. Senior management, sales, customer service, operations, project management, etc. all either feed into the affected processes or are impacted by the performance results. To ensure success, involve these other stakeholders from the beginning. Their perspective and involvement is critical. Remember, customer service considerations should take a priority seat.

There are numerous factors you need to consider when deciding if outsourcing or improvement of internal operations through automation is best for your company. You will notice many of the decision factors go beyond just the potential money savings.

When done for the right reasons and in the right way, outsourcing can, in fact, help your company grow and save money. Just make sure the decision is deliberate and well thought out.

Advantages:

1. Focus On Core Activities
In periods of rapid growth or, as with many companies in recent years, a reduction in business activity, back-office operations must expand or contract as the business changes. If the back office does not keep pace with the business activity, it can consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing functions like order entry, credit control, collections, dispute management and cash administration can provide opportunity. Remaining internal resources can be refocused onto priority business activities without sacrificing quality or service in the back office.

2. Cost And Efficiency Savings
Back-office functions may be complex and require a level of sophistication in both human and system resources. As your company grows and internal operations expand, management may be faced with a choice: make sizable investments to keep up with the growth, or find a third party capable of taking the hand off. Without the needed improvements, the company may not be able to perform at an acceptable level of accuracy or speed at a consistent and reasonable cost.

3. Potential to Reduce Overhead
Overhead costs can easily run higher than expected. If functions can be moved to an alternative location or partnered with an automation provider, there will be a significant cost savings realized on total overhead.

4. Operational Control
Operations that have costs are running out of control are prime candidates for outsourcing. There is often a lack of compliance control, fuzzy objectives and performance tracking in accounts receivable departments at many organizations, and these are situations where an outsource provider may bring more up-to-date and effective skills than are currently available within the struggling company’s staffing budget.

5. Staffing Flexibility
Outsourcing will allow operations that have seasonal, cyclical or special project demands to bring in additional resources when needed. Excess staff can be released when the need diminishes.

6. Continuity & Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to any operation. Outsourcing Q2C functions may provide the continuity needed to reduce the risk of substandard performance.

7. Dedication of Internal Staff to “High Priority” Core Functions
Critical strategic customers need to be adequately supported. Outsourcing low priority functions and, at the same time, lowering cost will enable highly skilled internal staffers to focus on critical priorities and major accounts.

In Part 2 of this series (which will be posted tomorrow), we will examine preparing for an outsource engagement and the challenges outsourcing Q2C can present. You will learn which factors to consider in weighing an internal vs. an outsourced Q2C solution.

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

Should Your Company Outsource its Credit and Collection Functions?, by Michael C. Dennis

Michael C. Dennis

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.