A look at the common pitfalls when outsourcing accounts receivables and how businesses can avoid them.

Whilst the gains can be significant, the actual process of transitioning your accounts receivables to an outsourced provider is no small undertaking. Any business restructuring project takes time and resource, and it is not uncommon whilst on the transformation journey to feel that more issues have been created than the project will potentially resolve.  Even the best laid plans will always have some gaps or last-minute changes, but it is surprising how many businesses make the same simple mistakes. In this article we outline 4 common pitfalls when outsourcing accounts receivables – and how you can avoid them.

1. Failing to establish process for measuring success.

Businesses make the decision to move their accounts receivables process to an outsourced partner for many reasons; as part an overall business restructuring and transformation plan, to optimising efficiency as well as the ever-popular driver of reducing costs. However, whilst these goals and objectives are usually clearly outlined during the planning stages, it is not uncommon for business to fail to establish the process by which they will measure to what extent they have been achieved. 

image showing key metrics when outsourcing cash collection

It is critical to agree your KPI’s at the planning stage and to ensure you have measured them across your accounts receivable function prior to making the transition to the outsourced partner. Commonly used metrics include one or a combination of those outlined below:

  • Cost to serve.
  • DSO
  • Collector Effective Index (CEI)
  • Right Party Contacts (RPC) rate
  • Percentage of Outbound Calls Resulting in Promise to Pay (PTP)
  • Bad debt expense / percentage of sales
  • Percentage of revenue /  total value of in ageing buckets 

Without securing a baseline understanding of these metrics prior to making the outsourcing move it will be impossible to demonstrate any wins achieved. This will also be critical to identifying any inconsistencies in the service delivery for individual businesses units and identify and action the necessary process adjustments to ensure a consistent service delivery for everyone.

2. Moving over inefficient processes

When looking to rebuild a process elsewhere, it is important for the business to identify all the individual pieces which make up the process and map how they fit together prior to making the move.  Most business processes have grown organically, and this can often lead to knowledge being in employee’s heads rather than in documentation. 

The process of documentation provides a key opportunity to review the success of existing processes and identify any areas for improvement. If you simply replicate processes which are inefficient within your new outsourced accounts receivable provider you will not see the results you desire. It is crucial that at the planning stage that every piece of the process puzzle is reviewed and you:

  1. Identify and remove any unnecessary or obsolete actions.
  2. Utilise automation to streamline workflows and ensure accuracy and consistency.
  3. Explore any opportunities for process adaptions to improve efficiency.

Working in partnership with your outsourced commercial debt recovery provider will be key here, accessing their will have knowledge and insight gained from working across multiple clients, to ensure your new processes have the optimum chance of success.

3. Over focus on cost reduction.

With reducing costs a key priority for many businesses, it is not surprising that this can be a key driver for the decision to consolidate financial processes with a outsourced accounts receivable provider or shared service centre. No business wants to pay unnecessarily high costs to service secondary functions and the cost efficiencies of outsourcing and also shared service centres are well evidenced. 

However, whilst cost reduction will always be a key win from consolidation, if it is the only metric used to measure success, the business will put the effectiveness of its accounts receivable function and ultimately the long-term health of the business at risk. It is critical that optimising the overall efficiency and effectiveness of your accounts receivables processes are equally prioritised. 

4. Settling for less than optimum efficiency.

If your historic accounts receivable process were fragmented, highly manual with significant variances in the service levels achieved within individual markets, it is very easy to experience quick, demonstrable wins within your outsourcing project. This can lead to opportunities for further process Improvements going unexplored. 

It is at this point that those all-important metrics for measuring success come into play and the role of benchmarking versus competitors and industry standards becomes more meaningful as you look to explore the possible.  If you have concerns whether your team / processes are delivering optimal results, using another third-party receivables management supplier to provide a champion challenger can be an effective strategy. With two teams working alongside each other process and performance issues can be swiftly identified and resolved.

Download Now: A Guide to Cash Collection Shared Service Implementation

To help businesses avoid common pitfalls, we have developed a guide to successfully moving your accounts receivable function to an in an in-house or outsourced shared service facility.

What you’ll learn in this guide:

  • Key benefits of cash collection centralisation
  • Key considerations
  • Common pitfalls
  • Case Study: Global Pharmaceutical

Whether you manage your accounts receivables from a shared service centre or are an independent team, 4D Contact have extensive experience providing outsourced commercial credit-control and debt recovery solutions to help businesses meet their cash targets. Contact us now at: sales@4dcontact.com or on 020 37691487.

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With results-driven customer contact being their primary, not secondary, function, 4D Contact produced an increase in performance of 81% during the pilot project, as well as improving interaction with our valued customers.

Due to this success we have engaged with 4D Contact on a permanent basis and extended the remit to include Ireland as well as the UK.

Richard Clow

Head of Consulting, Schindler UK

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