“Credit is the lifeblood of business”. These are words spoken by former U.S. president Herbert Hoover, and nearly a hundred years later, are even more true than when they were first spoken. Businesses of all sizes from all different parts of the world utilize credit everyday to increase sales, accounting for billions of dollars in increased revenue every single day. These credit sales are an essential part of the global economy, but can come with a very unfortunate side effect for individual businesses – the cost of collecting unpaid accounts.
It’s a sad reality that some accounts receivables are not paid timely, and how a company handles those overdue receivables is an essential part of ensuring that sales made on credit provide a net-positive to a company’s overall financial viability. Some companies choose to handle these overdue receivables by building their own team of credit risk professionals, who carefully screen potential clients, and collect debt themselves when accounts are due. While large businesses may find this economically viable, this is not a realistic option for most small to medium sized businesses.
For companies that aren’t interested in investing heavily in building a professional in-house team of collectors, but also want to take advantage of credit sales, the best option is to outsource collection to a professional collection agency. A professional debt collection agency is a company that focuses primarily on the collection of overdue receivables. Through mastery of debt collection law, the utilization of various communication enhancing technologies, and expert communication skills, these agencies are able to effectively turn overdue receivables in to cash, and when it comes to finding the best agency, there’s no better choice than TCM Group, which is a globe-spanning alliance of debt collection professionals, who specialize in helping creditors collect unpaid invoices. In fact, even large businesses can benefit greatly by outsourcing debt collection services to professional agencies. The following are five major benefits all businesses can get from outsourcing their collections:
Major Benefits of Outsourcing Debt Collection Services
Lower In-House Labour Costs
The very fundamental rule of business is that profit equals revenue less cost. When costs rise, profits fall, and as any business owner will confirm, labor costs make up a huge portion of a company’s total expenses. When a company sells on credit, and ends up with bad debt, collecting the debt in-house requires a company to either hire full time collections staff, which is extremely costly (and their salary needs to be paid every month despite the presence or lack of bad debt on a company’s balance sheet), or delegate it to current staff, and since any given company’s current staff is highly likely to lack adequate professional knowledge of debt collection, this will most certainly result in the unsuccessful collection of overdue accounts, and large opportunity cost for the employee tasked with collection. However, by outsourcing your collections to a professional third party agency, you won’t need to invest in building an in-house team of collectors. Professional debt collection agencies, such as TCM’s global alliance of collection professionals, work on a “no-win, no-fee” business model, there’s no costs incurred whatsoever unless collections are needed, and done successfully.
Improved Cash Flow
While the first benefit discussed in this article focused on cost, the next one focuses on the other part of the profit equation – revenue. It is often said that cash flow is the lifeblood of business, and when a company is short on cash, it can cripple or even kill an otherwise healthy business. The good thing is that outsourcing debt collection needs to a professional agency can greatly improve a company’s cash flow.
While widely considered to be valuable assets and is an essential part of increasing a company’s revenue account, new accounts receivables do not directly contribute to cash flow, and unfortunately may never contribute to cash flow if collections are not handled properly. When accounts are outsourced to professionals, the total Days Sales Outstanding (DSO) will decrease, and cash flow will increase, giving any company a much needed boost to cash flow, by both decreasing Days Sales Outstanding and lowering bad debt. This decrease in DSO and increase in cash flow is able to happen thanks to a host of tools that professional outsource debt collection agencies have at their disposal.
For starters, professional collection agencies have invested in advanced technology that is dedicated to maximizing collection. Most companies don’t have the robust software and processes needed to maximize return on accounts receivables, but since this is the lifeblood of a collection agency, they must heavily invest in technology that enhances the total efficiency of debt collection. These types of tools often come with a very high upfront cost in terms of software licensing and training of staff, which make them not economically viable for individual companies, but extremely useful for professional collection agencies.
Legal Compliance
Keeping a company in compliance with the law is an essential task that is ever-growing in its complexity. When a company happens to also have international accounts on its books, the complexity increases exponentially.
In many countries there are strict laws that govern how a company may pursue a debtor for an unpaid account. For example, in the United States, the Fair Debt Collection Practices Act (FDCPA) provide a long list of do’s and don’ts to follow when collecting unpaid accounts. If a company inadvertently breaks the law while trying to collect their unpaid accounts receivables, they could potentially find themselves on the losing end of a lawsuit, thus exacerbating their total loss. The FDCPA is just one example of countless laws around the world that govern how creditors, collectors, and debtors communicate. Additionally, new relevant legislation is penned every year, meaning that a company’s collection practices must be continuously updated with respect to the latest regulations.
Compliance with these laws is extremely expensive, but can fortunately be heavily mitigated by outsourcing collection services to professionals. When outsourcing accounts to professional third party collection agencies, company’s can rest easy knowing that their accounts are in the hands of seasoned professionals who know all of the intricacies of the law.
Focus on Core Competencies
In general economic theory, any company will be most profitable when they focus on what they do best, while outsourcing the areas where they are not as efficient. This is because in competitive markets the market price for goods and services will generally be close to the cost of production of these services. Therefore, companies that are more efficient at the production of a certain thing, will be able to provide these things at a lower cost than what it would cost to produce in-house.
Taking advantage of these lower costs will lower the amount spent doing things the company is not good at, while simultaneously ensuring the company has more time to devote to doing what it does best. Outsourcing the debt collection to professional agencies is no exception to this rule. Debt collection agencies have fine-tuned the collection of accounts receivables into a science, and are vastly most cost-efficient at collecting unpaid debts when compared to an in-house team of collectors.
Preserving Customer Relationships
Lastly, and perhaps most importantly, a major benefit of outsourcing debt collection to a professional agency is the preservation of customer relationships. By outsourcing debt collection to a professional agency, a company can maintain positive customer relationships even in challenging situations. It’s well known that keeping a customer is more cost-effective than finding a new one, making it imperative to handle late payments with care. Professional debt collection agencies understand the delicate balance between assertive collection efforts and maintaining customer goodwill. Unlike people not familiar with dealing with overdue accounts receivables, professional collectors know exactly when to listen, and exactly when to speak.
They know exactly when to be understanding, and when to be assertive. They know the actions to take to maximize collection while simultaneously protecting client-customer relationships. They employ effective communication strategies, respectful engagement, and a customer-centric approach throughout the debt collection process. By preserving customer relationships, businesses can increase the chances of resolving the debt amicably, encouraging future business and minimizing the risk of negative word-of-mouth. Overall, this proactive approach not only helps safeguard the existing customer base but also contributes to the overall reputation and long-term success of the business.
Final Thoughts
Overall, these 5 major benefits can help almost every business that is utilizing credit to increase sales, and for these reasons, it is almost always a good idea for a business to outsource debt collection to professionals, while the business itself focuses on doing what it does best. For any business not yet taking advantage of these major benefits that come with outsourcing debt collection to professionals, it’s a good idea to start looking for a professional collection agency, and TCM’s global alliance of debt collection experts is the best place to look.
