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OUTSOURCING CREDIT AND COLLECTIONS FUNCTIONS BENEFITS CREDITORS, AGENCIES AND ATTORNEYS
It's been the mantra of business schools for decades: if the task isn't part of your core business, get somebody else to do it for you. Its a tool known as outsourcing, which is defined by the Outsourcing Institute as "the strategic use of outside resources to perform activities traditionally handled by internal staff and resources." Savvy companies of all sizes are outsourcing a myriad of non-core business activities, including credit and collections functions.
The multiple priorities that come under "credit and collections" include customer credit analysis, order approval, handling deductions, sharing credit references, monitoring accounts, processing payments, making appropriate reports to sales and senior management and more. In the corporate hierarchy, its work that is necessary and critical, but it isn't particularly sexy and it doesn't receive an abundance of internal support. Consequently, CFOs and credit managers are turning to outsourcing as a solution to improve performance and reduce costs.
It could be said that third-party debt collection was one of the first business functions to be outsourced, although that activity doesn't typically fall under outsourcing in today's accepted terminology. In the credit and collections arena, the most common outsourced activities are accounts receivable management functions such as billing, payment monitoring and early stage customer contacts. This work, known as "first party" collections with the outsourcer operating under the creditors name, is really more of a service function than true collection work. Some companies also outsource portions of the credit-granting process, primarily using an outside firm to conduct the research needed to make credit decisions.
On the credit granting side, a key component of the outsourcing evolution is the ongoing refinement of credit scoring models. "You don't need someone to act as credit managers acted 20 years ago when they would look at volumes of information about a particular company in their effort to set and manage a credit line," says industry consultant Frank Uhlman. "A lot of that [analysis] is now being done through commercial credit scoring. It's not an exact science, but it has helped [expedite the process and produce better decisions]."
The numbers and what's behind them
In outsourcing, revenues are based on fixed fees for work performed rather...