Are You Considering Outsourcing for the Wrong Reasons?

Expand the Effectiveness of Deduction and Collection Efforts Beyond Your Department's Resource Restrictions

Executives in credit and customer financial services constantly face challenges to improve productivity, to drive down accounts receivable balances and to increase their companies' bottom lines. Technology has been key to successes in these areas, ingenuity has always been a necessity, and outsourcing continues to be a valuable tool in achieving these noble goals. The values of technology and insightful ingenuity are unquestioned, and outsourcing is often under review, both in terms of its dollar contribution to a company's success, and as a staffing alternative. Our experience in dealing with a wide range of companies and different corporate cultures suggests that the way one views outsourcing can determine whether it is an acceptable alternative, or if it is rejected as inappropriate. Our thesis is, outsource for the wrong reasons and you will have no impact or a negative impact on your challenges and goals. Outsource for the right reasons, and you will reap significant benefits.

One can approach assignments to outsourcing companies on a short-term basis using the service to clear a backlog. While this can be effective, one must realize that short-term issues tend to recur if root causes are not addressed. Managers generally focus on long-term gains because of on-going outsourcing of a portion of their deduction and collection processes. We most often see long-term outsourcing opportunities, benefiting manufacturers as an integrated part of their accounts receivable departments over an extended period.

Wrong reasons for outsourcing

Whether on a short-term basis or long-term basis, if one considers outsourcing for the wrong reasons, it is not an effective tool, and both the manufacturer and the outsource service will fail in their efforts. Clear identification of wrong reasons and avoiding them is as important as knowing the right approach to the outsourcing decision making process. Some of the "wrong reasons" are as follows:

* Eliminate headcount All that this accomplishes is the fact that the same portion of a portfolio is addressed. There is a chance an outsource service is better at facing some of the challenges that an in-house staff faces, and maybe there will be a positive bottom line effect, since the outsource service is focused only on its assignment. However, unless outsourcing is combined with productivity increases through improved technology when headcount is reduced, benefits may be offset by additional overall cost. If outsourcing is viewed as a supplement, not an overall replacement, it will be most effective.

* Direct expense saving: If one looks only at the dollars paid for the service, and not the benefit to the bottom line, outsourcing is a mistake. If one compares the additional productivity and improved results in performance by an in-house staff, as well as the fact that portions of a portfolio not previously addressed are now adding to cash flow through outsourced services, benefits are easily identified, against the costs for that supplemental and beneficial service.