THE BENEFITS OF OUTSOURCING COMMERCIAL ACCOUNTS RECEIVABLE TO PCM
Credit collection through accounts receivable outsourcing can be a valuable tool for companies looking to focus on the business of their business.
For many of our clients, the accounts receivable outsourcing services we offer is often one of the most effective ways to maintain margins while ensuring efficient sales and operational support. Depending on the creditor’s industry, a whole spectrum of other credit collection factors needs to be considered when making a decision about credit and collections outsourcing.
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WHY YOU SHOULD CONSIDER PCM ACCOUNTS RECEIVABLE OUTSOURCING SERVICES
Since 2005, PCM Corp has provided companies across many industries with an effective alternative to creating and managing a full-scale collection function. Based on an assessment of your specific needs we will develop a credit collection plan that will:
- Increase recovery rate/decrease days sales outstanding
- Reduce overall collection costs
- Save your business HR related expense of hiring and training
- Provide specialists who will apply best practices
- Provide staff that’s dedicating 100% of their time to your business
- Eliminate the drudgery of administrative tasks, skip trace, and asset-recovery
- Ensure that you are not the “bad guys” who have to remind clients they owe you money
- Free up time for you to focus on strategies that drive your business
- Represent you in negotiations, as needed
Outsourcing in general is growing in popularity. According to Clutch.co 37% of small businesses and 66% of large businesses currently outsource some of their business functions (2019)
WE DON’T WANT TO LOSE CONTROL OF OUR CUSTOMER
As the “face” to the company’s customers, an effective collection process has the potential to heighten customer service, which maintains customer loyalty and increasing sales. The work is conducted using your company name. All service related issues are uncovered quickly and your sales staff can be engaged faster to fix problems.
RECEIVABLE OUTSOURCING IMPROVES PERFORMANCE
Outsourcing the A/R function solves three major productivity issues:
1) Gain leverage through access to specialized collection management software. With collections as its core competency, an A/R outsourcing firm can afford to implement and maintain industry leading software designed especially for A/R collections. The company that hires an A/R outsourcing firm gains access to these systems and processes without the capital expense, not to mention the added cost of maintenance, training, and upgrades. The Credit manager has increased control through access to better systems and centralized access to company-wide data.
2) Consistent, effective collection processes. A/R outsource providers have access to automated work flows, customized letter campaigns, scheduling options, and recording capabilities. An outsourced A/P process provides the creditor with a standardized, consistent and disciplined process to the collection process. The benefits of standardized treatment of accounts receivable is improved quality, increased customer satisfaction, faster collections, and increased rate of cash flow.
3) Cost Effective & Flexible Staffing. Another benefit of outsourcing accounts receivable collections is that of scalable staffing. All costs associated with human resources; including advertising, training, wages, benefits, and ongoing professional development and career planning becomes the responsibility of the provider. A creditor can “add” or “delete” staff as required. CFO’s appreciate being able to switch staffing from a fixed cost to a variable cost.
A major point of difference between an outsourcing provider and a temporary staffing agency is that relying on temporary staff when managing an A/R portfolio is largely ineffective. Temp firms are great at placing headcount but simply cannot provide the expertise and ongoing management that is required for temp staff to have an immediate positive impact in your business. Also, internal processes and culture may be disrupted using temporary staff as they do not have the time nor inclination to integrate seamlessly like an outsource vendor.
ACCOUNTS RECEIVABLE OUTSOURCING CASE STUDY
Industrial Equipment Parts Supplier
– Poor ERP (Enterprise Resource Planning) System Implementation
Situation – A large supplier of industrial equipment parts and services switched their ERP system. Unfortunately, errors occurred in the pricing data of all components as well as the individual customer discount plans, resulting in significant billing issues and an almost complete stop in payment of their receivables. DSO (Days Sales Outstanding) climbed to 82 days very rapidly resulting in the supplier’s bank getting involved, concerned about the firm’s ability to service its debt and trade payables.
The firm hired over eighty temporary accounting staff to begin reconciliation and error corrections. More staff were required however, their building was at capacity and couldn’t accommodate more people. The company’s Credit Manager reached out to PCM Corp looking for a team of six staff that could be located offsite and managed by PCM for a period of up to eight months.
Solution – PCM immediately hired a mixture of five junior and intermediate credit and collection staff, as well as one team leader for a total of six. The outsourced receivables were located at PCM’s site. The client provided secure laptops to connect to their servers while PCM provided space, phones, and hands-on human resource management. The accounts receivable outsourcing team was only to manage the clients “Bronze” customers with balances of $5000 or less. PCM established specific KPI’s (Key Performance Indicators) for the team members and thoroughly reviewed the client’s customer service metrics and policy.
Outcome – The team quickly distinguished itself as competent, demonstrating their ability to reconcile accounts, effectively communicate with end customers and internal sales staff. The “Bronze” customer list was fully resolved within 45 days, well short of the allocated eight months. The client recognized the effectiveness of the accounts receivable process and PCM team’s ability to get cash flowing while attending to customer service inquiries. The client gave the team their “Silver” customers to work on next. In the end, the PCM team also worked on the clients “Platinum” level clients and managed to wrap up the accounts receivable outsourcing project two months early. The client’s Days Sales Outstanding went from 82 days down to 47. At the end of the project, the client offered five of the six PCM Corp team members a full-time job working directly for the company.
WHEN TO BRING IN AN ACCOUNTS RECEIVABLE OUTSOURCING FIRM
Every credit collection challenge is unique. However, it is our experience that the companies who would benefit from accounts receivable outsourcing services share a number of the same characteristics:
- Productivity is lagging, resulting in out of control account receivables
- There’s not enough staff to manage the credit collection process
- High collection staff turnover, poor morale, and too many mistakes being made
- These mistakes significantly impact client service, acquisition, and retention
- There is an operational need to reduce operating expenses
- Days sales outstanding hurts cash flow and strategic investments
- There is an ineffective, underqualified internal credit collection team
PCM ACCOUNTS RECEIVABLE OUTSOURCING PROCESS REVIEW
Once PCM Corp is engaged, we will schedule a free consultation to audit and assess the following:
- Credit approval systems, policies and terms
- Invoicing and account reconciliation processes
- Reminder procedures for slow-payers, bad debt follow up, and credit hold policies
- Internal talent gaps
- Documentation policies
- Fraud management protocols
- Ability to transmit and receive data and the ability to access information
- Ability to work in an accounts receivable outsourcing environment
From this meeting we will present our findings, recommendations, and all cost considerations.